[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
                 ANNUAL REPORT OF THE INTERNAL REVENUE
                       SERVICE TAXPAYER ADVOCATE

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT

                                 OF THE

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 3, 1998

                               __________

                           Serial No. 105-93

                               __________

         Printed for the use of the Committee on Ways and Means




                     U.S. GOVERNMENT PRINTING OFFICE
60-980                       WASHINGTON : 1999



                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
                     A.L. Singleton, Chief of Staff
                  Janice Mays, Minority Chief Counsel
                                 ------                                

                       Subcommittee on Oversight

                NANCY L. JOHNSON, Connecticut, Chairman
ROB PORTMAN, Ohio                    WILLIAM J. COYNE, Pennsylvania
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
PHILIP S. ENGLISH, Pennsylvania      JOHN S. TANNER, Tennessee
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
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                            C O N T E N T S

                              ----------                              
                                                                   Page
Advisory of January 27, 1998, announcing the hearing.............     2
Internal Revenue Service:
    Hon. Charles O. Rossotti, Commissioner.......................     6
    Lee Monks, Taxpayer Advocate.................................    42
Internal Revenue Service, Pittsburgh, PA, Louis Romito, 
  Pennsylvania District Taxpayer Advocate........................    50
Internal Revenue Service, Hartford, CT, Fran Romano, Connecticut-
  Rhode Island District Taxpayer Advocate........................    54
Internal Revenue Service, Cincinnati, OH, Janey M. Tabor, Ohio 
  District Taxpayer Advocate.....................................    60
Internal Revenue Service, Seattle, WA, Sandra Ling, Pacific-
  Northwest District Taxpayer Advocate...........................    66
Internal Revenue Service, Milwaukee, WI, Elayne M. Goldstein, 
  Midwest District Taxpayer Advocate.............................    74


    ANNUAL REPORT OF THE INTERNAL REVENUE SERVICE TAXPAYER ADVOCATE

                              ----------                              


                       TUESDAY, FEBRUARY 3, 1998

                  House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:12 p.m., in 
room 1100, Longworth House Office Building, Hon. Nancy L. 
Johnson [Chairman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]
    [GRAPHIC] [TIFF OMITTED] T0980A.001
    
    [GRAPHIC] [TIFF OMITTED] T0980A.002
    
    Chairman Johnson of Connecticut. Good afternoon, ladies and 
gentlemen. I want to welcome you to the first Oversight 
Subcommittee hearing of 1998. We have a challenging agenda 
ahead, and I am particularly pleased that the new Commissioner 
is able to join us today, Commissioner Rossotti, to start off 
our year's work.
    Today's hearing, though, will pinpoint where taxpayers are 
experiencing the most serious problems in dealing with the IRS 
and present us with the legislative changes which might address 
these problems. Congress passed the Taxpayers' Bill of Rights 
in 1996. It improved the procedural rights of taxpayers in 
dealing with the Internal Revenue Service. For example, it gave 
taxpayers who prevail over the IRS the upper hand in getting 
their attorney fees reimbursed by the IRS. It requires the IRS 
to make a reasonable effort to collaborate the accuracy of 
disputed information returns. It also gives the IRS the legal 
authority to abate interest in fixed deficiencies and to return 
improperly seized property to the owner. None of these 
provisions is flashy or glamorous, but, frankly, they are the 
nitty-gritty details that can make the difference between a 
taxpayer's relationship with the IRS going smoothly and a 
taxpayer's life miserable.
    The House of Representatives extended this tradition of 
helping taxpayers in November of 1997, when it passed the IRS 
Restructuring and Reform Act. Included in this legislation is a 
new Taxpayers' Bill of Rights, TBOR 3, which would extend even 
more protections to taxpayers. For example, it would switch the 
burden of proof to the IRS in court cases where the taxpayer 
has fully cooperated with the IRS. It would allow taxpayers to 
press damage claims for the negligence of IRS agents in 
collection cases, and it would expand the application of 
innocent spouse provisions in the tax law.
    The Taxpayer Advocate and Congress can be partners in 
helping taxpayers. That is why TBOR 2 strengthened the 
advocate's authority to help taxpayers and directed him to 
report annually to the tax-writing committees of Congress. the 
annual report is the formal vehicle for the Taxpayer Advocate 
to tell the Congress about the most serious problems which 
taxpayers are experiencing, as well as presenting legislative 
proposals for helping taxpayers.
    Let me also say that I am just particularly grateful that 
this report does give us some concrete suggestions, but it is 
also my hope--and I've talked extensively with my own staff 
about this, so I understand this is one legislator's hearing of 
the law she helped write versus everyone else's understanding 
of the law as it was written, but I do hope that we will use 
this opportunity in the future not just to have legislative 
proposals that are as narrow and specific, but to look at some 
of the bigger issues of simplification that also dog the 
taxpayers as they come in. So I want to be sure to put on the 
record that, as pleased as I am that this report is a giant 
step forward over last year's report, I think the challenges 
are still out there for all of us in terms of using the 
information the advocates get directly from taxpayers in 
trouble to inform us as to how we correct, strengthen, and 
simplify the code.
    I am particularly pleased, however, that Commissioner 
Rossotti is with us, and I want to point out that Commissioner 
Rossotti is from the American Management Systems, Inc.; that he 
was with American Management Systems, an international business 
and information technology consulting firm which he helped to 
found in 1970, and where he was chairman of the board. From 
1965 to 1969, he held various positions in the Office of 
Systems Analysis within the Secretary of Defense's office, 
where he was honored with a distinguished civilian service 
award for his work as Principal Deputy Assistant Secretary of 
Defense.
    I mention that because I think as all of us worked our way 
through the IRS reform bill, our goal was to create a far more 
vital and informed partnership between the public and private 
worlds of government and the citizenry, and your coming to lead 
the IRS, with the breadth of experience you had in the private 
sector, coupled with some experience in one of the biggest 
bureaucracies of the world, is, I think, a very fortunate thing 
for all of us. It's one of the reasons why I've watched your 
comments with great interest and was very pleased when you 
agreed to kick off this hearing.
    I'd like to yield to my Ranking Member here, Mr. Coyne, and 
then, thereafter, introduce Mr. Monks.
    Bill.
    Mr. Coyne. Thank you, Madam Chairman. I'd like to say that 
today the subcommittee will hold a very important hearing to 
discuss the future operation of the IRS and the continuing 
needs of America's taxpayers.
    I want to welcome to the Oversight Subcommittee the new IRS 
Commissioner, Mr. Charles Rossotti. I appreciate your 
appearance before us today, and I look forward to many years of 
working together to reform and improve the agency.
    Undoubtedly, taxpayers and the Congress will benefit 
greatly from the expertise Commissioner Rossotti brings from 
the private sector, as Chairwoman Johnson said, particularly in 
the areas of technology systems, large organization management, 
and customer service.
    On IRS restructuring, I want to repeat the words of the 
President in his State of the Union address when he stated, 
``This bill must not now languish in the Senate. Follow the 
House; pass the bipartisan package as your first order of 
business in 1998.'' I join President Clinton in that message 
and will continue to work toward timely enactment of 
IRSrestructuring reforms.
    Also, I want to welcome the IRS Taxpayer Advocate, Mr. 
Monks, to our hearing today. It is important that the Oversight 
Subcommittee carefully consider the analysis and 
recommendations contained in the Advocate's Second Annual 
Report to the Congress. The Advocate's work on behalf of 
taxpayers continues to be outstanding and very helpful to the 
subcommittee in our continuing effort to develop taxpayer 
rights legislation.
    Finally, I want to thank the IRS District Office Taxpayer's 
Advocates for making the trip to Washington to appear before us 
today. I personally want to welcome the Taxpayer Advocate from 
the city of Pittsburgh, Mr. Louis Romito for his appearance 
before the Oversight Subcommittee.
    I look forward to all the witnesses' views on how we can 
make life easier for taxpayers in their dealings with the 
government, and whether the Taxpayer Rights 3 legislation, 
which recently passed the House of Representatives, can be 
improved upon before its final enactment.
    Thank you.
    Chairman Johnson of Connecticut. Commissioner Rossotti.

