[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
ANNUAL REPORT OF THE INTERNAL REVENUE SERVICE NATIONAL TAXPAYER
ADVOCATE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
FEBRUARY 10, 1999
__________
Serial 106-40
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
65-631 CC WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office,
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
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 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
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
------
Subcommittee on Oversight
AMO HOUGHTON, New York, Chairman
ROB PORTMAN, Ohio WILLIAM J. COYNE, Pennsylvania
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
WES WATKINS, Oklahoma JIM McDERMOTT, Washington
JERRY WELLER, Illinois JOHN LEWIS, Georgia
KENNY HULSHOF, Missouri RICHARD E. NEAL, Massachusetts
J.D. HAYWORTH, Arizona
SCOTT McINNIS, Colorado
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
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
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Page
Advisory of February 3, 1999, announcing the hearing............. 2
WITNESSES
Internal Revenue Service:
Hon. Charles O. Rossotti, Commissioner....................... 7
W. Val Oveson, National Taxpayer Advocate.................... 30
U.S. General Accounting Office: Cornelia M. Ashby, Associate
Director, Tax Policy and Administration Issues, General
Government Division; accompanied by David J. Attianese,
Assistant Director and Kelsey M. Bright, Evaluator in Charge... 44
------
SUBMISSION FOR THE RECORD
Kamman, Bob, Phoenix, AZ, statement.............................. 55
ANNUAL REPORT OF THE INTERNAL REVENUE SERVICE NATIONAL TAXPAYER
ADVOCATE
----------
WEDNESDAY, FEBRUARY 10, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
1100 Longworth House Office Building, Hon. Amo Houghton
(Chairman of the Subcommittee), presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON OVERSIGHT
CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
February 3, 1999
No. OV-1
Houghton Announces Hearing on the
Annual Report of the Internal Revenue Service
National Taxpayer Advocate
Congressman Amo Houghton (R-NY), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on the Annual Report to Congress of
the Internal Revenue Service (IRS) Taxpayer Advocate. The hearing will
take place on Wednesday, February 10, 1999, in the main Committee
hearing room, 1100 Longworth House Office Building, beginning at 2:30
p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include: from the IRS, Commissioner Charles O. Rossotti,
and National Taxpayer Advocate W. Val Oveson; and the U.S. General
accounting Office. Any individual or organization not scheduled for an
oral appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
Congress established the requirement that the IRS Taxpayer Advocate
submit an annual report to Congress as part of the taxpayer Bill of
Rights 2 (TBOR 2), (P.L. 104-168) in 1996. TBOR 2 was enacted in order
to expand the safeguards available to taxpayers in their dealing with
the IRS. TBOR 2 directs the IRS Taxpayer Advocate to make an annual
report to Congress identifying the initiatives undertaken by the
Taxpayer Advocate in the previous fiscal year to improve taxpayer
services and IRS responsiveness. The report discusses the 20 most
serious problems which taxpayers experience in their dealings with the
IRS, and it offers recommendations for administrative and legislative
actions to address such recurring problems. The National Taxpayer
Advocate recently submitted his third ``Annual Report to Congress''
covering fiscal year 1998.
Congress reinforced its commitment to safeguarding taxpayer rights
last year when it passed the Internal Revenue Service Restructuring and
Reform Act of 1998 (P.L. 105-206). Title 3 of this Act is known as the
Taxpayer Bill of Rights 3 (TBOR 3). For example, TBOR 3 provides relief
to innocent spouses for the liability arising from prior joint tax
returns, increases the IRS reimbursement of attorney fees to taxpayers
who successfully defend their tax returns in disputes with the IRS, and
prohibits the IRS from seizing a taxpayer's home without judicial
approval.
The Act also expands requirements for the content of the annual
report of the National Taxpayer Advocate. The annual report now must
identify areas of the tax law that impose significant compliance
burdens on taxpayers or the IRS, must make recommendations for
mitigating these burdens, and must list the 10 most litigated issues
for each category of taxpayers, including recommendations for reducing
such disputes.
In addition, the Act also strengthens the independence and
authority of the IRS National Taxpayer Advocate. It provides that local
taxpayer advocates would report to the National Taxpayer Advocate
instead of to their local operational supervisors. Until this change
was made, the performance reviews and promotion decisions effecting
local taxpayer advocates often was in the hands of a local operational
supervisor whose primary responsibility may not have been taxpayer
service. The new legislation assures that all taxpayer advocates
function within the same ``chain of command.''
In announcing the hearing, Chairman Houghton states: ``Congress has
enacted significant new taxpayer safeguards over the past few years as
a response to public complaints of heavy handed treatment by the IRS.
Commissioner Rossotti and the National Taxpayer Advocate should be able
to tell us how successful we have been in changing the attitude and
practices of the IRS.''