 STATEMENT OF THE HONORABLE CHARLES O. ROSSOTTI, COMMISSIONER, 
                    INTERNAL REVENUE SERVICE

    Mr. Rossotti. Thank you, Madam Chairwoman and members of 
the committee. Thank you very much for your generous comments 
about me. I stay up at night whenever I hear those, as I keep 
thinking how can I live up to those kinds of comments, but I 
will do the best I can.
    Chairman Johnson of Connecticut. Better enjoy them while 
you can. [Laughter.]
    Mr. Rossotti. Thank you for giving me the opportunity to 
outline my concept of how we can modernize the IRS. In my 
written statement, I have provided some additional details 
concerning the specifics in the Taxpayer Advocate's report.
    At the outset, let me say that the restructuring bill which 
passed the House, and which had its inception in the Ways and 
Means Committee, is essential to the concept that I'm going to 
outline. In fact, the modernization concept is heavily based on 
the work of the Restructuring Commission, which was co-chaired 
by Congressman Portman.
    From all this work, I think a clear sense of direction for 
the IRS has emerged: the IRS must shift its focus away from its 
own internal view of itself and its own internal operations, 
and think about its job from the taxpayers' point of view. I 
think from the taxpayers' point of view, there are really two 
ways that we serve the taxpayer. We serve the taxpayer, each 
taxpayer with whom we deal directly, one at a time. These kinds 
of one-on-one interactions range from the routine, such as 
providing forms and information, to more complex interactions, 
such as when a taxpayer mails money as a result of an 
examination. But in each and every one of these interactions 
with taxpayers, we should provide first quality service and 
treatment that is prompt, professional, and helpful based on 
what we know to be their particular needs.
    Secondly, we serve all taxpayers as a whole by ensuring 
that compliance is fair. Our tax system depends on each person 
who is voluntarily meeting his or her tax obligations having 
confidence that his or her neighbor or competitor is also 
complying.
    I believe that the IRS, over time, can greatly improve both 
kinds of service to the taxpayer. Furthermore, I believe that 
we can accomplish this while also processing a greater volume 
of workload with the workforce we have. Our workforce is 
competent and dedicated, but it is handicapped by outdated 
practices and technology.
    In the near term, we are taking action to move forward on 
these goals. For example, the Problem Solving Days, which were 
sponsored by the Taxpayer Advocates, and which I'm sure you'll 
be discussing later, are excellent examples of the way that we 
should be serving taxpayers. We've also taken many other steps, 
such as raising the level of management review on enforcement 
actions, like seizures, and to see that inappropriate use of 
enforcement statistics is ended. These are only a few of many 
actions that we are taking this year to improve service and 
provide proper treatment of taxpayers.
    Of course, we're also very closely managing our enormous 
and challenging program to update our computer system for the 
century date change and the tax law changes required by the 
1997 Taxpayer Relief Act. Most of this work, by the way, must 
be completed in the next 12 months prior to the 1999 filing 
season.
    As important as these-near term steps are, they will not 
enable us, I don't think, to meet our goals, unless we make 
some more fundamental changes to our way of doing business at 
the IRS. That is the reason for the concept that I'm about to 
outline.
    This concept includes a renewed mission which emphasizes 
service and fairness to taxpayers, practical goals and guiding 
principles which define the path of those goals. We will reach 
these goals through changes in five key areas which are 
actually listed on the chart to my right.
    The first one is that we must revamp all of the IRS 
business practices, so that they focus on understanding, 
solving, and, where possible, preventing taxpayer problems. 
Each of the IRS's business practices--from customer education 
to filing assistance to collection--holds a great deal of 
promise for improvement by our gaining a greater understanding 
of the particular problems that taxpayers have.
    For example, our business practices should make filing 
easier for all taxpayers by providing readily-accessible high-
quality assistance to those taxpayers who need help in filing 
and by having more returns filed electronically. Just as 
companies in the private sector develop very particular and 
specialized marketing programs to reach customers with 
differing needs, we can help taxpayers more effectively by 
tailoring our publications, education, communications, and 
assistance programs to taxpayers with particular needs.
    For example, college students who often can file with a 
simple 1040-EZ form and a 10-minute phone call, have very 
different needs from senior citizens with social security and 
investment income, who may be best served through a network of 
volunteers who specialize in the needs of seniors.
    This principle of tailoring our services to the needs of 
particular groups of taxpayers, just as the private sector 
does, is, I believe, a cornerstone of how we can dramatically 
improve our service to taxpayers, as well as our own internal 
productivity.
    Another very important example is in the area of 
collections, which is where some of our most difficult 
interactions with taxpayers occur. Today, 90 percent of the 
activity of our phone and field collectors at the IRS is 
allocated to accounts that are six months old, and many are 
much older than that. This is exactly the reverse of experience 
in the private sector. In the private sector, the proven keys 
to effective collection are to identify as promptly as possible 
those customers who may present a risk of nonpayment, and to 
work out a payment program that addresses that particular 
customer's problem. This approach helps the customer, as well 
as the collecting agency, and also minimizes the need for 
enforcement action.
    The second area of change is that we must establish an 
organization structure that is built around taxpayer needs. The 
IRS organization structure today, which is being shown in this 
chart on the right here, really no longer enables our managers 
to be knowledgeable about and to take action on, major problems 
affecting taxpayers nor is it capable of modernizing the 
business practices and technology we need.
    The principal IRS organization today, as shown in this 
chart, at the lower part of the chart, is built around 33 
districts and 10 service centers. Each of these 43 units is 
charged with the mission of serving every kind of taxpayer, 
large and small, with simple or complex problems. Every 
taxpayer is serviced by both a service center and a district, 
and sometimes by more than one service center and district. 
Each of these units performs customer service, collection, and 
examination activities for each taxpayer.
    For example, in the collection area there are three 
separate kinds of organizations spread over 43 organizational 
units, that use three separate computer systems to support 
collection. Each of these three types of units collects from 
every kind of taxpayer, from small businesses to wealthy 
individuals. On top of this district and service center 
structure, there are many layers. There are eight intermediate 
layers of staff and line management between a front line 
employee and the Deputy Commissioner, who actually is the only 
manager besides the Commissioner who has full responsibility 
for service to any particular taxpayer.
    Fortunately, there are solutions to this kind of 
organizational problem which are widely used in the private 
sector. Just as many financial institutions have different 
divisions that serve retail customers, small to medium business 
customers, and large multinational customers, the taxpayer base 
of the U.S. falls naturally into similar groups. This fact does 
not reflect anything in particular about the IRS. It just 
simply reflects the structure of the U.S. economy.
    Therefore, as shown in the chart that has just been put up, 
the logical way to organize the IRS is into four units, each of 
which would be charged with end-to-end responsibility for 
serving a particular group of taxpayers with similar needs. 
These units, then, could replace the four regional offices and 
a substantial part of the national office, allowing the 
national office to better fulfill its responsibilities of 
oversight and broad policy rather than operations.
    By organizing in this way, the management teams for each 
unit could learn a great deal about the needs and particular 
problems that affect each group of taxpayers. The tax code is 
extremely complex, but most of it does not apply to each group 
of taxpayers.
    I see that I'm getting my yellow light on here, so I will 
speed up a bit.
    There are, as indicated in my written testimony, very 
different problems in each of these taxpayer groups, and I 
think that's a very important point to observe, which we can 
talk about.
    Moving on to the other three components, though, of this 
overall modernization concept is the need to establish 
management roles which have more clear responsibility, and I 
think with each unit being clearly responsible for serving a 
group of taxpayers, we would be able to not only fix clearer 
responsibility, but also set up management teams which would 
have more attractive jobs for the people in those teams, and we 
would be able to track people both inside and outside.
    Fourth, I think we would be better able to establish more 
balanced measures of performance that take into account both 
customer satisfaction as well as compliance. I believe this 
would help us to solve the longstanding problem of the use of 
enforcement as a key measure of success in the IRS.
    And, finally, I think it would enable us to deploy new 
technology more effectively, which is one of the real limiting 
factors in our ability to modernize our business practices 
today. Building new computer systems to support the old 
business practices will not work.
    So all of this is summarized in the large chart, and I want 
to emphasize that a great deal of study is required to validate 
this concept and to decide on many details, and much 
consultation will be required internally and externally during 
the study process, which we hope to complete by early summer. 
So there's an enormous job ahead of us, but I am confident 
that, given time and support from the Congress and the public, 
this path will lead us to the goal which we seek, which is an 
IRS which provides consistently first-quality service to all 
taxpayers.
    Thank you.
    [The prepared statement and attachments follow:]
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    Chairman Johnson of Connecticut. Thank you very much, 
Commissioner.
    I was interested in your testimony, in your comments about 
the 100 million filers out of the 140 million taxpayers who 
have only wage and investment income. Could you enlarge your 
thoughts on that subject----
    Mr. Rossotti. Yes.
    Chairman Johnson of Connecticut [continuing]. And it's 
implications for IRS reform?
    Mr. Rossotti. Yes. I think that's a good example of how, 
when you start to look at taxpayers like customers, just as 
businesses do, you find out that there's quite a bit of 
difference between these different groups of taxpayers. There's 
about 100 million filers--and these are round numbers, Madam 
Chairwoman; these are not exact numbers--but there are about 
100 million filers which represent about 140 million taxpayers, 
taking into account those that file joint returns, that have 
only wage and investment income, meaning interest and dividends 
and other forms of investment income. All of this income is 
reported, of course, through third-party filings. Most of the 
cash that we receive from this group of taxpayers actually 
comes in through their employers, rather than directly from 
them, of course. So 80 percent of these taxpayers are actually 
getting refunds. We're actually, of course, paying out money to 
them, most of them, during the filing season rather than 
receiving cash. So the collection problems are not very great 
with this group, nor are the compliance problems great.
    There are, of course, compliance problems with such things 
as filing status, dependent exemptions, and in upper-income 
taxpayers there are certain kinds of issues, but, by and large, 
the compliance rate is very high. Most of the issues that we 
have in serving these taxpayers are providing them good 
assistance in filing, getting refunds quickly, giving them 
information about their refunds and their accounts. It's really 
very similar to a large-scale customer service operation. 
That's quite in contrast, for example, to the small business 
sector, which we can go into if you like, but has very 
different kinds of requirements.
    So by focusing on this group and providing a team of people 
that really understand those problems, I think just like in 
business, we have a better chance of solving those problems and 
getting action to serve them better.
    Chairman Johnson of Connecticut. Thank you. And then I just 
want to inquire, how extensive did you find the practice of 
district-level collection offices using collection receipts to 
motivate employees? It is now common knowledge----
    Mr. Rossotti. Yes, yes.
    Chairman Johnson of Connecticut [continuing]. That this was 
the case. That's something a lot of us had good reason to worry 
about, and part of what motivated the changes that were adopted 
the last few years. How extensive was this practice, and what 
changes have you adopted, so that you sit here today and say 
it's no longer true?
    Mr. Rossotti. Yes. That was one of the first issues that I 
was confronted with when I took office, and there had already 
been some internal audit studies initiated by the Acting 
Commissioner initially on one district, the Arkansas-Oklahoma 
district, and then based on that, we expanded to 11 other 
districts.
    I think what we found was that there was reasonably 
widespread use--it was not--you know, I mean, you have to go 
into each district, when you've got those numbers, as to how 
often those statistics were used down at the group manager or 
individual employee level. They were not by any means 
universal, but there was certainly more than isolated example, 
and they varied a lot by district.
    Furthermore, I think the more basic point that was actually 
stated by the internal auditor was that the whole environment 
of the use of these enforcement statistics was really fairly 
extensive. Some of the things that were done to stop this were 
already done before I got there, such as the suspension of the 
use of these district statistics at the district level, but 
we've also taken quite a few other steps to have additional 
certification to ensure that a certification is done by people 
up and down the line, that statistics will not be used.
    We've also initiated a number of investigations in certain 
particularly egregious cases where individual managers may have 
had potential misconduct. We have set up a process, actually a 
panel of three people, two of which are outside the IRS, to 
receive the results of these investigations, and make a 
decision or a recommendation as to whether any disciplinary 
action has been taken.
    In addition to that, of course, we've taken quite a few 
other steps. We've had a number of education sessions. I mean, 
I don't want to go on with a long laundry list, but there's a 
whole set of steps that have been taken, and are continuing to 
be taken, to try to deal with this issue.
    I really want to stress that longer term, the real solution 
here is to turn the whole thing around and not make 
enforcement--I think as we were just speaking briefly before 
the session--and really make compliance the goal, which is 
something you can reach through a lot of means, not just 
enforcement. You can reach it through education, through 
assistance, through customer service. I think part of the 
modernization concept is to really flip this whole thingaround 
and focus it on serving taxpayers' needs, which I think will also aid 
compliance in the long run, as opposed to just making enforcement an 
end in itself.
    Chairman Johnson of Connecticut. Thank you. I'm going to 
yield now to my ranking member, Mr. Coyne.
    Mr. Coyne. Thank you, Madam Chairwoman, and again, welcome, 
Commissioner.
    The IRS over the past couple of years has undergone a 
reorganization of some sort and to some degree. I guess one 
could argue, is it necessary to further reorganize the agency, 
and if it is necessary to do that, why?
    Mr. Rossotti. Well, I think that what has happened in the 
last few years is that there has been reorganizations, as in 
most organizations; there tend to be some reorganizations 
almost every year. The big thing that happened was a 
consolidation of the number of districts down from 63 to 33, 
which I think was a necessary and essential step to improve 
efficiency.
    But what has really not changed since I believe about 1952, 
is the basic concept of the way the IRS is organized. It's 
basically organized geographically, and then on top of that 
were added districts and then regions and service centers. 
That's pretty much the way a lot of large organizations, like 
banks and manufacturing companies, were organized 20 or 30 
years ago.
    I think if you look in the private sector, you'll see that 
if you really want to establish an agency or a business, or 
anything that is really focused on serving companies, you have 
to somewhat organize the way customers' problems are set up, 
not the way you happen to be set up internally.
    So I think while there's been many reorganizations and they 
were very useful ones--I think the need to consolidate the 
number of districts was something that would have been done no 
matter what; they were wrong; the reorganizations were very 
useful--there really hasn't been any reorganizations for a very 
long time that have changed the concept of the way we do 
business. I think what we're trying to do here is to move us 
from sort of an internally-focused group to an organization 
that focuses on the outside world, on the taxpayers, which is a 
very, very common trend throughout all businesses that I'm 
familiar with.
    Mr. Coyne. Okay. The IRS has been conducting taxpayer 
problem-solving days over the past three months. Could you give 
us some sense of the results of that activity?
    Mr. Rossotti. Yes. I think that you can get more as your 
next witnesses come, the Taxpayer Advocates, because they're 
the ones that sponsored it, and in fact, Mr. Monks was the 
leader of putting this together. So I want to congratulate him 
on that.
    It was all planned, by the way, before I got there, so I'm 
not taking any credit for it whatsoever. But I think it was an 
outstanding idea in really bringing together all the different 
functional areas of the IRS in a face-to-face way with 
taxpayers, to be able to address problems that probably in many 
cases had been festering for a long time with these taxpayers.
    In terms of the results, we've, I believe, handled about 
16,000 cases so far through this process. We've been having 
them monthly, of course, in different cities around the 
country. We've gotten an independent survey from an outside 
research firm to talk to the taxpayers and get them to rate us 
on a scale of 1 to 7, and we've gotten a rating on the average 
of about 6.4 out of 7, which is really very, very high. I think 
what's interesting about that is the fact that many taxpayers 
did not necessarily get the exact answer they wanted. You know, 
some taxpayers came in and were hoping that they would have a 
certain tax that they wouldn't have to pay, or certain money 
that would be relieved, and of course people still have to 
follow the law and the regulations, and not in all cases could 
they be given the relief they sought. But, nevertheless, the 
fact that they got face-to-face treatment, that they got what 
they needed, I think they were very pleased with that on the 
whole, and that's why we got these ratings.
    Mr. Coyne. What issues did the taxpayers primarily raise 
when they came in? Do you have any sense of what the most 
prominent----
    Mr. Rossotti. Yes, yes. Many of them would be perhaps, you 
know, a longstanding collection issue where they had an balance 
outstanding, and they would come in and had penalties, and they 
just hadn't been able to really figure out how much they owed, 
how much they didn't owe, and come to a conclusion as to what 
they owed.
    There were audit reconsideration requests, where they had 
an audit, and maybe the taxpayer hadn't responded on a timely 
basis, so they got an assessment in that audit, and now that 
they had this assessment they wanted to come down and really be 
serious about figuring it out.
    There were people that came in that had not filed. I 
personally went to several problem solving days, and there were 
people who just basically--I talked to one taxpayer that had a 
shoebox and this fellow actually was owed a refund. I mean, it 
wasn't that he hadn't paid his tax, but he had just gotten 
behind. I guess he had some personal problems, and he was just 
afraid to come in. Finally, the fact that there was this 
Problem-Solving day gave him the courage to come in and bring 
his shoebox in, and the IRS person sat there and worked out his 
tax form. Of course, he had some pluses and minuses, but I 
think he actually ended up with a small refund out of it. But, 
most important, he was so happy just to be back into 
compliance.
    I mean, of course, all the stories were not that good. 
There were people who had problems that couldn't be resolved. 
People had penalties for withdrawing money from IRAs that they 
were trying to--it's actually a tax, not a penalty, and they 
were trying to see if they could get that abated, which they 
couldn't, but at least they became aware of what the situation 
was and understood it.
    So I think it shows that if you put the right kind of 
people together with the taxpayers, they can help them figure 
out some sort of a solution to their problem, even if it isn't 
exactly what they want.
    Mr. Coyne. Do you have it broken down by inquiry, not by 
individuals, but what the most prominent questions were----
    Mr. Rossotti. Yes.
    Mr. Coyne [continuing]. To the least prominent?
    Mr. Rossotti. Yes, we do. I don't have that with me, but 
Mr. Monks may have it with him. If he doesn't, we'll get it to 
you for the record.
    Mr. Coyne. Okay.
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    Mr. Coyne. We understand that title V, the employee 
flexibility provisions in the original Democratic IRS 
restructuring bill, which were not included in the Ways and 
Means House-passed bill, are needed to allow you to hire your 
proposed management team. Would you want to discuss that?
    Mr. Rossotti. Yes. What we did--in my testimony I didn't 
cover it today, in the interest of time--but last week at the 
Senate we did request some additional flexibilities over and 
above what's in the House-passed bill, some of which were along 
the lines of what was in the Democratic bill. But the specific 
ones that we requested were really dealing with the ability to 
bring in some senior people. I mentioned these management 
roles. I think part of the way we're going to help to change 
the culture and improve the organization is selectively to 
bring in some people with private sector experience. Madam 
Chairwoman mentioned that as part of what we want to do here, 
and I think one way to do that is by bringing in some 
individuals, and I think by adding some additional flexibility 
in the bill, we'll have a better chance of doing that.
    Mr. Coyne. And you hold out the possibility of doing that 
in the Senate?
    Mr. Rossotti. Yes, I hope so. I mean, I think that we're 
working with the staff, and I think they're receptive to adding 
some of these.
    Mr. Coyne. Thank you.
    Chairman Johnson of Connecticut. Mr. Rossotti, I'd like to 
recognize Rob Portman, who you probably know was the co-chair 
of the Commission, and takes a close second to Alan Greenspan 
for his Commission report being adopted almost in whole, in 
bringing it back to the Congress, though not without a battle.
    Rob.
    Mr. Portman. Thank you, Madam Chair, and thank you, Mr. 
Commissioner, for being here. I want to start by thanking the 
Taxpayer Advocate for giving us a better report this year, and 
congratulate Nancy Johnson for being determined on that front 
over the last year and a half, both prior to the last report 
and then in the interim period. I think it's a better report. 
We will talk with Mr. Monks, I know, in a moment about some 
additional improvements we'd like to see that Mrs. Johnson 
alluded to earlier, but it is a much better report. It's along 
the lines of what Congress needs to actually be able to change 
things at the IRS consistent with what the Taxpayer Advocates 
are hearing internally and externally.
    Mr. Commissioner, as you know, I'm very supportive of your 
proposed ideas. We talked about them on page 12 of our 
Commission report. As you said earlier, central to the concept 
you're outlining is the passage of this legislation that is 
currently in the Senate Finance Committee, and I think soon to 
come onto the Senate floor, we hope, before April 15, and go on 
to the President.
    I guess I have a couple of questions for you that are 
related to the two issues we're dealing with today. One is the 
modernization program you outlined, and the second one would be 
the Taxpayer Advocate. The first is what you think the Taxpayer 
Advocate's role might be, forgetting about the changes that are 
proposed in the legislation that's on the Senate side, but in 
your new proposal where you would have, in essence, different 
structural areas based on the customer or the taxpayer. I infer 
from your comments earlier that you would like to see a 
Taxpayer Advocate in each of these areas. So there would be 
someone who would be in the withholding area, where people have 
wage income, someone in the small business/self-employed area, 
and so on.
    Is that your idea? Why do you think that would--
    Mr. Rossotti. That's exactly right. I just didn't get a 
chance to say it, but I think that it's part of these 
management teams. I mean, the whole idea is, if you can 
understand the taxpayer's problem more precisely, you have a 
better chance of figuring out what to do about it. I think 
under my concept we would have a Taxpayer Advocate for the 
individual taxpayers, primarily for the wage-earners, who would 
focus on both the problem-resolution program, as well as coming 
up with more systematic solutions for them; similarly, for 
small business, and for the tax-exempt area. I don't think we 
need a Taxpayer Advocate for the large businesses. I think they 
can probably take care of themselves.
    Mr. Portman. They can hire their own.
    Mr. Rossotti. Hire their own. Then also, of course, very 
importantly, still have the National Taxpayer Advocate, who 
would, I think, oversee and work with these other ones, and I 
think it would build on--certainly not substitute, but actually 
build on--and greatly enhance the concept that is already 
present that we're starting to see the benefits of from the 
report you get today. So I think it's building on that idea, 
and just sort of pushing it, having a better sense of the 
taxpayer or the individual customer group, because of the close 
identification with that group, and understand their problems, 
exactly.
    Mr. Portman. Let me shift quickly to the legislation and 
see if you have any comments about the Taxpayer Advocate part 
of that. As you know, we tried in the legislation, and this 
subcommittee actually took the lead with Chairwoman Johnson to 
try to strengthen the Advocate's Office and make it more 
independent. We included a number of things. I notice the grade 
increase which you're already beginning to see in most of the 
districts. I want to talk to you further about that, which I 
think is an important improvement, where there can be a career 
track within the Taxpayer Advocate. I wonder if you could 
comment on that briefly.
    We, also, as you know, had other provisions in the 
legislation. As to reporting, in the Commission report we 
actually had the Taxpayer Advocate reporting directly to the 
Oversight Board. In the legislation, that was altered, so that 
the Oversight Board would have the responsibility of hiring the 
Taxpayer Advocate, rather than the Commissioner, but then day 
to day the Taxpayer Advocate would report to the Commissioner. 
The abvocate would give periodic reports to the board.
    How would you feel about having that Taxpayer Advocate 
report to the board as well as being hired by the board?
    Mr. Rossotti. Well, Congressman Portman, I think I would 
not favor that particular approach because, as I've said, I 
think that really what we need to do is to convert the whole 
IRS much more to thinking of themselves as taxpayer advocates, 
as problem-solvers for the taxpayers. I really don't--it's like 
sort of having the quality department report outside the main 
building, so to speak. I mean, it gives people the impression 
that quality is somebody else's job. I really would like to 
have the Taxpayer Advocate be a key member of the management 
team of the IRS Commissioner, and ofeach of these business 
units, just as we've said, or operating units.
    Now in terms of making the taxpayer more independent, 
though, that part I definitely agree with. I think that, as you 
may have heard, we've just begun a search to--when Mr. Monks 
moves on to his next assignment--recruit the next Taxpayer 
Advocate from outside the IRS. I hope to find a person of 
serious stature that would take that role and have a 
considerable amount of independence. Of course, the idea of 
reporting to the Congress, as you're doing here today, is a 
very important form of independence that benefits the 
taxpayer--because I can tell you, by the way that his report 
was, as is indicated in the legislation, not censored or 
filtered in any way--this was strictly straight-up from the 
grassroots through the Taxpayer Advocates' organizations. So I 
agree with all of the provisions except for the idea of having 
it be not part of the IRS. I think it's essential--just like a 
quality control department is part of a manufacturing company, 
you really want to have it as part of the mainstream of the 
operation.
    Mr. Portman. Thank you, Mr. Commissioner.
    Chairman Johnson of Connecticut. Mr. English.
    Mr. English. Thank you, Madam Chair, and I want to thank 
you for the opportunity to participate in this hearing.
    Commissioner, I am very pleased by some of the things I've 
been hearing. You have been so far, I think, a real breath of 
fresh air, and I'm excited about some of the things that you 
are talking about, particularly your introduction of 
performance measurements into the IRS.
    A couple of specific questions: I understand that you have 
been quoted as favoring the establishment of new citizen 
advisory panels, and I wonder, could you tell us a little bit 
about what you have in mind, and do you feel you can do this 
with your current administrative authority or will you need 
legislation to do it?
    Mr. Rossotti. Mr. English, I have been quoted, and we are 
actually proceeding to set up initially four citizen advisory 
panels, one in each region. We can do it administratively, with 
the help of the Secretary of the Treasury, who has been a big 
supporter of this.
    And the basic idea is, although, frankly, we still have to 
work this out in some detail--that's why we're doing four of 
them initially before we spread them through the whole country, 
but the idea is that these would be panels of citizens that 
would be, in a sense, advisors to the local Taxpayer Advocate. 
They would be kind of a link between the citizenry and the 
Taxpayer Advocate, and the thought was that they would meet 
periodically with the Taxpayer Advocate and review at the local 
level, or at the specific level, the problems that are cropping 
up or that are being typically surfaced in that particular 
district, and as citizens, give advice to the Taxpayer 
Advocate.
    They would also, we hope, be a form of outreach, so that 
more people would know about what the Taxpayer Advocate's role 
is. They would not, however, get involved in individual cases.
    Mr. English. Could I ask, how would persons be selected for 
the panels?
    Mr. Rossotti. What we are going to do for the first four, 
working with the Treasury Department on this, is, we actually 
have selected a consulting firm, a known consulting firm, that 
has worked with a number of different public sector 
organizations in setting up different kinds of advocacy and 
advisory panels. They are going to actually do the screening 
and you'll set up criteria, so that we have--the idea is to 
have a broadly-representative group of the citizenry in that 
local area. We want to make sure that there isn't anything 
political about this, that it's just really there to get the 
citizens' input. So that's why we're having this outside, 
experienced firm actually help with the selection process.
    Mr. English. I'll be following what you do. I am delighted 
at your pursuit of this idea. I'm strongly supportive of what 
you're trying to do, as you've outlined it here. You'll have my 
full support as you pursue it.
    On another front, when the Acting Commissioner was 
previously before this panel, we talked a little bit about tip 
monitoring agreements, and that there had been concern around 
the country, from the restaurant industry, that there was 
coercion being used to force restaurants to participate in 
these agreements--in effect, look over their employees' 
shoulders.
    Can I ask you, recognizing that we have already in the 
House promoted legislation and sent it to the Senate that would 
address this, have you proceeded internally to address this 
problem at all?
    Mr. Rossotti. Mr. English, I have heard about that problem, 
but I have to honestly say I have not in my reasonably short 
time gotten involved in it in any way. I'd be happy to look 
into it and get back to you on it. I just don't have enough 
information to respond right now.
    [The following was subsequently received:]
    [GRAPHIC] [TIFF OMITTED] T0980A.015
    