FOCUS OF THE HEARING:
The hearing will examine the details of the third annual report of
the National Taxpayer Advocate and focus on its recommendations for
further administrative and legislative actions to help improve taxpayer
rights and to reduce taxpayer burdens.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect 5.1 format, with their name, address, and
hearing date noted on a label, by the close of business, Wednesday,
February 24, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways
and Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Oversight office, room 1136 Longworth
House Office Building, by close of business the day before the hearing.
FORMATTING REQUIREMENTS:
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witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
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but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
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format, typed in single space and may not exceed a total of 10 pages
including attachments. Witnesses are advised that the Committee will
rely on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
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3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
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the designated representative may be reached. This supplemental sheet
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The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman Houghton. Good afternoon. Ladies and gentlemen,
we're delighted to have you here and hope this is a worthwhile
meeting. Thank you very much Mr. Rossotti, for being here and
thanks to Val Oveson, also, for you're being here. This is the
first Oversight Subcommittee of the Ways and Means in the 106th
Congress.
The last time I was in this room with an Oversight
Committee was when Jake Pickle was the head of the Oversight
Committee, and I was the minority counterpart to him, and I
learned a lot from him and I really miss him. Incidently, I'm
going to go down to see him in about a week and we'll bring him
all the proceedings that happened here.
Anyway, this is the annual report to Congress of the IRS
Taxpayer Advocate and as many of you know, the Congress passed
the first Taxpayer Bill of Rights in 1988; second one in 1996;
and the third one in 1998.
[The Report is being retained in the Committee files.]
The reason being of course, that the public keeps telling
us they have a variety of bad experiences with the IRS. Now
this is not universal, obviously, because the IRS is trying to
do the best job it possibly can, but it happens. The nature of
the work; the type of individual; the turnover of the people;
so we have to keep on top of it, and we have to keep on our
toes.
Today, what I like to do is to say a few words and then
introduce my counterpart and the Minority Leader, Mr. Coyne.
Then, we'll turn the proceedings over to you, Mr. Rossotti.
Mr. Rossotti is our first witness and he'll be speaking in a
minute. The Commissioner has expressed a strong commitment to
improving taxpayer service at the IRS. He's also in the process
of implementing many of the new provisions in the IRS
Restructuring and Reform Act of 1998, and, obviously, we look
forward to hearing from you.
Val Oveson is sitting over here as the IRS National
Taxpayer Advocate. While Mr. Oveson has only held his new post
for about 5 months--is that right, Val? You'll never be more
objective than you are now. He has brought a strong vision and
fresh imagination to the Office of the Taxpayer Advocate, and
we look forward to having him discuss the details of the annual
report with us. We all welcome his recommendations for
legislative changes, which he believes would help reduce the
burden on taxpayers.
Finally, we're going to have representatives from the
General Accounting Office to share with us their critique of
the operations of the Office of Taxpayer Advocate.
[The opening statement follows:]
Statement of Chairman Amo Houghton, a Representative in Congress from
the State of New York
Good afternoon ladies and gentlemen. I want to welcome you
to the first Oversight Subcommittee hearing of 1999. We have a
challenging year ahead of us.
It was my privilege to serve as the Ranking Member on this
Subcommittee during the 103rd Congress when it was chaired by
Jake Pickle. Jake Pickle was a firm but fair Chairman. I
learned a lot from him which I hope to put into practice now
that I am chairing the Subcommittee.
Congress passed the first taxpayer Bill of Rights in 1988.
We passed the second taxpayer Bill of Rights in 1996, and the
third Taxpayer Bill of Rights in 1998. The reason Congress
keeps passing these laws is that the public keeps telling us of
their bad experiences in dealing with the IRS. The Senate
hearings last year documented the cases of numerous innocent
taxpayers who were unable to extricate themselves from some
maddening Catch-22 situations with the IRS.
Today we welcome IRS Commissioner Charles Rossotti as our
first witness of the 106th Congress. The Commissioner has
expressed a strong commitment to improving taxpayer service at
the IRS. He also is in the process of implementing many of the
new provisions in the IRS Restructuring and Reform Act of 1998.
We look forward to hearing how his efforts are proceeding in
all of these areas.
Val Oveson is the IRS National Taxpayer Advocate. While Mr.
Oveson has only held his new post for about 5 months, he has
brought a strong vision and fresh imagination to the Office of
the Taxpayer Advocate. We look forward to him discussing the
details of the annual report with us. We welcome his
recommendations for legislative changes which he believes would
help reduce the burden on taxpayers.
Finally, the U.S. General Accounting Office will share with
us their critique of the operations of the Office of Taxpayer
advocate and their comments on how it might improve its
effectiveness.