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    [GRAPHIC] [TIFF OMITTED] T0980A.017
    
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    Mr. English. My concern is that Mr. Dolan had pointed out, 
when he was in front of this panel, that it is current IRS 
policy that this is not an appropriate practice. Yet, there is 
evidence, at least there was evidence, that it was fairly 
widespread. I'd suggest that this is one area where you have a 
real challenge to change the culture----
    Mr. Rossotti. Right.
    Mr. English [continuing]. Of the IRS. I want to thank you 
for being here. We appreciate your testimony, and I think 
you'vebeen a breath of fresh air. Thank you, Commissioner.
    Mr. Rossotti. Thank you very much.
    Chairman Johnson of Connecticut. Thank you.
    Mrs. Thurman, please.
    Mrs. Thurman. Mr. Commissioner, maybe at that point you 
would like to talk a little bit--it's my understanding that you 
had announced a disciplinary panel that you're going to set up, 
and maybe that will fall into Mr. English's issues. So if you'd 
like to expand on that, and give us an idea of what that's all 
about----
    Mr. Rossotti. Yes, that is correct. I have done that, and 
the purpose of that is to act on the results of investigations 
that have been undertaken as a result of the internal audits. 
This has to do with the use of enforcement statistics in an 
inappropriate way, and we believe that there are perhaps--well, 
we know that there are certain individuals that may have 
potentially engaged in misconduct to a level that requires some 
disciplinary action. Of course, until we get the results of the 
investigations and the facts, I don't want to prejudice 
anything, but in order to make sure that those investigations 
were received by an objective group, and would not in either 
direction go too far, either being unfair to the employees or 
perhaps being not strict enough, we came up with the idea of 
having an independent panel. It does have one person from the 
IRS on it, but it has one person from another Treasury bureau 
and it has one person from the Justice Department, and they 
will get the results of this investigation and decide what kind 
of action is appropriate.
    Mrs. Thurman. Commissioner, actually, in Florida over the 
break, Senator Graham and I had a hearing in Orlando, 
specifically, on IRS, and talked to several taxpayers and had 
the Taxpayers Advocates with us as well, and some of the 
Regional Directors. One of the issues that was reoccurring to 
me, beyond what may be even in the report that we're going to 
hear about, although it is mentioned a little bit--I think No. 
15 or something--is the issue of, once somebody starts working 
with the IRS, and then all of a sudden they can't come to 
completion or there's not enough information, or whatever, 
people are asked to sign a waiver. They sign this waiver, and 
then, of course, penalties start, and then the interest starts. 
What we're looking at for many people, and sometimes obviously 
part their fault, but also, because we drag our feet a little 
bit, that they're ending up with a lot more penalties and 
interest than what their actual debt would have been to the 
IRS, causing them some real hardships then.
    Are we looking at any of that? Has that been discussed when 
you were at the Senate, to talk about maybe some ways we could 
deal with that?
    Mr. Rossotti. Yes. I think that is really a definite 
problem that needs to be relooked at, the whole issue of 
penalties. As a matter of fact, before I was confirmed I went 
around and talked to several former Commissioners, just to get 
what advice they had, and the most uniform advice is: take a 
look at those penalties; this really needs to be relooked at.
    I think there is a provision, actually, in the bill to 
study penalties, and I think that is something that we would 
support very much. We need to really take an entire look at 
this area of penalties.
    Let me also say, though, as I said in my opening comments, 
part of the modernization concept is that we need to get on the 
problems the taxpayers have much more quickly. I mean, part of 
the problem is just our whole business process is set up so 
that we don't really get to these collection cases most of the 
time for six months. Sometimes they're years. Well, by that 
time, no matter what penalty structure you have, you have 
interest and penalties built up.
    So part of it is to study penalties, and let's try to fix 
some of those penalty provisions. But the other is, part of 
this modernization concept, we've got to do what private 
business does; don't wait six months or a year. Let's get on 
these cases and help get people out of trouble before they 
really get too deep into the hole.
    Mrs. Thurman. Well, I think there is a balance there for 
those who cooperate and continue to work with us----
    Mr. Rossotti. Sure.
    Mrs. Thurman [continuing]. That maybe when we give them 
that waiver, that nothing starts accruing at that time until we 
run into some other problems. But that is the one area that we 
consistently heard was a problem.
    So I thank you, and I look forward to working with you.
    Mr. Rossotti. Thank you.
    Chairman Johnson of Connecticut. Commissioner, as I have 
told you personally, I am delighted that you come to this job 
with the experience and resources that you have, but I think it 
is also important to point out that not only has this committee 
done a lot of work in the last few years, but so has the 
Department. On this issue of inappropriate behavior by 
employees, it is a pleasure for me to hear you talking more 
openly about some of the problems and how you're going to go 
after them. I also remind the committee that we will have the 
first real report on how employee misconduct is handled and how 
it's tracked in a few months when that report is complete.
    You'll remember that when we first passed this provision 
two years ago in the Taxpayer Bill of Rights II there was no 
system in place at all to either track or oversee, and 
certainly no reporting. The first report basically told us 
therehadn't been a system that we could talk about and put in 
place a system we could talk about. When the report is complete in a 
few months it will be another milestone along the way to better 
administration and a more open agency.
    So I thank you for your comments on Congresswoman Thurman's 
previous question. I would just note how far the IRS has come 
already, and we look forward to moving forward with you.
    I'd like to recognize Mr. Hulshof.
    Mr. Hulshof. Thank you, Madam Chair.
    Commissioner, welcome. I want to talk a little bit about 
something you mentioned, about changing the environment of the 
IRS. I think the word Mr. English used was the ``culture'' of 
the IRS. And the organizational charts that you had there for 
us to look at, first of all, how long do you anticipate the 
implementation of this new organization? It's probably ongoing, 
but what's your goal?
    Mr. Rossotti. Sure. Well, first off, let me say that the 
organization is one of the five components. I think in terms of 
trying to change the culture and change the goals and try to 
look at things from a taxpayers' point of view, we're going to 
start on that right now. We are starting on it right now with 
some of the things we're doing.
    The organization is a bigger change that's going to take 
longer, and right now the only timeframe that we've set out is 
that we hope to finish the next study of this--I mean, this is 
at a concept level right now--we hope to get a study done by 
early summer, which will validate this concept sufficiently 
that we could proceed to implementation.
    We really won't be able to do any major implementation of 
organizational change before the 1999 filing season, which is a 
year away, because we have massive changes that are required in 
our year 2000 work and the tax law changes, and we need to get 
those sort of stabilized before we begin to do some of these 
other things.
    So I think, as a sort of rough outline, we're going to be 
trying to implement a lot of these short-term things that we're 
doing, like the Problem-Solving days, as we're doing those now. 
We'll be studying and coming to conclusions about precisely how 
to do these other organizational moves, and then I think 
beginning in 1999 is when we will really begin to implement 
some of those longer-term changes.
    Mr. Hulshof. Let me follow up. You mentioned the problem-
solving days. You're alluded to testimony we're likely to hear 
a little later this afternoon, particularly from the field 
Taxpayer Advocates, and I think one of the successes, at least 
in the testimony of the advocates in the field is that the 
success of problem-solving days largely rests in the face-to-
face meetings, the taxpayers who finally get a chance to sit 
down with someone to at least hear their concerns.
    I also recognize your background, the fact that you've come 
from the American Management Systems business, and as you look 
for ways to utilize technology, what are your thoughts on 
trying to balance high-tech methods such as e-mail, voicemail, 
or some say ``voice jail''--[Laughter.]--along with the need to 
have the face-to-face meetings?
    Mr. Rossotti. That's really an excellent question. I think 
that what most businesses have now found is that the real key 
is to provide a range of ways for customers to interact, 
depending on what their particular preferences and needs are, 
rather than a one-size-fits-all. I mean, the whole principle 
behind this modernization concept is to look at things more 
from finding groups of taxpayers that have certain needs, and 
not try to fit everybody into the same mold.
    I mentioned college students. I mean, college students do 
everything by e-mail and phone, and that's just the way they do 
business. Other groups, perhaps senior citizens, like more the 
face-to-face. So the concept here is not that we would just use 
technology to replace people. In fact, it's really the 
opposite. I think some of the savings that we might make in 
terms of this more complex structure, I think we could reinvest 
in terms of having more retail sites, for example, in rural 
areas and other places, where people could, as in Problem-
Solving day, have face-to-face contact for those taxpayers that 
wanted to do it that way.
    But we also, of course, for a large number want to use our 
website. Our website is doubling every year in terms of how 
many hits it gets. They're not mutually exclusive. They're just 
different ways of providing service to taxpayers based on what 
their particular needs and preferences are.
    Mr. Hulshof. It sounds great. I wish you encouragement. We 
will be watching.
    Mr. Rossotti. Yes.
    Mr. Hulshof. I yield back.
    Chairman Johnson of Connecticut. Congresswoman Dunn.
    Ms. Dunn. Thank you very much, Madam Chairman.
     Welcome, Mr. Rossotti. We expect great things from you. 
Ever since we began to hear the rumors that you would be the 
head of the IRS, everything I've heard has been wonderful and 
positive, and I very much like your plan to do a reorganization 
from the top to the bottom. I think that that's what the 
taxpayers deserve and want, and I also think it's what the 
majority of the folks who work for the IRS want. I think many 
of them have been distressed by a bad reputation that has come 
to the surface in the last few years, and I think they want to 
show that they're there to help the taxpayers and that that's 
their goal. I think what you're doing from a management 
standpoint just as soon as you come in is very wise. As others 
have said on this panel, we'll be watching with great interest 
and support.
    I have a few items that have concerned me in the time that 
I have been on this committee and heard people testifying, and 
I wanted to just bring them to your attention, so that as you 
go through the reorganization--these are things you've heard 
before, but they come to me a lot in my district east of 
Seattle.
    One of them is the 20 percent error rate on keypunching, 
returns that are sent into the IRS. That's the figure I've 
heard. You certainly can correct me if that's incorrect, but it 
worries me because that's where you generate those letters that 
people get when they probably in most cases should not be 
receiving them.
    The second thing is the electronic filing. I'm very 
concerned, on behalf of particularly small businesses, and I 
would like to have you tell me that that's under control, that 
the sales pitch you're giving to the people out there will let 
them how important this is as the new way of filing taxes, and 
that it contributes to a higher accuracy rate, but that also in 
the long run it's going to be better for the taxpayers. But 
before the information that had gone out on it caused a lot of 
fear rather than complete acceptance, andso I would like to 
monitor that.
    And the third thing is in some cases in the recent past 
we've seen an ``us versus them'' mentality between the IRS and 
the customer, or the taxpayer--is it called the customer? I 
didn't hear you use that term today. Is that a new term you're 
now going to use? Good, I applaud you. ``Taxpayer'' is the one 
that say because customers usually have a chance to shop 
around.
    But the Taxpayer Advocate really needs to be representing 
the taxpayer, and I fear that if it continues to be somebody 
who's hired by and paid by the head of the IRS, that that will 
the IRS advocate. So I just want to make sure we turn that in 
the proper way. You probably know all the management ways to do 
that, and I certainly have faith in what you will do, but it's 
really important to me to feel that that person is independent, 
and also in the regional offices, too, that that person has the 
full ability to stand up for the taxpayer when that's needed, 
and isn't imbued with the culture of the IRS, at least the 
culture of the past that I think has been less than helpful in 
many cases to taxpayers.
    So if you could just respond to those--the other thing I'm 
going to be watching for is the question Mr. Hulshof asked you, 
and that's when we're going to get some of the results of the 
reorganization, so that we can see if it's working.
    Mr. Rossotti. Well, thank you. Those are quite a few. Let 
me just say on the Taxpayer Advocate, I really feel very much 
in agreement with these comments about the Taxpayer Advocate. I 
think that we really need to make that person a key member of 
the senior team all the way up and down the line, to be the 
person that both acts as sort of a quality control department 
and a Taxpayer Advocate, and that's one of the reasons we're 
going out and doing the search to find the person that I hope 
will be a real serious stature that can be the National 
Taxpayer Advocate, and then gradually as we get into this 
reorganization, we could have a senior person representing 
small business and the individual taxpayer, and so forth.
    So I really think that we're going to dramatically, really 
dramatically, elevate, even more than we have already, the 
importance of this position. I don't know whether I have time 
because I've got the yellow light on, but in terms of 
electronic filing, I think that part of the problem with 
electronic filing is that to really explain this to people, 
it's more like a marketing issue in part. I mean, it's partly 
technical, but it's partly marketing. The IRS has not really 
been a strong marketing organization.
    We have just recently hired a person, named Bob Barr, who 
came from the industry, another example of bringing someone in 
who has a completely different kind of point of view. He was 
with one of the major companies that does electronic software, 
and his whole entire role in life, which I was just spending 
the whole morning talking with him, with the group, was to try 
to work with different stakeholders, including small business, 
to try to figure out exactly what their problems are, not just 
in general, but also specific ones, to make it easier and to 
make it more attractive. We are making progress. I hope we can 
make progress faster, but at least we've got somebody there 
that knows how to do that.
    I guess my time is up.
    On some of the other ones, I think the error rate was 
another question. Of course, having more electronic filing, 
that's one of the great advantages: it reduces the error rate.
    I think the 20 percent number is a number that is valid at 
the time that the first round of paper returns go through, and 
those are not just keypunching errors; those are all kinds of 
errors, taxpayer errors. By the time it gets through the end, 
there's a whole error correction process, and the rate is a lot 
lower. But still, I mean, you're right; I mean, these errors do 
get through, and that's one of the advantages, one of the 
really major advantages, of the electronic filing.
    Chairman Johnson of Connecticut. Thank you.
    Mr. Watkins.
    Mr. Watkins. Thank you, Madam Chairman.
    Commissioner, thank you for being here.
    First, I want to thank you for the taxpayer advocacy work 
you have done in behalf of some of my constituents, I have 
called you with some of their concerns. Most of the time we 
hear their problems. I know you hear a lot of the problems and 
you don't hear the good things that happen. But you hear people 
out, and try to help them answer the question: whom can I call 
to get help? So I think on several occasions there's been some 
real positive goodwill built and solved some problems, and I 
think by having the taxpayer advocacy group it's really meant a 
lot.
    You know, it's always easy to say, when a constituent's 
asking your help, when you say, yes, we can do that, and 
they're happy. But when you tell them, no, you cannot help, 
you've to have more compassion and sympathy.
    Mr. Rossotti. That's correct.
    Mr. Watkins. I think some of the people at the Taxpayer 
Advocate are working at that. Maybe it's some changing 
attitudes, culture, but I think an advocacy group sure means a 
lot.
    On behalf of Oklahoma, I think you know we had some unique 
problems, and I know that I think your office has expressed a 
concern there. Could you update me of the situation with the 
Oklahoma City office.
    Mr. Rossotti. Yes.
    Mr. Watkins. It alarmed both me and many Oklahomans when we 
realized some of the abuses there.
    Mr. Rossotti. Yes. Oklahoma was one of the districts that 
had significant problems with the use of enforcement 
statistics. I mean, essentially, we replaced pretty much the 
entire management out there, and that's basically a big part of 
it.
    We've also--and I don't want to get into specific cases--
but we've also, as part of this whole process of doing audits 
and investigations, obviously, looked at all the districts that 
were involved in potential misuse of enforcement statistics. So 
if there's any action to be taken in a disciplinary sense, that 
will be part of what comes out of this process that I described 
earlier.
    So I think we've put a lot of focus on management attention 
on Oklahoma. I should also mention that, in addition to the 
district itself, the Arkansas-Oklahoma District, we have 
recently selected and appointed a new Regional Commissioner, 
based in Dallas, that has oversightover that district, Mr. Ladd 
Ellis, who I think is a person that I have confidence in will help fix 
some of the management problems that we have. One of his top priorities 
is to work with the people in Arkansas and Oklahoma to bring that 
district more into a positive kind of a place, which it needs to be.
    So you're right, Mr. Watkins, that has been a problem area, 
and we've taken quite a few steps to try to see if we can bring 
it into a first-rate place again.
    Mr. Watkins. Well, I want to personally thank you. I know 
there have been quite a few hearings on it. Some of which I 
have not been able to attend, but I appreciate your bringing me 
up to date a little bit.
    The gentleman's name is Mr. Ladd Ellis?
    Mr. Rossotti. Yes, he's the Regional Commissioner, based in 
Dallas, and he has oversight. He's one level above the 
district, and I just mention that because he's also a new 
player that we've put in to take a fresh look at all the 
districts out in that area, but, in particular, in Arkansas-
Oklahoma.
    Mr. Watkins. Well, I appreciate that information. I've 
worked with some of your staff in the legislative liaison 
office on some more parochial concerns, and I won't belabor 
this issue, but I will follow up a little later on it. I 
appreciate their help and your help on some of that, in dealing 
with some Oklahoma tax issues, and I will try to discuss that 
with you later on.
    I appreciate the job you're doing. I had a lot of hope when 
I saw you appointed, and I was also pleased with some of your 
opening remarks when you first came as the new Commissioner. I 
wish you well, and I know you've got a tough job, but we have a 
lot of hopes that things can be smoothed out.
    Thank you.
    Mr. Rossotti. Thank you.
    Mr. Watkins. Thank you, Madam Chair.
    Chairman Johnson of Connecticut. Mr. Ramstad.
    Mr. Ramstad. Well, thank you, Madam Chair, for convening 
this hearing on the Annual Report of the Taxpayer Advocate.
    Welcome, Commissioner. Nice to see you here.
    I just want to say, very briefly, I think this year's 
report is definitely an improvement over last year, both in 
style and substance. The format's more user-friendly, and the 
report contains the 18 recommendations for legislative changes, 
which we didn't get last year, as well. So I think it's safe to 
say that we've come a long way over the last year. Thanks to my 
colleague sitting on my left, Mr. Portman, and his counterpart, 
our colleague, Mr. Cardin, we passed the IRS restructuring bill 
that originated in this subcommittee.
    Commissioner, with your considerable private sector 
experience and technological expertise, I think it's accurate 
to say the IRS is headed in some promising new directions. I 
appreciate your efforts. You have a tough job, and so far 
you've done it very well.
    We obviously have a long way to go. I think it's also not 
an overstatement to say that the general public is distrustful 
of the IRS. They have a lot of adversaries, and we certainly 
have a lot of room for improvement, but I think important steps 
have been made, and Rome wasn't built in a day. It's going to 
take some time, but, as I said, I think we're going in the 
right direction.
    I'm really encouraged by your plans to streamline the IRS 
and focus on customer service for taxpayers. I think that's so 
key to reform.
    Let me just ask you this very briefly: under your 
reorganization plan, Commissioner, based on the four taxpayer 
service categories, which category would deal with estate and 
gift tax? I wasn't able to figure that out.
    Mr. Rossotti. Yes, that is one of the many questions that 
we haven't answered yet. I mean, this whole thing is at a 
concept level, and the study that we hope to do over the next 
three or four months would have to get into some of those 
specific issues. I really don't know the answer to that yet.
    Mr. Ramstad. I see. So not even conceptually do you--you 
don't have that framework now?
    Mr. Rossotti. I just don't. I just don't know the answer to 
that yet. I mean, there are quite a few questions actually like 
that that need to be studied. I'm sure we can come up with an 
answer, but we just don't have it yet.
    Mr. Ramstad. Well, that's one of the most refreshing 
answers you can give, an honest answer: ``I just don't know 
yet.'' Thank you for your candor, and I'm sure that you'll be 
working on that and be able to deal with that, obviously an 
important area for the Service and for the American taxpayers.
    The same can be said about the excise tax issue.
    Mr. Rossotti. Exactly.
    Mr. Ramstad. That's another area that's----
    Mr. Rossotti. Those two are two that we can figure out, and 
there are various options, but we just haven't studied them 
yet.
    Mr. Ramstad. Well, again, Commissioner, thanks to you and 
your staff for working with us. If we continue to work in a 
bipartisan, pragmatic, collaborative way, I know we can make 
the necessary improvements not only in the Internal Revenue 
Service, but also in the tax code tomake it more user-friendly 
as well. So I look forward to working with you.
    Mr. Rossotti. Thank you.
    Mr. Ramstad. Thank you, Madam Chair. I yield back the 
balance of my time.
    Chairman Johnson of Connecticut. Thank you very much, 
Commissioner. We appreciate your being with us. We look forward 
to working with you. We know there will be many challenges over 
the next few months, and we appreciate this good start to our 
communications and our work on the year ahead. Thank you.
    Mr. Rossotti. Thank you, Madam Chairwoman, for giving me 
this opportunity.
    Chairman Johnson of Connecticut. I'd like to welcome Mr. 
Monks, and we're going to call everybody up at the same time 
because there's a markup that's going to start in not too long, 
and we want to be able to hear from everyone.
    Mr. Monks, we're certainly going to hear from you first, 
but if your regional people will join you, we'd appreciate 
that.
    But while you're sitting down, I do want to thank you, Mr. 
Monks, for a very good report, and one that does speak more 
directly to what the committee felt was its needs and the needs 
of the Congress, both to create far better communication 
between the frontline Taxpayer Advocates and the policymaking 
body of the Congress, but also to the need for far more direct 
and open communication between your office and our staff and 
ourselves, in order to accomplish much better work on behalf of 
the taxpayers. So I appreciate the quality of your report.
    I've read your testimony, and Mr. Portman will take over 
momentarily. Thank you.

  STATEMENT OF LEE MONKS, TAXPAYER ADVOCATE, INTERNAL REVENUE 
                            SERVICE

    Mr. Monks. Thank you. I have provided written testimony, so 
I'll try to be somewhat brief in going over my comments.
    Madam Chairman and distinguished members of the 
subcommittee, I'm very pleased to be here today to discuss with 
you the Problem Resolution Program and the second Taxpayer 
Advocate Report to the Congress. As you're very much aware, the 
Problem Resolution Program, or PRP for short, celebrated its 
20th anniversary during 1997, and that means for the past 20 
years of the program's existence, our PROs, our Problem 
Resolution Officers, now referred to as District and Service 
Center Taxpayer Advocates, have provided a very important and 
meaningful service to the American public. I'm very pleased 
that you chose to include a panel of local advocates as part of 
the hearing today.
    This past year was also remarkable for another reason, and 
that's due in part to the amount of attention that problem 
resolution has received following the Senate Finance Committee 
hearings, and as you may be aware, we were also prominently 
mentioned in an Ann Landers column featuring a letter from our 
Acting Commissioner at the time, Mike Dolan.
    Just an anecdotal incident: about four days after that 
column appeared across the country, I came in and we had 
received about 250 letters from taxpayers because my address 
was provided in that column. So taxpayers do read Ann Landers.
    As a result of the increased publicity on our program and 
our high degree of involvement in coordinating the district 
problem-solving day events, our contacts from customers have 
dramatically increased over the past year. In fact, during the 
first quarter of Fiscal Year 1998 we have had a 30 percent 
increase in contacts from taxpayers. More and more taxpayers 
are finding their way into PRP and that's good for them. It's 
also good for us in terms of helping them get their problems 
addressed, and very good for our program.
    We've been busy in PRP on a number of fronts during Fiscal 
Year 1997. First of all, we provided assistance to over 237,000 
taxpayers who had experienced problems of a systemic nature 
with the IRS, and we also handled over 30,000 requests for 
assistance on cases involving significant hardship. In 
addition, we have been actively working with the operational 
areas in developing administrative and legislative proposals to 
assist in reducing taxpayer burden, achieving equity or 
fairness for taxpayers, and of course trying to improve IRS 
operational systems.
    One of the things that we did new this year was to conduct 
taxpayer focus groups with both individual and small business 
taxpayers to get input from them on what theyperceived as the 
most significant problems they face in dealing with the IRS. In 
addition to that, I participated in a significant number of 
practitioner liaison meetings across the country to get direct feedback 
from them on their concerns and their ideas for improving service. 
We've included feedback from both of those groups in my report.
    One of our most visible efforts following the hearings, 
however, was our involvement in the IRS district problem-
solving days. As Mr. Rossotti mentioned, I was assigned the 
responsibility for planning and coordinating our first 
nationwide district problem-solving day event, and then the 
subsequent events to be conducted on a monthly basis by each of 
our district offices.
    I convened a national task group to develop a template and 
a strategy for conducting these sessions across the country, 
and as you're aware, we conducted our first national problem-
solving day on November 15. That proved to be very, very 
successful. We assisted over 6,000 individuals on that day, and 
almost 2,000 other individuals by telephone prior to November 
15.
    As Commissioner Rossotti indicated, the reaction from 
taxpayers was very favorable, and in addition to that, the 
reaction from our own employees was also very favorable. We 
received a substantial amount of input; feedback from them on 
what we can do to make problem-solving days more effective.
    We've already planned for some additional events. We're 
planning some problem-prevention days, which will take place in 
April, and then we're also planning another national problem-
solving day, which will be coordinated nationwide, scheduled 
and will take place on May 16 of this year.
    One of the interesting fallouts from problem-solving days 
was the identification of certain cases which were causing 
problems for taxpayers, and also for our own employees. This 
has given rise to a task force for which I have been assigned 
as the executive sponsor. We're reviewing what additional 
authorities might be necessary to provide to our field 
employees, both in collection and our Taxpayer Advocates, to 
assist taxpayers in resolving these types of issues. I think, 
Mrs. Thurman, we picked up some of the feedback from the 
Florida hearing on problems with interest and penalties, and 
that's going to be one of the areas that we will include in 
looking at these additional authorities.
    Because, what we found is that in some cases, either 
administrative procedures provided a barrier to closing out 
these cases or there was some legislative issue that we could 
not overcome. So the task for the group that I've pulled 
together, which is composed of a number of field employees, and 
headed up by two field executives, will be to look at what 
additional authorities we need to provide to our employees to 
allow us to deal with some of these troublesome, problematic 
cases that we just can't seem to close out of inventory. I 
think we've got the opportunity here for some significant 
breakthroughs, and I'm really looking forward to the results of 
this effort.
    Another initiative that my office undertook this year was 
the development of some additional authority for the Taxpayer 
Advocate's office. As you're aware, I'm required to report on 
problems that taxpayers are experiencing in dealing with the 
IRS, and also the administrative and legislative proposals that 
we've made to help relieve those problems.
    In the past, if the Taxpayer Advocate made a recommendation 
that the functional area did not agree with, that pretty much 
ended the process, except for the opportunity for the advocate 
and the functional area to have some additional dialog on that 
issue. However, as a result of some discussions that I held 
with the Acting Commissioner at the time, I proposed to provide 
the Taxpayer Advocate with the authority to issue a Taxpayer 
Advocate directive. This would require the Service to act on 
any administrative recommendations made by the Taxpayer 
Advocate unless it was appealed to the Deputy Commissioner. 
This proposal was recently approved, and we're currently in the 
process of developing implementing instructions for the use of 
the Taxpayer Advocate directive. I certainly view this as 
another tool for the Taxpayer Advocate that will assist in 
facilitating dialog within the organization, and also to help 
bring about needed change to assist taxpayers.
    We've included a number of areas in our report on 
recommendations that have been made; the different areas that 
problems have materialized with taxpayers during the past year. 
Many of the problems that we cited in the report are basically 
some of the same from the prior year, and that really should 
come as no surprise to most of us. Complexity of the tax law 
ranks as No. 1 for tax practitioners, while complexity of forms 
and instructions is ranked first for individuals and small 
business groups.
    We've covered a number of the various initiatives that are 
underway within the Service to deal with some of those areas. 
I've also included a number of specific administrative 
proposals that were made, issues dealing with divorced and 
separated taxpayers, repeat examinations, notifications on 
offer and compromise cases, and so on.
    Of course, we submitted legislative proposals dealing with 
waiver of the addition of tax for early withdrawals from an 
IRA, deduction for repayment of income previously reported, 
allowing taxpayers to change filing status under certain 
conditions, and so on. So we've had a number of internal 
activities, a number of administrative proposalsthat we put 
forward, and a number of legislative proposals that we're dealing with.
    Of course, that's just the beginning of the process. We 
have a number of task forces underway. We've looked at some of 
the fallout from the district problem-solving days, and have 
identified the primary source of cases coming into us from 
district problem-solving days. We've asked our regional offices 
to assist us in analyzing the root causes of those cases, to 
develop additional administrative proposals and legislative 
solutions to those problems.
    One of the criticisms of problem resolution in the past is 
that PRP has been somewhat alluded to as IRS's best-kept 
secret. We're trying to do a considerable amount to change that 
process. We're working with the IRS communications staff to 
develop a national campaign to increase public awareness of PRP 
and the availability of our services. We're also publishing the 
phone listings for all of our Taxpayer Advocates, along with 
their addresses and fax numbers, and a copy of that listing is 
included as an appendix in the current report. We will be 
moving, hopefully by later this summer or early fall, toward 
developing a nationwide 1-800 number service for PRP, which we 
expect will be a great service for taxpayers.
    Following the hearings and some of the problems that 
materialized, it was very evident that PRP could have played a 
more significant role in the resolution of some of those cases. 
The Acting Commissioner issued a memorandum to all IRS 
employees at the time, emphasizing the need for them to 
identify cases that meet the criteria for PRP--those cases that 
are difficult to resolve--and immediately get those cases in 
the hands of our problem-resolution specialists.
    This, of course, along with the publicity that we received, 
has certainly generated a substantial increase in inventory, 
and also the need to look at staffing for our problem-
resolution program. I've already received a small increase to 
my staff in the headquarters office, and we're currently 
reviewing staffing needs in the field. In addition to that, we 
also implemented a grade-level increase for all District and 
Service Center Taxpayer Advocates more commensurate with their 
new responsibilities and duties. That was recently approved by 
the Deputy Commissioner and has been initiated in most of our 
offices.
    I do have some comments relative to the question that you 
asked the Commissioner in terms of the placement of the 
Advocate. As the Advocate for the past five years, I certainly 
have been allowed a great deal of latitude in operations by 
both of the Commissioners that I've had the opportunity to work 
for. I truly believe that the Advocate position should remain 
within the IRS and be part of the Commissioner's immediate 
staff, because I think that whether that person is selected 
from inside the organization or from outside the Service, I 
think it's important that that person have an identity with the 
Commissioner.
    I also feel that the current reporting structure for our 
field advocates should be retained. While they each now report 
to the current head of office, the Director, they do receive 
program guidance from my office and from the regional staffs, 
and to a great degree that ensures joint accountability for the 
success of the program. Regional Commissioners and Directors 
have a responsibility, and so does the National Taxpayer 
Advocate, to ensure that we have an effective program. I view 
somewhat the Taxpayer Advocate's Report to the Congress as the 
report card for the program to make sure that the Advocate is 
truly independent and serving taxpayers in the way that they 
should be.
    That concludes my comments. Thank you.
    [The prepared statement follows:]
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    Chairman Johnson of Connecticut. Thank you very much, Mr. 
Monks. I appreciate your presentation, and I appreciate the 
work that has gone into the taxpayer problem-solving days, and 
the care with which you prepared, and the success that they 
were.
    I'm going to hear from each of the other members of the 
panel and then go to questions, so that those who have to go to 
the markup will have at least heard the testimony.
    So let me start with Mr. Romito.