As taxpayers begin filling out their 1998 federal income
tax returns, we should try to make the experience as smooth as
possible. No one necessarily enjoys paying taxes, but the
operational mechanics of obeying the law should be as user-
friendly as possible. The annual report of the Taxpayer
Advocate should give us many good ideas on how to improve the
tax system. While none of the provisions in the report is
flashy or glamorous, they spell out the nitty-gritty details
which taken collectively make the tax system a success or a
failure.
I welcome our witnesses and I look forward to hearing their
testimony.
Chairman Houghton. I would like to ask Mr. Coyne, who is
the Minority Leader, to make his statement, and if others would
submit their statements for the record, I would appreciate
that.
Mr. Coyne.
Mr. Coyne. Thank you, Mr. Chairman. Today we will discuss
the ability of the Internal Revenue Service to address the
taxpayers' needs in this country. First, I want to welcome IRS
Commissioner Rossotti to the Subcommittee's first hearing of
the year. Taxpayers have already benefited from the management
expertise and innovation that Commissioner Rossotti has brought
to the IRS. His commitment to implementing IRS management
reform and improving taxpayer services must be congratulated.
Second, I want to welcome the new IRS Taxpayer Advocate,
Mr. Val Oveson, to the Subcommittee. As we do each year, we
will consider the Advocate's uncensored analysis and
recommendations for better resolving taxpayer problems. I urge
everyone to read Mr. Oveson's introductory comments to the 1999
report. They are appropriately candid and, frankly, a breath of
fresh air. Also, I welcome the Taxpayer Advocate's
recommendations for administrative and legislative action and
look forward to reviewing each of them.
Third, no IRS Oversight hearing would be complete without
the participation of the U.S. General Accounting Office. The
GAO diligently monitors the IRS and does an excellent job of
evaluating the implementation of new programs.
Finally, I want to welcome those IRS employees in the
audience who are in Washington, DC. as participants in the
annual Congressional Legislative Affairs Conference. Our goal
in passing the IRS Restructuring and Reform Act of 1998 was
both to achieve fairness for taxpayers and to provide IRS
employees with the tools and resources they need to do a first
class job for the American people.
With the IRS restructuring and reform legislation in place,
we now need to ask whether the new laws are working and what
more needs to be done. I am particularly interested in
individual tax simplification; the new innocent spouse rules;
administration of the earned income tax credit; and abatement
of interest and penalty for taxpayers. The IRS Commissioner,
the Taxpayer Advocate, and the GAO will contribute greatly to
our discussion here today and I look forward to your testimony.
Thank you.
Chairman Houghton. Thanks very much, Mr. Coyne.
[The opening statement follows:]
Statement of Hon. William J. Coyne, a Representative in Congress from
the State of Pennsylvania
Today, the Ways and Means Oversight Subcommittee will
discuss the ability of the Internal Revenue Service to address
the needs of taxpayers.
First, I want to welcome IRS Commissioner Rossotti to the
Subcommittee's first hearing of the year. Taxpayers have
already benefitted from the management expertise and innovation
Commissioner Rossotti has brought to the IRS. His commitment to
implementing IRS management reform and improving taxpayer
services must be congratulated.
Second, I want to welcome the new IRS Taxpayer Advocate,
Mr. Val Oveson, to the Subcommittee. As we do each year, we
will consider the Advocate's uncensored analysis and
recommendations for better resolving taxpayer problems. I urge
everyone to read Mr. Oveson's introductory comments to the 1999
Report. They are appropriately candid and, frankly, a breath of
fresh air. Also, I welcome the Taxpayer Advocate's
recommendations for administrative and legislative action, and
look forward to reviewing each of them.
Third, no IRS oversight hearing would be complete without
the participation of the U.S. General Accounting Office. The
GAO diligently monitors the IRS, and does an excellent job of
evaluating the implementation of new programs.
Finally, I want to welcome those IRS employees in the
audience who are in Washington D.C. as participants in the
Annual Congressional Legislative Affairs Conference. Our goal
in passing the IRS Restructuring and Reform Act of 1998 was
both to achieve fairness for taxpayers, and to provide IRS
employees with the tools and resources they need to do a first
class job for the public.
With the IRS restructuring and reform legislation in place,
we now need to ask whether the new laws are working and what
more needs to be done. I am particularly interested in
individual tax simplification, the new innocent spouse rules,
administration of the Earned Income Tax Credit, and abatement
of interest and penalty for taxpayers. The IRS Commissioner,
the Taxpayer Advocate, and the GAO will contribute greatly to
this discussion. I look forward to their testimony.
Chairman Houghton. I would also like to introduce Mac
McKenney, who is one of the staff directors, and Beth Vance,
sitting back here; they have done a wonderful job.
Well, without further ado, I would like to introduce Mr.