    STATEMENT OF LOUIS ROMITO, DISTRICT TAXPAYER ADVOCATE, 
PENNSYLVANIA DISTRICT, INTERNAL REVENUE SERVICE, PITTSBURGH, PA

    Mr. Romito. Madam Chairman and distinguished members of the 
subcommittee, thank you for the opportunity to meet with you 
again to discuss the role of the local Taxpayer Advocate. After 
our initial meeting, it was obvious from an advocate's point of 
view that the Service needed to effect a cultural change in 
order to modify our approach to customer service. The movement 
toward this necessarily dramatic change has begun.
    I'm sure that some of the changes grew from the testimony 
that was presented before this committee last year. I am just 
as sure that the Service would have taken longer to implement 
these changes had it not been for the impetus provided by this 
committee, the Senate Finance Committee, and the appointment of 
our new Commissioner. These factors certainly are accelerating 
the process.
    You have heard, or will hear, from my colleagues of the 
many immediate and long-term actions that have taken place on a 
nationwide basis. They include such highly publicized actions 
as the problem-solving days, the elimination of ranking the 33 
districts based on their revenue and enforcement results, and 
requiring higher levels of approval on high taxpayer impact 
enforcement activities, such as levies and seizures.
    Local Taxpayer Advocates are actively involved in 
implementing, overseeing, and monitoring the effectiveness of 
these and other customer-related programs such as the citizen 
advisory panels. Further, the Commissioner's recently-announced 
concept for restructuring the Service will unquestionably 
expand the role of the Taxpayer Advocate.
    Beyond these additional new and potential responsibilities, 
I want to tell you about my personal involvement as a local 
Taxpayer Advocate in three of these change actions.
    First, one of your associates, Pennsylvania Senator Rick 
Santorum, has been conducting a series of hearings across the 
Commonwealth to hear individual and business taxpayers report 
on their interactions with the Service to gather ideas from tax 
practitioners regarding changes to the tax laws and to provide 
the Service with the opportunity to present its position on 
allegations of taxpayer abuse and the efforts we have taken to 
improve customer service. I was privileged to attend the 
hearings in Harrisburg, Pittsburgh, and Erie, and to testify on 
behalf of the District Director at the last two locations. I 
was also able to pick up suggestions from the other 
participants that will serve as the basis for proposals for 
legislative change.
    Second, I recently spent a week here in Washington as the 
field office representation on the national office task force 
charged with planning the implementation of a concept that will 
provide taxpayers with a centralized call site that will deal 
with problem-resolution-type cases. The call site will be 
available to taxpayers through a unique, toll-free telephone 
number.
    Congressman Coyne, as an aside, the Pittsburgh office has 
asked to be considered as the location for that call site. We 
feel, and our Northeast Regional Office agrees, that we have 
the high quality of personnel that would make this initiative a 
success.
    Third, I am participating, along with the rest of the 
Pennsylvania District Director's top management, in an 
evaluation of the engineering of the local problem-resolution 
program case processing procedures. The efforts are based on 
the fact that the Service has traditionally designed processes 
that focused on the meeting of statistical objectives. We are 
looking at the process from the point of view of the taxpayer. 
What factors would our customers consider as constituting 
satisfactory case processing.
    The point of these three examples is to show the breadth of 
the involvement of the typical Taxpayer Advocate in providing 
customer service. This is in line with Commissioner Rossotti's 
long-term goal to provide service to taxpayers that is as 
consistently as good as, or better than, they receive in the 
best companies in the private sector. Mr. Rossotti has stated 
that we owe it to the American public to take every step 
possible to ensure that impartial and fair treatment of 
taxpayers is never compromised.
    To that end, he is refocusing the attention of the Service 
on achieving the high level of customer service that taxpayers 
deserve, and the local Taxpayer Advocates are right in the 
middle of the refocusing. If there was ever an exciting time in 
the problem-resolution program, this is that time.
    That concludes my prepared remarks, and I'm available for 
any questions you have.
    [The prepared statement follows:]
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    Chairman Johnson of Connecticut. Thank you, Mr. Romito. 
It's a pleasure to have you here, and especially being from my 
colleague, Mr. Coyne's district.
    I would now like to welcome Mr. Romano, who is from the 
Connecticut office in Hartford. Thank you for being here again, 
Mr. Romano.

     STATEMENT OF FRAN ROMANO, DISTRICT TAXPAYER ADVOCATE, 
 CONNECTICUT-RHODE ISLAND DISTRICT, INTERNAL REVENUE SERVICE, 
                          HARTFORD, CT

    Mr. Romano. Thank you, Madam Chairman and distinguished----
    Chairman Johnson of Connecticut. I was extremely pleased 
with the good results of your problem-solving day. We often 
know more about what happens in our own district than those of 
others, and I was very pleased with how well you carried it off 
and how the public responded to it.
    Mr. Romano. Thank you. Madam Chairman and distinguished 
members of the subcommittee, I appreciate the opportunity to be 
here for the second time as the Taxpayer Advocate for the 
Connecticut-Rhode Island district. During the past year, the 
Internal Revenue Service has been the focus of several 
congressional hearings, GAO studies, internal audit reviews, 
and heightened media attention. In addition, changes to the 
Internal Revenue Code have added to its complexity. All of 
these have significantly enhanced the importance of the 
Taxpayer Advocate's position.
    I've been involved in the problem-resolution program since 
1982 as a caseworker, group manager, Assistant Problem 
Resolution Officer, and Taxpayer Advocate. I've experienced the 
growth of the program, and recognize the taxpayers' need for an 
individual to operate independently within the system to ensure 
their issues are resolved fairly within the context of the 
existing tax law.
    I would like to focus this year on four areas. My comments 
will highlight the key points of my written testimony. First, I 
will summarize some of the issues that have been raised and the 
lessons learned as a result of the Internal Revenue Service 
problem-solving days held in the Connecticut-Rhode Island 
district.
    Second, I will describe the advocacy initiatives I am 
involved in at the local level and with the Northeast Regional 
Office.
    Third, I will discuss the legislative proposals which are 
outlined in the Taxpayer Advocate's Annual Report as they 
relate to issues which have been raised to me as a local 
Advocate.
    Finally, I will focus on 1997 tax changes which I believe 
may require involvement from the local Advocates during the 
coming year.
    The Connecticut-Rhode Island district held three problem-
solving days in Fiscal Year 1998 in Hartford and New Haven, 
Connecticut and Providence, Rhode Island. Taxpayers have been 
invited to make appointments at times other than our normal 
business hours to discuss outstanding issues which remain 
unresolved. As always, we remind taxpayers that there is no 
need to wait for a special day to raise their concerns. The 
problem-resolution program is available to them every day 
during normal business hours.
    Many taxpayers who attended problem-solving days were able 
to get their issues resolved. However, there were a number of 
taxpayers who interpreted this day as a tax amnesty day and 
requested their tax liabilities be excused. There were also a 
number of requests for actions which are prohibited under 
current law, the most common of which is to allow refunds for 
returns filed beyond the timeframes required under code section 
6511.
    Regardless of the issues, the feedback from most taxpayers 
was positive. Many commented on the courteous and professional 
treatment they received. They were pleased with the extended 
hours of service, and most of all, they were grateful for the 
opportunity to sit face-to-face with someone and leave with a 
clearer understanding of their issues and the options available 
to them.
    The number of taxpayers taking advantage of problem-solving 
day has taught us that the presence and availability of the 
Taxpayer Advocate and the PRP program have to be more visible 
through better advertising. As the Advocate for the 
Connecticut-Rhode Island district, I am participating in an 
advocacy initiative with the Northeast Region Advocate's Office 
related to Federal tax deposit rulessimplification. As pointed 
out in the Advocate's Report, the electronic Federal tax payment system 
was designed to simplify the payment process and eliminate penalties 
due to incorrect deposits by taxpayers and processing errors by the 
Service. Fifteen recommendations were made, some of which are outlined 
in my written testimony. Many of these fall in line with the conceptual 
vision recently presented by the Commissioner.
    The 1997 Taxpayer Relief Act contained a provision which 
enabled the Connecticut police and firemen who received heart 
and hypertension benefits in 1989 through 1991 to request a 
refund of tax paid on these benefits. My office worked closely 
with the Examination Division in the Connecticut-Rhode Island 
district to alert taxpayers to provisions of this law and to 
monitor the processing of the claims.
    I included in my previous testimony a comment on how unfair 
taxpayers perceive Internal Revenue Code Section 6511. This 
year's Taxpayer Advocate's Report contains two alternative 
recommendations to amend IRC Section 6511. Allowing refunds to 
offset certain balance-due accounts would encourage delinquent 
taxpayers to re-enter the system. Facing the possibility of 
enormous liabilities and not being entitled to credits due to 
the statutory requirement is so overwhelming at times, it 
discourages taxpayers from becoming compliant.
    During 1997, Congress passed legislation known as the 
Taxpayer Relief Act. There are two sections in this law, 
section 1024 and 1025 of this act, which will allow the 
Internal Revenue Service to place continuous levies on up to 15 
percent of specified Federal payments. This 15 percent applies 
to unemployment benefits and means-tested public assistance. I 
anticipate that levies on this type of income will likely 
produce many requests for hardship relief in the coming year.
    Thank you for the opportunity to speak to you, and I'm also 
available to answer questions.
    [The prepared statement follows:]
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    Chairman Johnson of Connecticut. Thank you very much, Mr. 
Romano. Those specifics are very helpful.
    Next I'd like to welcome Ms. Tabor from Cincinnati, Ohio, 
and from the home town of my colleague, Mr. Portman.

  STATEMENT OF JANEY TABOR, DISTRICT TAXPAYER ADVOCATE, OHIO 
       DISTRICT, INTERNAL REVENUE SERVICE, CINCINNATI, OH

    Ms. Tabor. Thank you, Madam Chairman and distinguished 
members of the subcommittee. I've got a cold, so I apologize.
    I appreciate the opportunity to be here today to discuss 
three things: the role of the District Taxpayer Advocate, the 
problem-resolution program, and the problem-solving days held 
in Ohio. I have served in the District Taxpayer Advocate 
position for eight months in the Ohio district and I've been 
with IRS for over 22 years, and in Government service for 25 
years in various technical and managerial positions. I feel 
that these prior opportunities within the IRS have served to 
prepare me for this most challenging role of Taxpayer Advocate.
    In my role as a District Taxpayer Advocate, I have the 
opportunity to listen to and assist the taxpayers who may have 
become bogged down in the system, unable to resolve their 
problems or have encountered hardships because of various 
policies and procedures. I am responsible for ensuring that 
taxpayers' rights are protected, and I serve as the advocate 
for taxpayers within the Internal Revenue and represent their 
interests and concerns within the context of existing law.
    The problem-resolution program is the place to address 
those unique situations where taxpayers have fallen out of the 
normal channels or somehow don't fit into a particular process 
that successfully serves the vast majority of taxpayers. Even 
though the Service is an organization comprising good people 
who do an admirable job of administering a set of complex tax 
laws, the laws, regulations, and our own administrative systems 
sometimes prevent the Service from doing what at times may be 
in the best interest of our customers.
    When taxpayer problems have become more complex and don't 
easily fit into these existing processes, the IRS is sometimes 
prevented by law from helping the taxpayer get right with their 
tax obligations. This particularly relates to the interest and 
penalty provisions which I will share an example of later in my 
statement.
    The IRS employees', as well as the Taxpayer Advocates', 
hands are sometimes tied and prevented from doing what would be 
in the best interest of the taxpayer. I believe the two 
Taxpayer Bill of Rights have moved us closer to the goal of 
administering a tax system that provides fairness for all, but 
has a way to go.
    I'd like to share with you now some reactions and a 
scenario from the problem-solving day events. This scenario is 
also an example of the dilemma resulting from the interestand 
penalty provisions.
    So far, we've had three problem-solving days in Ohio--in 
Cincinnati, Cleveland, and Toledo. The majority of the 
taxpayers that came in on problem-solving days were very 
satisfied with the Service, and this isn't based on just my 
opinion; it's based on the taxpayer comments on their exit 
surveys.
    Taxpayers who had been having problems for years came in, 
met face-to-face with IRS employees to either resolve the 
problem or obtain a better understanding of what they owed and 
determine a method to pay it off. They were able to put a face 
to the IRS, and it was a positive experience for both taxpayers 
and employees. Adequate resources were available to help them 
do their jobs. This created an atmosphere that maximized the 
problem-solving.
    The Service is presently set up in such a stovepipe 
structure, often placing barriers unintentionally between 
functions, and therefore preventing quick resolution of 
problems, and with problem-solving days, these stovepipes or 
barriers were broken down and a structure put in place to 
handle all facets of the taxpayers' problem.
    Many of the managers and frontline employees have remarked 
how wonderful it would be if this multi-functional concept 
created with problem-solving days could be put into the day-to-
day work environment to assist taxpayers. Later in my testimony 
I'll describe what the Ohio District is doing to create this 
type of environment.
    First, let me share with you a scenario from the problem-
solving day event that illustrates how the current tax law 
created a tax burden for taxpayers. A husband and wife came in 
to problem-solving day to solve their back tax due of about 
$10,000 for tax years 1987 and 1988. Over the years they had 
struggled with financial problems and tried to pay the tax 
bill. On November 15, they came in to settle their account, 
hoping to qualify for an offer and compromise. At this point, 
the taxpayers had paid $1,500 on their original tax bill of 
$10,000, and still owed us $10,000. They had little equity in 
their house, about $11,000, three children, and had suffered 
mentally from this tax burden. They did not qualify for an 
offer and compromise. They had no funds to make an offer, but 
were willing to borrow from relatives to pay off the $1,800 
they still owed from the original $10,000. They wanted to try 
and get this debt off their backs and see some light at the end 
of the tunnel.
    There are no provisions in the tax law to help these 
taxpayers. Under existing law, they keep racking up high 
interest and penalties over the years while trying to pay their 
actual tax due. We need legislative action to be able to 
consider taxpayers' situations such as this. We suggest adding 
to the offer and compromise code perhaps a third provision for 
best interest for the taxpayer and the Service. If we could 
provide some consideration of taxpayer circumstances, while 
maintaining proper compliance with the tax laws and fairness in 
the administration of the laws, then we could make some strides 
in achieving a fair and equitable tax system.
    Part of the success of the problem-solving days was the 
multi-functional involvement, and because this multi-functional 
approach to resolving problems proved so beneficial during 
problem-solving days, we're working on a concept in the Ohio 
District where we're testing a cross-functional group. This 
cross-functional group is working well, and we are ready to add 
additional expertise based on the involvement of the other 
functions validated at the problem-solving days.
    Based on the success of problem-solving days, we believe 
this approach is one method of providing the same environment 
as our problem-solving days to our problem-resolution program, 
but we would be able to do that on a daily basis. Ultimately, I 
feel we need to organize the Service in a manner which allows 
us to eliminate the functional lines and focus on providing the 
best customer service related to our taxpayers' needs. I 
believe this supports the concept Commissioner Rossotti 
testified to. In the interim, an approach like we are testing 
would improve the relief for taxpayers now.
    In closing, I hope my role as Taxpayer Advocate will be 
strengthened by the legislative proposals currently in process 
and that Congress will pass those laws which will help the 
Service provide a more fair and equitable tax system. I believe 
the problem-resolution program has been successful in helping 
taxpayers, and we will continue to do this.
    Problem-solving days have elevated the successes of the 
problem-resolution program to a higher level and verified the 
need to provide a Taxpayer Advocate to assist taxpayers bogged 
down in the system.
    This concludes my prepared statement, and if you have any 
questions, I would be glad to answer them. Thank you.
    [The prepared statement follows:]
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    [GRAPHIC] [TIFF OMITTED] T0980A.031
    
    Chairman Johnson of Connecticut. Thank you very much.
    Ms. Ling, who is from Jennifer Dunn's district.
    Ms. Ling.

 STATEMENT OF SANDRA LING, DISTRICT TAXPAYER ADVOCATE, PACIFIC-
   NORTHWEST DISTRICT, INTERNAL REVENUE SERVICE, SEATTLE, WA

    Ms. Ling. Madam Chairperson and distinguished Members of 
the Subcommittee, thank you for the opportunity to provide this 
committee with my insights and perspectives on the role of the 
District Taxpayer Advocate. I have served as the Taxpayer 
Advocate in the Pacific-Northwest District since 1994. Prior to 
assuming this position, I have worked at different levels of 
the IRS organization in Houston, New York City, and San 
Francisco. My experience includes work in problem resolution, 
of course, and taxpayer service, and the examination functions.
    As a District Taxpayer Advocate, I'm responsible for 
ensuring the protection of taxpayer rights, representing their 
interests in decisions about the activities of over 2,200 IRS 
employees, and overseeing the problem-resolution program in the 
Pacific-Northwest District. Our district encompasses the States 
of Alaska, Hawaii, Oregon, and Washington, an area of over 
756,000 square miles, with a population of approximately 10.7 
million.
    During Fiscal Year 1997, my staff, along with problem-
resolution caseworkers, resolved over 7,600 problems and 
processed 2,208 applications for taxpayer assistance orders, 
requests for the Advocate's intervention in matters pertaining 
to IRS action and/or lack of action, providing a minimum 
partial relief in 84 percent of those issues. Since last 
September, the district has conducted six problem-solving days, 
helping over 400 people.
    I would like to devote the bulk of my remarks to 
suggestions for improving the system. I believe that the vast 
majority of IRS employees wish to serve the public in a fair 
and just manner, but are sometimes hampered by obstacles over 
which they have no control. These include complex tax code. The 
Internal Revenue Code currently covers over 9,000 pages, 
including indices, explanations of amendments, and tables of 
sections. Within each section are references to other sections, 
definitions of terms, and a staggering quantity of complex and 
sometimes ambiguous language. I have often wondered how many 
Members of Congress actually prepare their own tax returns. 
Quite frankly, after 17 years with IRS, I'm still not always 
certain that I'm taking advantage of all the credits and 
deductions that I am entitled to. As reasonable people, how can 
we expect the average person to understand his or her rights 
and meet his or her responsibilities under these laws? I urge 
this committee to communicate to the full Congress the need for 
decisive action to produce a tax code that is both simple and 
fair.
    I want to preface my statement about statutory empowerment 
with my thanks to Congress for passing the second Taxpayer Bill 
of Rights. It has made my job easier by empowering me to 
intervene in some situations when actions taken by the Service 
have created a significant hardship or when pending IRS action 
may not be the best alternative to pursue, given the taxpayer's 
circumstances.
    However, the Advocate's statutory authority must be 
expanded. I encounter too many situations where taxpayers 
clearly want to get matters resolved, and yet the Taxpayer 
Advocate lacks the means and/or authority to institute any 
equitable settlement.
    In other instances, taxpayers in severe financial distress 
could benefit greatly from expedited issuance of refunds. Yet, 
I am either hampered procedurally or lack the statutory 
authority to provide this relief.
    An example relates to the offset of refunds. Our computers 
are programmed to search first for outstanding Federal tax 
liabilities and offset any overpayment to them. In cases of 
extreme hardship, I currently have a narrow window of 
opportunity within which I can prevent such an offset and issue 
the refund to the taxpayer. I need the authority to refund this 
money in cases of severe significant hardship.
    But that is only part of the problem. The Internal Revenue 
Service is statutorily required to offset refunds to State and 
Federal agencies claiming an outstanding liability; for 
example, delinquent Federal student loan payments and child 
support. After satisfying any Federal tax steps through offset 
of refunds, the computer searches for liabilities reported by 
these other agencies, sending remaining overpayments to them. 
In these cases, I have no statutory authority whatsoever to 
prevent or reverse such an offset. A taxpayer suffering severe 
hardship who owed money to the IRS and the Veterans' 
Administration could get no relief from my office until the VA 
debt was paid in full.
    There's also an additional concern relating to this issue. 
If the other agency provides the IRS with erroneous information 
regarding outstanding liabilities, the money is still offset, 
and it is often the IRS, not the agency that made the error, 
that bears the brunt of the resentment from the taxpayer. The 
IRS is required to assume that the debtor master file 
information is correct, yet faces loss of credibility and 
public trust if the offset is unwarranted. By putting the IRS 
in a position of collecting other agencies' liabilities, the 
system further hinders voluntary compliance. Taxpayers who 
fulfill their obligations and file their returns may be faced 
with the loss of their refunds to other agencies, even though 
the debt may be in dispute. Needless to say, this creates a 
disincentive to file timely or withhold the proper amount of 
tax from wages.
    Another concern is the assessment of penalties. The 
purported purpose of penalties is the inducement of appropriate 
behavior, not punishment of those who fall behind. A cap on 
penalties would minimize their excessively punitive effects 
while preserving their behavior modification aspect. I know of 
many situations in which a taxpayer has made a good-faith 
effort to satisfy his or her liability, may have actually paid 
the tax in full, but has little hope of paying the remaining 
balance of accrued penalty and interest in his or her lifetime. 
For the average taxpayer, this burden can be overwhelming, and, 
again, may be a disincentive to filing on time.
    Certain penalties may be abated for reasonable cause; 
others may not. I urge Congress to provide the Taxpayer 
Advocate or another entity with the authority to make 
discretionary abatement of all penalties, as well as interest, 
under limited circumstances.
    I would like to add a few additional words about 
empowerment. We must be certain to strike a balance between the 
need for compassion and flexibility and the requirement that we 
enforce the tax laws. Most people, given a fair chance, will 
understand the need to learn from their mistakes and behave 
responsibly in the future, but for those who would deliberately 
flout or abuse the system, attempting to evade payment of 
taxes, the Service must remain diligent and firm. To do 
otherwise would be a disservice to the vast majority who pay 
their taxes when due.
    Let us not forget common sense. There are times when 
statutes, while not causing significant hardship, leave much to 
be desired. As you're aware, the normal time period for 
collection of taxes is 10 years from the date of assessment. 
That period may be extended further with mutual consent of the 
taxpayer and the Service. In my opinion, if the IRS is unable 
to collect the tax within the 10-year statute of limitations, 
it should simply abandon the effort. No responsible 
organization would do otherwise.
    Further, I believe that Congress should contrast the 10-
year statute of limitations on collection with the 
significantly shorter statute of limitations within which a 
taxpayer can file a claim for a refund of overpaid taxes--
generally, the latter of three years after the due date of the 
return or two years after the tax has been paid. It seems only 
fair that these two periods be the same. The current situation 
raises an issue of equity and may create the perception that 
IRS isn't fair in the way it administers the tax laws.
    Negative characterizations of the Internal Revenue 
Service--in recent months there has been much reporting of 
alleged abuse and irresponsible actions by the IRS and its 
employees. While the Service is gravely concerned about these 
allegations and is continuing to investigate them at all 
levels, many IRS employees, myself included, are also concerned 
that the high quality of overall service they have provided has 
too often been overlooked. The constant emphasis on perceived 
inadequacies of the agency is undermining the public's 
confidence in the IRS and greatly hampering the agency's 
ability to fulfill its duties.
    Further, this negativity is in some cases encouraging the 
aggressive and sometimes dangerous attitudes of those who 
oppose government in all forms, and the IRS in particular. Just 
as importantly, those who engage in incessant and one-sided 
criticism of the IRS may unconsciously compel some individuals 
whose allegiance to the extreme positions have previously been 
tenuous to step over the line into legal protests and possibly 
militant action. In last Fiscal Year, 872 threats or assaults 
against IRS employees were reported nationwide, including 41 in 
the Pacific-Northwest District. I am certain that every member 
of this committee agrees that no public servant should be 
expected to perform his or her duties in an atmosphere of 
impeding violence.
    I urge this committee to help the Internal Revenue Service 
improve its ability to meet the needs of the American taxpaying 
public. In my opinion, this can best be accomplished through 
diligent fact-finding, rigorous discussion, and insightful 
changes in policy and statute. I believe that the important 
work of this committee should be undertaken in the spirit of 
determination and nonpartisan, as suggested by the National 
Taxpayer Advocate, while avoiding divisive and destructive 
rhetoric against an agency of over 100,000 dedicated and 
conscientious public servants.
    Thank you for the opportunity to present my thoughts.
    [The prepared statement follows:]
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    [GRAPHIC] [TIFF OMITTED] T0980A.035
    
    Chairman Johnson of Connecticut. Thank you, Ms. Ling.
    Ms. Goldstein from Milwaukee, Wisconsin.

 STATEMENT OF ELAYNE M. GOLDSTEIN, DISTRICT TAXPAYER ADVOCATE, 
   MIDWEST DISTRICT, INTERNAL REVENUE SERVICE, MILWAUKEE, WI

    Ms. Goldstein. Yes. Madam Chairman and distinguished 
Members of the subcommittee, it is an honor to appear before 
you once again to provide you with my assessment of what we, as 
field advocates, can provide to the taxpayers of this country.
    I am currently the District Taxpayer Advocate in the 
Midwest District. The Midwest District consists of the three 
States of Wisconsin, Iowa, and Nebraska. I've been in the 
problem-resolution program a total of 12 years, 3 as a Problem 
Resolution Specialist and the balance as a Problem Resolution 
Officer, and then the District Taxpayer Advocate.
    In those years, I have seen dramatic changes in my role as 
an advocate, as well as an increased expectation on the part of 
our taxpayers of this country, both for the Internal Revenue 
Service in general and the problem-resolution program in 
particular. Because of the strides that we have made in society 
in all aspects of our lives, particularly in the technology 
arena, the taxpayers of this country have come to expect the 
same level of prompt, courteous service from the IRS that they 
receive from any other service organization in the private 
sector. They have a right to expect it, and we have an 
obligation to deliver that service. What we as an organization 
need to do is we need to figure out what we need to do to put 
these skills, knowledge, and abilities in the hands of every 
IRS employee, so they can deliver world-class service to the 
taxpayers of this country.
    I believe it is important that Congress partner with the 
Treasury and the Internal Revenue Service to ensure that these 
tools are placed in the hands of all IRS employees, whether it 
be tangible products such as computers and research material or 
intellectual property such as training and mentoring. We are at 
a critical time in our history when we need to stop calling 
each other names and start to roll up our sleeves to get the 
job done. I believe the American public deserves that from us 
all.
    I don't think in my IRS history the attitude of employees 
toward providing customer service has been more reflective than 
in our recent problem-solving days. The Midwest District has 
held three problem-solving days to date, and they've been a 
resounding success. Our customers do have a right to expect 
that level of service from the Internal Revenue Service. On a 
scale of 1 to 7, with 7 being the highest, the Midwest District 
scored an overall rating of customer service of 6.84, and I 
know that other districts throughout this Nation enjoyed the 
same success during problem-solving days.
    Another item that problem-solving days brought to my 
attention is that there is a certain segment of our population 
that can only deal effectively with the Internal Revenue 
Service in a face-to-face situation. These are people who will 
never be convinced that they can deal as effectively or as 
efficiently with the IRS over the telephone, and they generally 
don't have access to the Internal Revenue Service.
    In recent years, because of lean budgets, it has been our 
strategy to move people away from face-to-face situations to 
either the telephone or alternative methods of receiving 
information from the IRS. In whatever budget deliberations take 
place, as decisions are made to assign resources to the IRS, I 
would hope that this body, as well as the Internal Revenue 
Service, would not lose sight of those people that need to meet 
with the IRS employees personally.
    As a Taxpayer Advocate, my goal in the upcoming year and 
years ahead is to work in our district to make every day a 
taxpayer problem-solving day. This should be the goal for all 
of our districts. What we did on problem-solving day was really 
no different than what we do every day during the year. 
However, we were operating in an artificial atmosphere. 
Generally, we don't have the tools and resources available to 
us on a daily basis that we have available during problem-
solving days.
    We generally don't have the luxury to take as long as it 
takes to resolve a taxpayer's problem that we don't have on a 
regular business day. As an organization, we must commit 
ourselves to ensure that we are making this luxury of taking 
the necessary time to help a taxpayer with their problem into a 
routine, regular way of doing business for us on a daily basis. 
I know that Commissioner Rossotti is committed to this vision, 
as we must all be.
    In reading the Taxpayer Advocate's Report to Congress, he 
did fail to mention one initiative that his office is 
undertaking that I am very much in support of. This initiative 
is currently in the talking stages, and it is the 
implementation of an equity board. Last year when I was before 
this committee, I stated that it was my opinion that the most 
serious problem facing taxpayers was the complexity of the tax 
law. I have not changed that opinion. As a matter of fact, I'm 
even more entrenched in my belief since the passage of the 
Taxpayer Relief Act of 1997.
    When the Taxpayer Advocate sponsored focus group interviews 
around this country, practitioners rated the complexity of the 
tax law as the No. 1 problem facing taxpayers. Taxpayers, 
individuals and small business taxpayers, rated the complexity 
of the tax forms and the instructions as their No. 1 problem, 
which of course is a byproduct of the complexity of the tax 
law.
    I believe that tax complexity will be with us for a while, 
and the equity board concept is just such an instrument to help 
Advocates assist taxpayers when we recognize we cannot help 
them because of the tax law or IRS procedures. As field 
advocates, when we recognize that it just doesn't make sense to 
not help a taxpayer because of artificial barriers that have 
been set, we would be able to elevate these problems and issues 
to the equity board, who would work toward finding a solution 
to what appears to be an unsolvable problem. I am personally 
looking forward to the results of the task force looking into 
the equity board concept.
    To say that formulating tax law and administering its 
aftermath is an easy task would, of course, be a gross 
understatement. We all do need to work together to ease the 
burden on our taxpayers. We owe it to our taxpayers of this 
country and we owe it to ourselves.
    I would be glad to answer any questions you may have. Thank 
you.
    [The prepared statement follows:]
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    [GRAPHIC] [TIFF OMITTED] T0980A.037
    