Rossotti. We would like to have your testimony, sir.
STATEMENT OF HON. CHARLES O. ROSSOTTI, COMMISSIONER, INTERNAL
REVENUE SERVICE
Mr. Rossotti. Thank you very much, Mr. Chairman, and
distinguished Members of the Subcommittee. Thank you very much
for your very generous comments in your introduction. I
certainly appreciate the opportunity to be here today, but I'm
going to be very brief because I think the real focus is the
report from Mr. Oveson. So, I'll just make a few background
comments and take questions and then we'll get to Mr. Oveson.
I think that the IRS Restructuring and Reform Act that the
Congress passed last year, not only had many detailed important
provisions, but I think, very importantly, it set a clear
direction for the IRS. It told us very straightforwardly that
we simply have to do a better job in meeting taxpayers' needs
and think about our work from the taxpayers' point of view. And
so, the Restructuring Act and our modernization plans that are
designed to support this
direction are really a very significant change for the IRS--
dealing with organization, operations, culture and many
specific tax provisions.
And this is a very enormous project that does require us to
set priorities and goals for the hundreds of specific changes
that we are implementing. To give you an idea of just the
magnitude of those reflected in law between the Taxpayer Relief
Act of 1997 and the RRA of 1998, we have counted up about 1,260
Tax Code changes. And by the way, I did make sure that someone
actually gave me a list of these, so this just wasn't a made-up
number.
Now one of the most important areas of this RRA and our
plan is creating a strong taxpayer advocate organization. In
addition to dealing with specific cases, the taxpayer advocates
are a listening post for all of us at the IRS, telegraphing
important information about what is on the taxpayers' minds and
helping to identify systematic problems that are hindering our
ability to serve them.
Of course, the Taxpayer Advocate is also helping us lay the
groundwork for what we really want to achieve, which is the day
when everyone at the IRS will think of himself or herself as a
Taxpayer Advocate, not just those that officially hold the
title.
So I would just like to briefly summarize four specific
areas in which we are working to create the strong taxpayer
advocate organization that I think we all seek. First, and most
importantly, was simply the appointment of Val Oveson as the
National Taxpayer Advocate. He comes with outstanding
credentials and experience. Most recently, he was the chairman
of the Utah State Tax Commission where he helped to re-engineer
the operations of that agency to focus on much-improved
customer service. He also worked in streamlining the appeals
process and in a new mediation process to handle disputes.
Prior to that role, he was in private accounting practice and
represented small businesses and other taxpayers. So I think he
has exactly shown himself already, as a matter of fact, to be
the right person for the job.
Second, is the reorganization of the Taxpayer Advocates
Office, as called for by the Act. The RRA both enhanced the
role and the independence of the National Taxpayer Advocate. It
created a network of local taxpayer advocates who report
directly to the National Taxpayer Advocate and are independent
of the IRS examination, collections, and other compliance
functions. It also required and increased the presence of local
taxpayer advocates, so it ensures that at least one will be
available in every State.
Third, we are making progress on a number of specific
problem resolution programs. I think notably among these was
the problem-solving days which were initiated in November 1997,
and I think have been, largely due to the work of the local
taxpayer advocates, very, very successful. It gave taxpayers an
opportunity to sit down face-to-face with an IRS
representative, who was empowered in most cases to deal with
their specific problem right there on the spot.
Since the inception, we've had 32,000 taxpayers take
advantage of this. So this is an important program that we
intend to continue. Of course, we are also working on a lot of
cases that don't come up during problem-solving day including
many that come from congressional referrals; including some
that came out of last year's Senate Finance hearings.
Let me mention an important new step we took in November,
which is setting up the Taxpayer Advocate's hotline. That is 1-
877-777-4778; that's a lot of sevens, but it is published; it
is available, and we are beginning to get calls on it. I think,
as Mr. Coyne knows it's being managed out of the Pittsburgh
call-site. The employees there are doing an outstanding job.
Finally, of course, the RRA significantly increased the
taxpayer rights and, with them, the role of the National
Taxpayer Advocate Organization. One of the tools that is at the
disposal of the Advocates is the Taxpayer Assistance Orders,
which can be requested by a taxpayer that is suffering or about
to suffer a significant hardship. I would add that the RRA
expanded the number and range of situations that qualify as
hardships, and this order can be issued whenever the taxpayer
advocates determine that it is justified in granting relief to
a taxpayer, and including, of course, keeping the IRS from
taking an enforcement action, or especially a collection action
against the taxpayer; and also in terms of releasing liens on
taxpayer property. So, those are four specific areas.
I think it's worth concluding with the note that what is
most important, and really the ultimate challenge here, is to
address the systematic and reoccurring problems that still are
very, very difficult at the IRS. I think that Mr. Oveson has
correctly identified many of them in his report, but we
continue to work with him to help us identify patterns and
trends that will form guides for us as we address all the
organizational, and technological, and other issues throughout
the IRS.