    Chairman Johnson of Connecticut. Thank you very much, Ms. 
Goldstein. I thank the panel very much.
    I earlier mentioned that the Human Resources Subcommittee 
would convene at 4:00. I was mistaken in that; it's at 4:30, 
for those of you who have that obligation.
    Ms. Goldstein, I want to just go back to this equity board 
concept that you mentioned, because our original vision was 
that, through our communication with you, we would come to 
understand where the law or an IRS procedure did prevent the 
kind of outcome that you on the frontlines saw as equitable and 
fair.
    It is a very difficult issue of balancing compassion and 
justice on the individual basis with the importance of having 
uniform and consistent tax law across the Nation, and that 
tension is something that we'll always live with, but I'll be 
interested to watch this discussion about the equity board 
develop, because it may be that they could refine these issues 
in such a way that then we would get very much more specific 
input from you as to what laws need to be changed and why.
    I know when I was first elected, I had a terrible problem 
in my district. It was solved completely unfairly. It put the 
guy out of business. The taxpayers lost; he lost; we all felt 
miserable. And it was explained to me--I was a freshman then--
that it had to be, so that there would be consistency across 
the Nation; that it's true we could have done this little thing 
over here, but then we wouldn't have consistent tax policy, and 
someone else in his circumstances might have been treated 
differently in another part of the country, and that wouldn't 
be fair. So it is a problem, and we really have to be far more 
realistic about it. I think the whole purpose of developing the 
taxpayer advocate system, and particularly trying to break 
through the communications barriers between the front line of 
any agency, frankly, and the Congress was exactly that--to try 
to identify those portions of the law and those procedures that 
you see working against common sense and fairness.
    I think some of the points that a number of you have made 
have been very interesting in that regard. I think we do have 
to look at this issue of severe hardship. On the other hand, 
what is the need of the child for child support? And how do we 
make sure that you have guidance, but also flexibility? So as 
we look into those kinds of recommendations that you have 
brought to us, they're not going to be easy, but I appreciate 
your bringing them to our attention and making some 
recommendations, because, clearly, we do need to look at that.
    I did want to ask Ms. Tabor, what did you mean exactly, 
because it's a little hard for me to get from all of your 
testimony what problems you were able to solve and what 
problems you can't solve. And when you said ``multifunctional'' 
approach, I sort of roughly hear what you're saying, and that 
you found that a very useful part of these problem-resolution 
days, and you're going to try to replicate that. But what do 
you mean about that? Give me an example of the kind of problem 
that in the normal course of events is hard to solve, but on a 
problem-solving day, where you somehow have a little different 
situation, could be solved because of this multi-functional 
approach.
    Ms. Tabor. An example would be, you have a collection 
problem that a taxpayer comes to you with, but it's not 
actually a collection problem. They owe the tax, but it's based 
on an assessment that was done in examination. The collection 
officer can't change the assessment, and it's depending on the 
issue. You know, you have to really look at each taxpayer's 
case on a case-by-case basis.
    But where the multi-functional concept comes in, and what 
worked for us on problem-solving days, is the revenue officer 
would be there and be meeting with the taxpayers to try to get 
them to pay the tax, and really they called in someone from 
exams to help look at the issue and see, is that a valid issue, 
and be able to explain it to the taxpayer, that this is a valid 
assessment; you do owe it, and you need to work with the 
revenue officer to pay it off. Or they would say, this is 
something that you really didn't owe; it was an invalid 
assessment, and we'll take care of it and take that debt away 
from you.
    So I don't know if that's----
    Chairman Johnson of Connecticut. So, Ms. Ling, was this the 
same kind of thing that you were referring to when you talked 
about the cases in which the debt may be in dispute?
    Ms. Ling. That's correct; yes, it is.
    Chairman Johnson of Connecticut. Could you give us some 
examples of the kinds of cases that got solved on problem-
solving day? Are there categories of cases that came in that 
tended to get solved and categories of cases that tended to get 
referred on, just started the process of resolution on problem-
solving day?
    Ms. Goldstein. In the Midwest District, many of the issues 
we were able to resolve while the taxpayer was in the office. 
It principally had to do with requests for elimination of 
penalties. They were able to come in to give us a valid reason 
as to why a tax return was either filed late or the tax was 
paid late. Based upon their oral testimony, in many cases we 
were able to accept that reason and effect change to their 
account that would have eliminated that dollar amount owed for 
that penalty amount.
    Mr. Monks. Mr. Rossotti had commented earlier that Imight 
have some information on the categories, the primary categories, of 
cases that we dealt with during problem-solving days. Audit 
reconsiderations was the No. 1 issue, and that has been----
    Chairman Johnson of Connecticut. Excuse me. I didn't 
understand that.
    Mr. Monks. Audit reconsideration, requests for audit 
reconsiderations was the No. 1 issue; offer and compromise 
cases were No. 2; requests for installment agreements were No. 
3, and penalties were No. 4. So those were the primary 
requests, and those four and the next two or three categories 
after that probably constituted somewhere in the neighborhood 
of 50 to 60 percent of the cases that came in.
    Offers in compromises are another good example. That would 
be a process that would normally take a considerable amount of 
time to conduct a review, but because we had a multi-functional 
team in our offices, they were able to conduct the initial 
review, and even have counsel take a look at the proposed offer 
to see if it met all of the requirements that they might look 
for, and so they were able to expedite the solving of the 
problem; whereas, typically, in an IRS office, if the taxpayer 
were to go in, they would meet with a Taxpayer Service 
Representative, and that would have to be referred somewhere 
else, and it might take another week or two before they were 
able to deal with that. But because they had the multi-
functional teams there, they had everybody in place that they 
needed to have to solve that problem, and they even had linkage 
with the Service Centers for those issues that had to be 
resolved at the Service Centers, because in many cases only the 
Service Center has the authority to make the final action. So 
we either had Service Center employees onsite at the district 
during problem-solving days or had a linkage established with 
them, a contact point, in each of our centers. So that also 
greatly assisted the process.
    This was probably the No. 1 thing cited by employees that 
they saw as favorable in the process. First of all, it allowed 
them the opportunity to show that we can provide able 
assistance to taxpayers, and, secondly, they liked the fact 
that we use this multi-functional approach to problem-solving.
    Chairman Johnson of Connecticut. Well, I can certainly see 
that that would be more satisfying to both the taxpayers and to 
your employees, and I hope you succeed in your efforts to find 
some way to structure this into your normal procedures. I won't 
pursue that at this time, though, because we have so many 
members still here, and I want to be sure they have a chance to 
question.
    I thank you all for your testimony. It was really very 
helpful to us, and much of it we'll pursue with you afterwards, 
but at this point I'd like to recognize Mr. Coyne.
    Mr. Coyne. Thank you, Madam Chairman.
    Mr. Monks, in your report today, you talked at some length 
about the need for simplification of the tax code. You point 
out that there is an awful lot of talk about simplifying the 
tax code, but very little action in doing it, and as part of 
your report, you call for a commission to be formed to study 
the current tax system. I'm just wondering if you could touch 
on why you think a commission might be able to be helpful to 
us.
    Mr. Monks. First of all, trying to deal with the issue of 
simplification is somewhat akin to solving the problem of world 
hunger; it's a very difficult process. It's not something that 
I think can be dealt with in a piecemeal fashion. We can make 
recommendations for simplifying a particular section of the 
code in trying to deal with a certain aspect, but then there 
are going to be 20 or 30 other tax legislative proposals made 
this year that may add to complexity, and we continue to use 
the tax system for other programs' effort other than raising 
revenue. So that adds both to complexity, and I think concern 
about the fairness of the system.
    I think the efforts of the Restructuring Commission in 
looking at the IRS organization was an excellent job. They 
looked at a number of issues. It was a bipartisan effort. It 
brought the IRS into the picture. It brought significant 
stakeholders from outside of the IRS into the process. I think 
an approach like that, that would get the various tax proposals 
that have been made by different Congressmen across the 
spectrum, including the flat tax, the consumption tax, and 
frankly, the current tax system, which I believe happens to be 
a fairly good system, if it didn't have so much complexity in 
it--looking at all of these issues, trying to eliminate some of 
that complexity, developing a system that would be fair; it's 
the kind of national debate and discussion that I think we need 
to have. I think the public wants a simpler system. They also 
want a fair system, and it's somewhat difficult to develop both 
of those in the same context. So I think it really requires a 
long-term effort, and I think a bipartisan effort, composed of 
members from the administration and from the Congress to look 
at this is exactly what is required.
    Mr. Coyne. Thank you very much.
    Ms. Ling, I just want to take time out to congratulate you 
on a very positive and forceful statement relative to the need 
to tone down the rhetoric as it relates to the IRS. Many 
elected officials and others just take advantage of the 
opportunity to pound an agency that is, by its nature, not 
doing a job that most people would want to do. I want to 
congratulate you and the panel for the work that you do for 
this country in a very tense and often confrontational 
atmosphere. Thank you.
    Chairman Johnson of Connecticut. I just want to say that I 
concur with my colleague, the comments of my colleague, Bill 
Coyne. It is, however, an unfortunate reality that the focus on 
change, the product of change, the constructive things that are 
happening now, unfortunately, only did happen when there was a 
lot of focus on problems and failures and frustrations and 
angers. But we are certainly, without question, entering an era 
when we need to work together; we need to use the information 
that we have. I certainly am proud to represent an office and a 
State in which the IRS has provided really outstanding service, 
and I rarely can complain.
    A lot of my colleagues are in that position, and I 
recognize the quality of the work you do and the enormous 
problems that complexity has posed for you. As Rostenkowski 
used to say, simplicity is the enemy of equity, and it's true 
if you look at the last year's tax bill. It's complex because 
we tried to be fair in providing and using very limited 
resources to help, for example, young families. So that doesn't 
mean we can't do something about it, but the problems you point 
out to us are going to be critical in helping us to figure out 
what we can do that will be most effective. So Ithank you for 
some of the very thoughtful suggestions you have given us today.
    I'd like to recognize Mr. Portman.
    Mr. Portman. Thank you, Madam Chair.
    Thank you all for your testimony. It is a much better 
report, as I said earlier, much more helpful to us as 
legislators looking at it. As I've looked through the specific 
recommendations, I think four of them actually are in one form 
or another in the legislation that's currently resting in the 
Senate, which we hope to again have to the President by tax 
day.
    You guys are in a better position than we are, because you 
can make these wonderful recommendations and not worry about 
how to pay for them. Some of these are very expensive. Your 
innocent spouse relief I love, but the Joint Tax Committee will 
tell us that's billions of dollars. I haven't thought about 
what that probably would be, but it sounds like so much money, 
it's almost absurd. So there are some restraints, obviously, on 
what we can do, and others are just very sensible and actually 
would cost nothing, but would make your lives easier trying to 
advocate for taxpayers. I think this is exactly what we need. 
It's very helpful.
    On simplification, Mr. Monks makes the comparison to world 
hunger. I think that's a bad analogy because in the last decade 
we've made significant progress in reducing world hunger, while 
at the same time complicating our tax code much further. Since 
1986, they say we've made over 4,000 changes to the tax code, 
and so I think we're probably going in the opposite direction. 
It's not fair to world hunger to make that comparison.
    But I do have a couple of specific questions regarding some 
of your ideas and the report itself. The focus groups you did, 
are interesting; you summarize those results. Is there a way to 
get those focus group results into your report, so that you're 
making specific recommendations rather than just telling us 
about your focus groups and what happened in the focus groups?
    Mr. Monks. Yes, we have more specific information. What we 
tried to do in the report was just to highlight the comments 
that they had made relative to where they saw the specific 
problems, and that is included in the report, along with the 
comments from the tax practitioners. We do have a considerable 
amount of information regarding what was provided by the focus 
groups. We conducted 10 focus groups across the country, 5 with 
individual taxpayer groups and 5 with small businesses, and 
what we tried to do here is just summarize what they basically 
told us were the primary issues that they were faced with, but 
we can provide more extensive information, if you would like.
    Mr. Portman. Well, information is helpful, and it's helpful 
that you've summarized here on page 15. What might be helpful, 
though, is to address those concerns. For instance, if in a 
focus group someone raises a concern about fear of audit and 
documentation problems, rather than simply to state that as a 
concern that was raised in a focus group, you would address 
that. How can that be addressed in the future? Should that be 
addressed? Give us some of your analytical thinking on it 
rather than just explaining what you heard in a focus group. I 
haven't heard from the chairwoman on this yet because we 
haven't had a chance to talk about the report, but I think that 
would be helpful to the subcommittee in the future, if you take 
those focus groups and give us some analysis.
    One other pet peeve of mine is, I think you know, on the 
grade level. You say, on page 97, that the pay grade level for 
District Tax Advocates has been increased to grade 14, in 21 
Districts and three Service Centers. How did you make that 
decision, and why haven't you provided for a career path in all 
33 Districts and all 10 Service Centers?
    Mr. Monks. Well, that action has been made available to 
each of the Directors. In some cases, relatively new 
individuals had been selected into the positions that had only 
come into the position recently and were not yet eligible for 
the grade 14 positions.
    Mr. Portman. But it's within their discretion to be able to 
do that?
    Mr. Monks. It is. It is available in all 33 Districts and 
all 10 Service Centers----
    Mr. Portman. Okay.
    Mr. Monks [continuing]. And it's just that in some cases 
they've not yet been eligible for that or they're making a 
change, because this provided an opportunity to solicit maybe 
someone that the Director felt was more qualified to be in that 
position at a higher level.
    Mr. Portman. In the legislation that's, again, sitting over 
in the Senate, I think we would require that, right? It's not 
within the discretion of the District Director?Doesn't the 
legislation--actually, the legislation says there needs to be a career 
track developed within----
    Mr. Monks. Right, it requires the Advocate to----
    Mr. Portman [continuing]. The IRS for Taxpayer Advocates, 
and it leaves up to you all to develop a plan.
    Mr. Monks. I think it requires the Advocate to engage in a 
study on developing a career track with the Commissioner.
    Mr. Portman. Okay. So you've already taken what I think is 
an important step in that. It's not about you, but it is about 
providing that ability for people or Taxpayer Advocates not to 
be looking over their shoulder, not to be worrying about the 
functional areas, and having to go into the audit or compliance 
areas next.
    The final question I have for you is with regard to that 
legislation, because there are some changes that are likely. 
You seem to take a pretty strong position that you don't want 
the Taxpayer Advocate to report to the oversight board; rather, 
you want that advocate to report to the Commissioner.
    Don't you think that it's going to be difficult to have the 
kind of independence we'd all like to see as a Taxpayer 
Advocate so long as you have the Advocate reporting to the 
Commissioner?
    Mr. Monks. Well, I think, again, the Advocate has, in 
effect, at this point in time, two groups that he needs to 
report to, one being the Commissioner, and ensuring that the 
Advocate is fulfilling the role that the Commissioner sees the 
Advocate fulfilling, and the other is to the Congress itself. I 
think that the independence of the Advocate is strengthened by 
TBOR 2, some of the actions such as the report to the Congress, 
because it gives the Advocate the authority to come directly to 
the Congress with legislative and administrative proposals that 
are made and also to report on the actions that the IRS is 
taking in response to those recommendations. That's a pretty 
powerful tool. In effect, if the Advocate is not doing the job, 
it's going to be very clear to the Congress that this report is 
not what we're looking for; it's not fulfilling the needs that 
we have in terms of an independent Advocate, so, in effect, you 
have that capability to make that determination. That's how I 
view the report and the TBOR 2 legislation. I think it's pretty 
powerful incentive for the Advocate to be independent, and it's 
recognized within the agency that the Advocate has a different 
role. The Advocate speaks for the taxpayer. The Advocate is 
going to come from a different perspective, and that is 
expected.
    Mr. Portman. Okay, my time is up. I've got a million other 
questions, and just to say, I think it's a vast improvement 
because it's very helpful to us, this report. I enjoyed the 
comments. Ms. Tabor, thank you for your Cincinnati insights on 
stovepipes and the inability to break down some of those 
barriers, as you called them, and the fact that the taxpayer 
assistance days broke down those barriers. I think that's 
exactly what Commissioner Rossotti was talking about, and I'm 
very excited about the next four or five years, as we work 
together to try to improve these.
    As long as Nancy Johnson is here in the subcommittee, Mr. 
Monks, I will agree with you that there is some independence 
through the congressional reporting, because you've got a 
bulldog here who will stay on your case.
    One final question, if I might, and that's just a yes or 
no. Do you agree or disagree with the provision in the bill 
that states that the Advocate, after he or she leaves office, 
cannot go back to the IRS for a period; I think it's five 
years?
    Mr. Monks. I do not have any problem with that concern. In 
fact, I raised an issue with our folks in Legislative Affairs 
that if they're going to require that of an internal Advocate, 
the same requirement ought to be placed on anyone coming in 
externally, because otherwise you have the potential for 
burrowing in.
    Mr. Portman. Right.
    Mr. Monks. So if you're going to impose that requirement on 
an internal selectee, then make it an across-the-board 
requirement.
    Mr. Portman. Okay. Thank you very much for your testimony. 
Thank you all for being here.
    Chairman Johnson of Connecticut. All right, thank you. I'm 
going to recognize Mrs. Thurman next, but I also have to excuse 
myself, unfortunately. Thank you very much for your input. We 
look forward to working with you. Remember, this is the first 
step, and really if we're going to get at this issue of 
complexity, we have a better chance at fighting it from the 
bottom up than we do from the top down. So if you give us 
guidance on which knots cause the most problems, we will have a 
better opportunity to resolve them. You've pointed to some 
today. The 18 suggestions that you made are really fairly 
simple; they're fairly technical. I hope in the future you're 
going to come with some of those recommendations, but also some 
other recommendations, pointing at sections of the law that are 
particularly complicated. You did some of that today, and we'll 
be working with you.
    But we all have to learn how to use this tool that we have, 
your contact with the taxpayers, and our ability to change the 
law, far more effectively and aggressively and in a time-
sensitive manner.
    Thank you all very much for your testimony today.
    I'm going to recognize Ms. Thurman, and then Mr. Hulshof 
will have a chance to ask questions.
    Thank you all for being here.
    Mr. Monks. Thank you.
    Mrs. Thurman. Thank you, Madam Chairman.
    First of all, let me say that we appreciate the job that 
you are doing. For any of us who work in our district offices, 
and we do get those IRS calls on occasion as well, and you are 
the first ones we call. I understand we're going to have a new 
one in our area in north Florida. So we look forward to that.
    But we do appreciate the job that you do, and it's not an 
easy one, I'm sure. Sometimes when they come to you, I don't 
know that they necessarily know that you're their Advocate as 
much more as that you might work for IRS, and therefore you can 
do something for me.
    Let me ask you a couple of questions, though. In the 
reorganization--and if you're uncomfortable with this because I 
know this is all new, and I don't know how much of this has 
really been shared with everybody, but in the fact that they're 
going to break it down into four areas, does that seem to be 
helpful in solutions where, because of the initial time that 
they might contact IRS or be involved, where somebody knows 
about the wage and investment income, and then if they have a 
problem with small business or self-employed, do you see that 
from your experiences, being the Advocates, that just somebody 
having knowledge of those kinds of areas and being particularly 
educated in those, that that will be helpful in addressing some 
of these problems?
    I open it up. Mr. Monks, you can choose.
    Ms. Goldstein. I'm going to quote something that Lee Monks 
had said yesterday, although, unfortunately, I was not in the 
meeting, so I was not privy to his comments, but Mr. Romito 
shared them with me. He mentioned that General Electric has 
various divisions. They go from making toasters to making jet 
engines, and I don't think their expectation for their 
employees is that those employees who make toasters also need 
to know how to make a jet engine.
    I see Mr. Rossotti's suggestion for modernization of the 
IRS in a somewhat similar manner; that right now I think we are 
bogged down in everybody needing to know everything, and I 
think as an Advocate, if we have specialty areas that could 
concentrate on the specific problems that those areas are 
creating for our taxpayers, we would be a much more effective 
organization as a whole, and I think we as Advocates could be 
more effective advocating for those individual units of our 
taxpaying public.
    Mr. Monks. I think one of the other opportunities that I 
see--and it's not quite clear how it would play out at the 
district level yet, so I'm not quite sure how that would 
happen, but certainly at the Service Center level, and at our 
call sites, toll-free call sites, you could then specialize in 
the categories of taxpayers you serve. So the training for the 
employees could be targeted to either individual taxpayers, 
corporate taxpayers, small business taxpayers, or the 
specialty-type taxes, and you may well decide that you need 
seven of the ten centers to deal with individual taxes, one or 
two to deal with the others, and you would specialize in that 
area.
    So your training would be more effective; your employees 
would be more effective over a period of time, and from a 
Taxpayer Advocate's focus, you could focus your problem-solving 
and your legislative proposals, your administrative proposals, 
in the area that you have more expertise in than you would 
currently have. So it certainly seems to be exciting, and I'm 
not sure that anyone other than someone coming from outside of 
the IRS could have come in and made that kind of an assessment 
as quickly as Mr. Rossotti has. So it's a very exciting 
concept, and I think it's going to hold much--hold us in good 
stead in the future as we move toward this.
    Mrs. Thurman. Just listening to people talk about it, just 
getting accurate information, and the same information from one 
agent to another, has been a significant issue, so it would 
seem to me.
    Mr. Monks, you had mentioned in your statement that, 
because of some of the congressional oversight, that we've kind 
of accelerated the process. Let me ask you, then, and from your 
perspectives, I know that you have given us some 
recommendations, but if we were to accelerate the process to 
give you some additional tools, what would be your three top 
things that we could do within the bill that's sitting in the 
Senate today, if we were in negotiations with them?
    Mr. Monks. Providing the Advocate with additional tools.
    Mrs. Thurman. Right.
    Mr. Monks. I will let some of the Advocates comment on that 
as well. I mentioned to you the fact that I was aware of the 
hearing that you conducted----
    Mrs. Thurman. Right.
    Mr. Monks [continuing]. Down in Florida, and I got some 
feedback as a result of one my employees, or actually one of 
our Advocates having had the opportunity to participate. One of 
the things that we are doing is looking at this issue of 
additional authorities, and I think the issue that you raised 
at that hearing with the Directors--and the Directors indicated 
that they did not have the authority to deal with, was the 
abatement of interest, and that is a significant problem.
    As we look at what additional authorities we might want to 
have, we might want to look at certain circumstances 
whereinterest abatement would be appropriate, because in problem 
resolution, we continually run into cases where taxpayers are on an 
installment agreement, and making their installments, and yet at the 
end of the year they owe more money than they did at the beginning of 
the year, and that's due to the compounding situation. We didn't start 
compounding interest until--I'm not sure when, but that has caused us a 
specific problem.
    One of the authorities that we're looking at, in this task 
force, that we've kind of laid out to them as a starting point 
is the ability to remove an asset from consideration in 
considering an offer-in-compromise case, or to close a case as 
uncollectible. In many situations the revenue officer is 
prevented from closing that case because the taxpayer has 
equity in the asset, and the rules, in essence, for an offer-
in-compromise require that equity to be paid over, at least 
that amount, for the Service to be able to accept an offer.
    Yet, in many of those cases the seizure of that asset or 
for the taxpayer to pay that kind of equity would cause an 
undue hardship, and so one of the things that----
    Mrs. Thurman. Like losing their home.
    Mr. Monks [continuing]. I'll be looking at in this task 
group is to develop the authority to consider excluding an 
asset from consideration based on hardship, so that the field 
employees or the Taxpayer Advocate can close a case on an 
offer-in-compromise, or an installment, excuse me, or putting 
an account into uncollectible status, whereas currently they do 
not have that authority. That's an area that I'm sure this task 
force will come up with a proposal along that line, and we will 
present this as quickly as we can to the executive committee.
    Now this may require a legislative change as opposed to 
being able to do this administratively, but if it does, we have 
already started work with the Office of Chief Counsel to help 
us develop that legislative proposal.
    Mrs. Thurman. Mr. Portman, just briefly, maybe to you and 
to the Oversight Committee, one of the concerns that I have in 
this--and maybe it's something we can get some information from 
Joint Tax--is when we look at our revenues and such, is that 
included? Are these penalties and such included in any of our 
monies that might be available to us? Because I think if they 
are, then we need to have some idea of what we're looking at, 
if there's a revenue offset or whatever, or if there is not, 
and I have no clue at this time as to how that works. Maybe you 
do; maybe you can give me some information on this. But if we 
do look at this penalty and the waiver, or looking at the 
assets and whatever, how does that affect us in our numbers in 
our budget? I think it might be something for us to look at 
before we get too far into this.
    Mr. Portman. Well put.
    Ms. Goldstein. Ms. Thurman, the only other item that I 
would add, in discussion in regard to additional authorities, 
is the fact that currently there is a provision that allows us 
to extend the statutory period for collection for many 
taxpayers who enter into an installment agreement, and that 
installment agreement actually extends beyond the statutory 
period for collection. In many cases we have very unhappy 
taxpayers, and place many taxpayers in a hardship situation, 
because they feel compelled to sign that statutory waiver; 
otherwise, they may be threatened with immediate collection 
action.
    Mrs. Thurman. That was the other issue that was brought up.
    Ms. Goldstein. And what I would like to see is that 
perhaps, legislatively or administratively, a provision that 
would perhaps limit the length of time that we extend the 
statute----
    Mr. Monks. And, in fact, we did include that as--that's one 
of the administrative proposals--I think it's No. 18 or 
something on the list--one of the administrative proposals that 
we made to the to the collections function, was to consider 
limiting the number of times that a statute can be extended, 
particularly on a dormant account, where there's been really no 
active collection taken on that account other than offsets of 
refunds. Let it go if it's at that point, and not extend it 
further. The Congress gave the IRS a 10-year statute, and yet 
we often find revenue officers that are going out and extending 
the statute over and over and over again, just to keep the case 
alive.
    Mrs. Thurman. Thank you.
    Mr. Portman [presiding]. Okay, Mr. Hulshof.
    Mr. Hulshof. Mr. Chairman, thank you.
    Ms. Ling, I notice that during your testimony, the portion 
regarding complexity, you wondered aloud how many Members of 
Congress do their own taxes. If you want to keep a running tab, 
put me down as a yes. [Laughter.]
    But I've got to tell you that, as you alluded, that I'm not 
very aggressive in seeking out credits or deductions because 
I'm afraid of awaking the slumbering giant called the IRS. 
[Laughter.]
    So I want to talk a little bit about complexity. Mr. Monks, 
can we make some assumptions? You pointed out some specifics, 
and I appreciate that very much.
    For instance, can we assume that people that itemize 
deductions, do they have more problems than those that claim 
the standard deduction? Is that a fair assumption?
    Mr. Monks. Oh, absolutely.
    Mr. Hulshof. What about married taxpayers that are filing 
joint returns as opposed to single taxpayers filing separate 
returns? Would you say----
    Mr. Monks. I don't know if I could categorize that as a 
higher complexity in terms of the return, because, after all, 
it's just using an individual rate versus a married/filing 
joint rate. What would add to the complexity would be the 
schedules that would be attached.
    Mr. Hulshof. Have you found any correlation between the 
size of a taxpayer's income and the problems that they 
encounter? That is, those that--some of you are nodding, and I 
don't know if you have any specific data, but is there any 
correlation between the size of a taxpayer's income and the 
problems that he or she is likely to have?
    Mr. Monks. I have not seen any studies of that nature. 
Obviously, a high-income-level taxpayer is probably going to 
get professional assistance, and is probably less likely to 
have an error.
    Mr. Hulshof. Okay. I note that Mr. Portman mentioned that 
in the bill that's languishing in the other body that there is 
a provision that would require the Joint Committee on Taxation 
to prepare a tax complexity analysis, which for every tax bill, 
it sort of conjures up an image of an Olympic judge holding up 
numbers, as we debate these bills. But, again, I think 
anything--Ms. Ling, going back to your point--that we can talk 
again about the need to emphasize complexity. As we're 
beginning discussions about Fiscal Year 1999 budget, there's 
been, again, discussion of using the tax code or changes in the 
tax code to drive public policy and encourage certain behaviors 
through the tax code, which of course adds complexity.
    One other point in the remaining time, one of the 
legislative proposals, Mr. Monks, in your report regarding the 
innocent spouse situation would allow taxpayers who filed a 
joint tax return to subsequently elect to be treated as a 
married/filing separately in cases where one spouse is deemed 
to be unfairly saddled with joint liability, and I use those 
terms because you used them in the report. Who would be making 
the determination that a spouse would be unfairly saddled, and 
what would go into that determination of being unfairly 
saddled?
    Mr. Monks. Of course, this is just a concept at this point, 
but I would envision that it would require the signature of 
both taxpayers to agree to that type of a situation, but we do 
get a number of cases in problem resolution, and each of our 
field Advocates can attest to that, that many of the cases they 
get involve divorced or separated spouses where the wife seems 
to be saddled with the tax bill because we've either not been 
able to locate the other spouse or the other spouse has no 
assets from which collection could be affected.
    In a case, a classic case, that came to my office, and we 
got involved in this situation, the wife, had planned to file a 
separate return, and would have got a refund, but the husband's 
accountant had convinced her to file a joint return with her 
husband because it would reduce the husband's liability. 
Subsequently, the husband made no payment on the taxes at all, 
and ended up declaring bankruptcy. They separated, and the only 
payments on the account had been made by the wife through 
offsets on her refund. Collection, at that point in time, was 
proceeding to collect against the wife because she was the only 
one that had assets. Yet, the income that created the tax 
liability was primarily the husband's. That's the type of a 
situation that I would envision that we could rightfully 
conclude that the proper action, the right thing to do, would 
be to treat this taxpayer as if they were married/filing 
separately, and get their tax liability down to where it would 
have been, had they filed separately, but we currently do not 
have that capability in the code.
    There is the provision to allow married/filing separates to 
file married/filling jointly, but not the provision to go the 
other way. That's the type of situation that I would see that 
occurring in, because we get a lot of cases in problem 
resolution where that seems to be the case.
    Mr. Hulshof. Thank you.
    Mr. Portman. Thank you, Mr. Hulshof.
    I don't want to hold you all too much longer, but I have a 
couple of other follow-ups, if I could. One, I want to thank 
Mr. Hulshof for mentioning that we do get at the complexity 
issue somewhat in this legislation, not as much as many of us 
would like to do, but we do have this, as Mr. Hulshof said, 
complexity analysis which would require, for every new tax 
piece of legislation, the cost to you all administering the 
taxes, but also the cost to the taxpayer in terms of time 
required, resources required, new forms, new lines, new 
schedules. That's something I think which will be quite helpful 
in terms of at least bringing to the public's attention, and to 
my colleagues' attention, what some of the consequences are of 
the new legislation. If that's not part of the tax proposal, 
then any Member of Congress can raise a point of order on the 
floor of the House or the Senate to require that. So we're 
making some progress.
    We looked, as you know, very hard at the complexity 
analysis to come up with an actual ranking on complexity or 
perhaps even a number as to the actual cost to the taxpayer, 
and, frankly, the Joint Tax Committee was not able to give us 
assurance that they could do that. Otherwise, that would be in 
the legislation, but it was viewed as somethingimpractical at 
this time.
    We do have, as Mr. Monks had mentioned earlier, a study to 
try to look at that. I think you mentioned that in your 
testimony, and maybe over time we'll be able to come up with 
some economic analysis that can give us that kind of 
information. But, I think, it is a step in the right direction, 
and will be somewhat helpful.
    Also, we require that the IRS be at the table, as you know, 
which is something that I think was more practiced in earlier 
years than it has been recently, where the IRS actually is 
working with us on tax legislation at the committee level. Now 
at 3:00 a.m. in the morning in the conference, when some of 
these decisions are made through horse-trading, it's going to 
be practically impossible, I think, to have that kind of input, 
but at least we will get better input at the outset, again, on 
some of the burdens to the system and to the taxpayer, from the 
people who know, because we often blindly legislate in this 
committee and others without that input. That's something that 
I think is supported on a bipartisan basis, including, I know, 
the chairman of the committee is very supportive of that. So 
we've made some progress.
    I like your EITC ideas. I know that not all of these 
proposals have been vetted by the administration. You all are, 
indeed, independent because I know that the administration 
doesn't support all of your proposals. I guess the proof's in 
the pudding.
    But on EITC, my memory may be failing me here, Ms. 
Goldstein, but I think that you made a comment last year at the 
hearing that you thought it would be best to take the EITC out 
of the tax code altogether----
    Ms. Goldstein. Yes, I did.
    Mr. Portman [continuing]. Put it on the spending side, 
expenditure side, and allow it to be what it really is, which 
is a transfer program. To call it a welfare program is probably 
not accurate because it's for people who are working, and 
welfare implies they are not working. But it's a system where 
the government is paying people a subsidy; 85 percent of it, as 
you know, is refundable. The error rate this year is going to 
be something like 21 percent, we're told. It's been higher in 
years past, but we think some of the new provisions we have in 
the law from last year and two years ago might help. So that's 
what, about $5.5 billion that will be mispaid this year. It's a 
system that I hear about a lot from people I know at the IRS. I 
don't see it high-ranked on your problems that you encountered 
in talking to IRS employees.
    I guess my question is, since this year we didn't hear that 
from any of our panelists, that the EITC is a major problem, is 
it something that you are somehow feeling is working better, or 
are these numbers we're hearing from Treasury and the IRS of 
the over $5 billion being mispaid, and the problems that we're 
hearing anecdotally back in our districts true, which is this 
continues to be a real problem, to have the EITC run through 
the tax code?
    Ms. Goldstein. I'll answer that, only because I did raise 
the issue last year. What we've seen, as far as burden on 
taxpayers, it has lessened because of the administrative way in 
which we deal with incorrect applications for the earned income 
credit. Legislation allowed us to go from treating it as an 
examination and going through statutory deficiency procedures 
to treating it as a math error. By treating it as a math error, 
very often, when someone gives us an incorrect social security 
number, we are able to deal with that problem for the taxpayer 
more immediately than we had in the past.
    But I have not changed my opinion in regard to the earned 
income credit. I do believe that it is a necessary funding 
issue for the working poor. However, my preference personally 
would be to remove it off of the tax code because it does 
create an administrative nightmare for us, as well as I think 
sometimes hampers those legitimate taxpayers who need to get at 
it, but in very many cases it's so complex now that they just 
don't claim it, when they're entitled to it.
    Mr. Portman. I would add, I know that this is not the right 
place to talk about the policy issue, and there are people at 
the IRS who deal with the policy, how to administer what we're 
passing up here, but when you look at the interplay between the 
child tax credit and the EITC that is in place because of the 
balanced budget agreement we made with regard to EITC, I think 
a year from now you will be saying that it, indeed, is even 
more complex for a lot of Americans who are trying to figure 
out whether they are eligible for the child tax credit, in 
addition to the EITC. As I read the legislation, it's very 
complicated; I, frankly, can't explain it to my constituents, 
that interplay, the stacking, and so on, and I don't know how 
you all are going to be able to explain it to people, many of 
whom, frankly, are not going to take the time to sit down and 
read through the IRS instructions or our legislation. So I 
think we're probably making it more complicated with the 
changes that we made last year that would be effective, as I 
understand it, for this calendar year.
    Any other thoughts on the EITC?
    Mr. Romano. Yes, I'd just like to add that I think you're 
absolutely right. We're really not going to see the fallout 
from the changes that were made. When taxpayers start to play 
with the earned income credit, along with the child credit, and 
balance everything out, I think that they are going to be 
looking for help from the Service to go through the forms, to 
go through the lines, and it's really too early to tell at this 
point what kind of fallout we're going to see from that, from 
those changes.
    Mr. Portman. Any other thoughts, Mr. Monks?
    Mr. Monks. No, I think that pretty much summarized it. I 
think the implementation of the ITIN process last year probably 
also eliminated some of the problems, because it removed 
certain categories of individuals eligible for the credit, and 
so that eliminated some of the problems that we had experienced 
in previous years.
    Mr. Portman. Well, again, thank you all very much for your 
testimony and for what you're doing out in the field, in my 
district, in Mr. Hulshof's district, and others. We appreciate 
it, and we appreciate your testimony today.
    Mr. Monks. Thank you.
    Mr. Portman. This hearing is now adjourned.
    [Whereupon, at 4:51 p.m., the Subcommittee adjourned 
subject to the call of the Chair.]

                                
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