So let me just conclude by stating my strong support for
the National Taxpayer Advocate Organization as well as for Mr.
Oveson. Personally, he's become a very, very important member
of our whole top management team at the IRS. And that concludes
my remarks, Mr. Chairman. I'd be happy to answer questions from
the Committee.
[The prepared statement follows:]
Statement of Hon. Charles O. Rossotti, Commissioner, Internal
Revenue Service
Mr. Chairman and Distinguished Members of the Subcommittee,
I appreciate this opportunity to appear before the subcommittee
today. I will be brief since the focus of today's hearing is
the Taxpayer Advocate's Report that will be presented shortly
by the National Taxpayer Advocate, Mr. Oveson.
The IRS Restructuring and Reform Act of 1998 (RRA 98) set a
clear direction for the IRS: we must do a better job meeting
taxpayers' needs and focus on service from the taxpayers' point
of view. Together, the Restructuring Act and our modernization
plan that helps implement it, form the basis for the most
significant change to the IRS' organization, operations and
culture in almost a half century. This is an enormous project,
requiring us to set priorities and goals for the hundreds of
specific changes to both the Tax Code and our organization. To
give you an idea of the magnitude, the Taxpayer Relief Act of
1997 and the RRA account for 1,236 Tax Code changes.
One of the key elements of the RRA and our modernization
plan is a strong Taxpayer Advocate Organization to which I am
totally committed. The Taxpayer Advocates are our listening
posts throughout the nation telegraphing important information
about what is on taxpayers' minds and identifying systemic
problems that hinder our ability to serve them. And we are
laying the groundwork so that all IRS employees will start
thinking of themselves as Taxpayer Advocates--not just those
who hold the title.
I believe we are meeting the challenges from the Congress
and America's taxpayers for a strong and engaged National
Taxpayer Advocate organization in a number of ways.
First, was the appointment of Val Oveson as National
Taxpayer Advocate. Mr. Oveson comes to the job with outstanding
credentials. He was Chairman of the Utah State Tax Commission
and initiated re-engineering efforts that significantly
improved the agency's customer service operations. His hard
work resulted in a streamlined appeals process and a new
mediation process to handle disputes, focusing on alternative
dispute resolution practices. He fits the job like a glove.
Second, is the reorganization of the Taxpayer Advocates'
Office under the Restructuring Act. The RRA both enhanced the
role and independence of the National Taxpayer Advocate. It
created a system of local Taxpayer Advocates who report
directly to the National Taxpayer Advocate and are independent
of IRS' examination, collection and appeals functions. The Act
also increased the presence of local Taxpayer Advocates so that
one will be available to taxpayers in each State.
Third, we're making Agency-wide progress on a number of
problem resolution fronts. Problem Solving Days have been very
successful, thanks in large measure to our Taxpayer Advocates'
hard work and dedication. Taxpayers can now sit down and meet
face-to-face with an IRS representative to help resolve a
specific problem and have all the functional experts in one
place to assist them. Since the inception of Problem Solving
Days in November 1997, approximately 32,000 taxpayers have
taken advantage of this innovative program with even more
taxpayers expected to participate in 1999. The Taxpayer
Advocates have built a lot of equity into this program and I
want to see it continue, but more importantly, I want to build
these practices into our everyday treatment of taxpayers.
Our Taxpayer Advocates' duties do not stop at Problem
Solving Days. They are also on the front lines working on tens
of thousands of individual taxpayer cases each year, including
the many that came, and continue to come out of last year's
Senate Finance Committee hearings. The National Taxpayer
Advocate has also spotlighted the Problem Resolution Program
with a new toll-free number for people with long-standing tax
troubles. The hotline for help--1-877-777-4778--is available
for taxpayers who haven't been able to promptly resolve
problems through normal IRS channels.
Fourth, the IRS Restructuring and Reform Act significantly
increased taxpayer rights, such as innocent spouse and
expanding offers in compromise, and with them the role of the
National Taxpayer Advocate organization. One of the tools at
their disposal is the Taxpayer Assistance Order, which can be
requested by a taxpayer suffering or about to suffer a
``significant hardship'' involving tax law administration. I
would add that the Restructuring Act expanded situations that
qualify as significant hardships. The orders can be issued if
the Taxpayer Advocate determines a significant hardship exists
that justifies granting the assistance order. The Taxpayer
Assistance Orders can cover a variety of circumstances,
including keeping the IRS from taking action against a taxpayer
and requiring the release of taxpayer property.
Mr. Chairman, that brings me to a final and most important
challenge--solving the recurring, systemic and practical
problems that plague the IRS. From their many meetings with
taxpayers, our Taxpayer Advocates see patterns and trends
emerging. If they help us diagnose these overarching taxpayer
problems, Mr. Oveson and I will do our best to work to get the
right prescription to cure them.
In conclusion let me restate my strong commitment to the
National Taxpayer Advocate Organization. It is a vital and
integral part of today's and tomorrow's modernized IRS and is
in good and capable hands in the person of our new National
Taxpayer Advocate, Mr. Val Oveson.
Chairman Houghton. Thanks very much, Mr. Commissioner.
Well, I'd like to start this thing off. I think you probably
have a recurring theme of tax simplification because, if I take
a look at it, the complexity of the tax law is the top problem
in which taxpayers are experiencing problems in dealing with
the IRS. But let me just put a little meat on that. I've got in
my hand a Form 8863. It doesn't mean a lot to most people, but
anyway here it is. It has something to do with education
credits--hope and life-time learning credits. According to the
instructions in this form, it takes over an hour and a half to
complete and file, and I won't go through the various 13
minutes for this; 10 for that; 34 for that, but it's just one
tax form.
I guess one of the things that bothered me is that, in
listening to the President's budget, in the State of the Union,
he proposed 28 new targeted tax cuts, among them a new tax
credit for fuel-efficient vehicles, for instance, which would
total nearly $33 billion over 5 years. So, you being in charge
of the IRS, and as the public servant who is responsible for
administrating the Internal Revenue Service, you've got to be
concerned about this. Whether you like the concept or not,
you've got to be concerned with the procedured mechanism which
will allow the IRS to handle this thing.
It takes so much time for taxpayers to comply with the law.
I just wonder where we're going here? We try to do something
right by the public, particularly because of the IRS reform
bill of last July: Yet, at the same time we're piling on more
problems and more complexities. How do you handle this?
Mr. Rossotti. Mr. Chairman, as you know, the Taxpayer
Advocate's report did identify from their casework that
complexity. I suppose it's not very surprising that it is one
of the first, if not the first, things he gets as feedback from
the taxpayers. Of course, this is an issue that involves way
more than the IRS. In fact, it is not predominantly the IRS; it
really involves the work of the Congress and the Treasury
Department and the administration. I think that our role, as I
see it, in the RRA is a rather limited one, but it is something
new. We are supposed to work under the provisions of the new
law, with the Joint Committee going forward on any new
provision that is proposed to provide the Congress what is
called a complexity analysis. It is the responsibility of the
Joint Committee, but we are, and the Treasury is, supposed to
support their efforts. We are currently working with the Joint
Committee to develop a methodology as to how that would be
done. So that is at least, I think, an opportunity to be more
focused on that issue when laws are proposed.
There is also a provision in the RRA that the IRS is
supposed to issue an annual report on the complexity of the Tax
Code, which is something that has never been done before.
Simply, we're working on a methodology to try to figure out
exactly what that means and how we can do that in a way that
would be most productive to support the work of the Congress.
So I think that--plus, what you're going to do today and hear
from Mr. Oveson in terms of practical issues that come up in
his casework, are some of the steps that I think the IRS can do
to help the Congress and the administration cope with this
issue.
Chairman Houghton. But, in practical fact, we are asking
you to control your budget; we are asking you to invest in new
equipment; we are asking you to show the leadership that you've
shown in business in running a tight ship. Yet, at the same
time, we superimpose on your operation all these new tax
credits which are going to cause a tremendous amount of
difficulty--very, very expensive. Do you ever push back? Do you
ever say, ``Hey, listen, you know, we can only take so much?''
Mr. Rossotti. Well----
Chairman Houghton. I don't ask you to be disloyal; I'm just
asking for your opinion.
Mr. Rossotti. You know, I think that really our role is to
provide advice as it is requested by the administration and
Congress on the administrative aspects of different provisions.
There is now a provision, thanks to the RRA, where we have,
let's say, a more official vehicle for doing that. And then, of
course, we have Mr. Oveson's report today where he has an
opportunity at some level to deal with these things.
But I have to honestly say that I think that, when you get
to the Tax Code itself and the complexity issues, these are
predominantly policy issues, that, as you know, are heavily
negotiated and worked on over the course of the whole year
between the administration, and the Treasury and the Congress.
So I think our role is one of providing information and support
where we can, but we are not really the lead players on that
problem.
Chairman Houghton. All right, thanks very much.
Mr. Coyne.
Mr. Coyne. Thank you, Mr. Chairman.
Commissioner, what are some of the examples of how
taxpayers across the country are benefiting from the provisions
allowing for the IRS to abate interest and penalties?
Mr. Rossotti. Well, I think that this is something that Mr.
Oveson is going to talk about in a little bit more detail, so I
don't want to steal his thunder. But I think that what we are
trying to do is, for example, be more active in seeking out
ways to make sure that, when it's equitable, that penalties
especially are abated. A good example of that is the order that
Mr. Oveson issued abating potential penalties with respect to
cases that were an inventory for the innocent spouse issue,
while we were waiting to get some of our regulations out.
There is also a provision which now allows us to abate
interest where there is a managerial act on the part of the
IRS, an IRS person, that causes an interest assessment. And
then, finally, of course, there's the provision that allows for
suspension of accrual of the interest in the cases where an
examination goes beyond the 18-month period that's in the law.
Those are some of the examples, but I think Mr. Oveson may
be able to also tell you some of the things that he's working
on to try to make sure that we use authority effectively.
Mr. Coyne. How about the electronic tax return filing?
Could you bring us up-to-date on how that's going?
Mr. Rossotti. Yes. Well, of course, we don't really have
statistics for this filing season yet because it's just getting
started, but last year I think we were really quite successful
in increasing the amount of filing. It was up about 25 percent,
which was a little bit more, actually, than we expected. It
came up to almost 25 million electronically filed returns.
Now the other big thing that we have done is we've got an
Electronic Tax Administration Marketing Program or strategic
plan, as we call it, which was actually published in December,
and outlines a series of steps over a 5-year period or so, that
we're going to take to gradually break down the various
barriers to electronic filing that fall in the way. For
example, this year there are a couple of important programs.
One of them is that we have a pilot program to eliminate the
infamous jurare form for certain taxpayers, where even though
you file electronically, you still have to send in a paper
form. There are security issues there, but we've got some
solutions to some of them and we're implementing them on a
pilot basis this year.
We are also, for the first time, allowing some taxpayers to
be able to pay a balance-due return by credit card, so they can
electronically pay as well as file. There are a series of
innovative programs that Mr. Barr, who is our Assistant
Commissioner, has come up with in conjunction with the private
sector to, for example, work on certain providers, allowing
low-income tax payers under $25,000 to file electronically for
free over the web, which I thought was a particularly good
program.
I will say, however, Mr. Coyne, that the fulfillment of the
strategic plan for Electronic Tax Administration and reaching
the goal that the Congress has set, to get ultimately to 80
percent filing, is going to require us to address some
fundamental barriers in our technology. This is one of the key
things that really impedes us because we have an electronic
system which is a modern system tacked onto a 30-year-old
technology base, and this is one of the reasons why you get
into things, for example, where not all the schedules can be
filed. That eliminates a lot people from being able to file.
So in our strategic plan, broader strategic plan for
updating our technology, we are giving a high priority in the
first period to some of the things that will help us to support
the Electronic Tax Administration program.
Mr. Coyne. What is the status of creating and funding low-
income tax clinics?
Mr. Rossotti. Yes, we have $2 million in this year's budget
to provide grants for that. I can get the exact dates here,
but, basically, we have a process underway and we've announced
a process for people to submit grant requests. We expect to get
them out, I believe it's by June, and then start dispensing the
money in the summertime. And we also have, I believe, $4
million in the budget request from the following fiscal year
for this one that's just coming up, fiscal year 2000. So we're
very enthusiastic about that program.
I think, as a strategy, one of the things that we're trying
to do across the board in the IRS is to put more resources,
relatively speaking, on working with taxpayers in various ways
to help them get their returns in right the first time, rather
than letting errors accumulate and then having to spend a lot
of resources of theirs and ours later. This is an example of
doing that.
[The information follows:]
The implementation plan for the new IRS Low Income Taxpayer Clinic
(LITC) Grant Program is on schedule. Two million dollars has been
allocated for FY99 LITC grant awards. We published a notice in the
Federal Register on 1/14/99 announcing the availability of the draft
application package and requested public comment. We are currently in
the process of reviewing the comments we received from the public and
external stakeholders. We will finalize the application package and
solicit applications via a Federal Register announcement in April 1999.
A selection panel will review the applications received and those
recipients selected will be notified in July 1999. An orientation
conference for grant recipients will be held in late July 1999 and
grant funds will be disbursed in August 1999.
Six million dollars has been requested in the IRS FY 2000 budget
for LITC grant funding. Applications for the FY 2000 program will be
solicited in early September 1999.
Mr. Coyne. Thank you.
Chairman Houghton. Mr. Hayworth.
Mr. Hayworth. Mr. Chairman, thank you very much. It's an
honor to be here on the Oversight Subcommittee.
Commissioner Rossotti, thank you very much for being here
today, and I look forward later this afternoon on my schedule
to seeing Ava Turner from the southwest district, who will stop
by to visit more one on one. But we appreciate the formality of
these hearings and the informational goals that we have.
Mr. Oveson, I look forward to hearing from you in a few
moments, since you are a neighbor to the north from Utah, and
we share at least one portion of those four corners.
Commissioner, you outlined a rather ambitious schedule of
outreach. I think it was typified with the problem-solving days
we saw--and certainly many of us as Members of Congress joined
in, I remember one particular Saturday in the spring gone by--
just the overall challenges you face in terms of making every
IRS employee a taxpayer advocate, which you said in your
opening statement very generously was your goal, to have
everyone view their job ultimately as that of a taxpayer
advocate.
One of the criticisms leveled at government in general,
whether it is county, State, Federal, especially those
organizations that deal with the citizenry in this type of
relationship, is that from time to time the hours produce
inconveniences. It was one of the great ironies, former Speaker
Gingrich used to talk about, that for many folks seeking
employment the unemployment office would be open from 8 to 5 ,
while, ostensibly, a person should be out trying to find a job,
and then seeking help from government only to find those doors
closed. What type of hours are we looking at in general for IRS
installations? And are those hours for face-to-face encounters?
Do they deviate from the regular business day?
Mr. Rossotti. Well, actually, that's an excellent point.
One of the simplest, relatively speaking, although nothing is
really simple to change in the IRS, but one of the most, I
think, straightforward changes that has the most positive
impact, is simply making our people available in various forms
when, exactly as you say, the taxpayers need them. And it's not
only in person; it is by phone, also. I mean, this year for the
first time, beginning in January, our phone lines are open 24
hours a day, 7 days a week. Last year we did it 16 hours, and
before that, it was, as you say, only during so-called normal
hours.
What we found last year is that, without actually having
answered a lot more phone calls, in total we increased the
level of access, the chances of actually getting through the
first time, very, very significantly, simply by rescheduling
people to be there, for example, in the afternoons when people
wanted to call as opposed to in the morning, when people happen
to come to work according to normal hours. This year for in-
person contacts, during the filing season, we have a
significant number, I think it's about 250 sites around the
country that are open on Saturdays, for example, and some of
these are going on at the shopping malls and other places like
that.
The problems-solving days, as you mentioned, are special
activities that we have usually about once a month that are set
up specifically at convenient times and hours, and this is just
a very straightforward thing, but a very important thing in
terms of making our services available. Longer-term, what we
really want to try to do is basically make it the option of the
taxpayer when and how they deal with us. I mean that's our
role. That's a harder goal to do, but that's what we want: If
you want to deal with us face-to-face, you do it that way; if
you want to deal with us by phone, you do it that way, or
eventually by Internet.
Mr. Hayworth. And that was going to be my next question. In
addition, mindful of the fact our friends are here from the
Congressional Network of Record, C-Span, covering this, and no
doubt some are more than casually interested taxpayers maybe
watching, you mentioned your 24-hour hotline, and I recall a
plethora of sevens. Is there some hidden message in your 1-800
number, a slogan that's included there?
Mr. Rossotti. No, it's not a slogan. Our slogan is we're
working to put service first and that's part of the way we're
doing that.
Mr. Hayworth. And it's tough to fit into seven digits.
Mr. Rossotti. Yes, it is.
Mr. Hayworth. But let's follow up on that e-mail or the
electronic help; how soon do you think you'll be bringing that
online?
Mr. Rossotti. Well, it's already online in part. We have a
very, very successful website which gets hundreds of millions
of hits, as it's called, a year. You can get answers to
frequently asked tax questions. You can download virtually any
form that we have, which was always another very simple
problem. If you were doing your tax return and you needed a
certain form, you had to go all the way back to an IRS office
or you had to send in for it by mail. You can now sign onto
your computer on our website and download any form that you
want right on your computer.
You can also, through the partnerships that we have with
certain preparers, in some cases file your return through the
Internet. That goes through some of the people that provide tax
preparations software, not directly our website.
Now, beyond that, the next big step is to actually transact
business with specific taxpayer account information over the
Internet. At this point we can't do that because we don't have
the security systems. So we're doing it now for general purpose
information that is not under privacy rule. It's going to take
us a few years to work out an acceptable secure method to be
able to communicate with taxpayers over the Internet with
specific taxpayer data, but that will be one of the things that
we will be working on in our technology blueprint.
Mr. Hayworth. Thank you, Mr. Commissioner, and thank you,
Mr. Chairman.
Chairman Houghton. Ms. Dunn.
Ms. Dunn. Thank you very much, Mr. Chairman.
Welcome, Commissioner. We're glad to see you again. We
always learn a lot from your testimony. How many employees are
there at the IRS now?
Mr. Rossotti. Well, in round numbers it's just under
100,000.
Ms. Dunn. I remember asking you that question last year
sometime, and it was at 106,000 then. So you actually are
downsizing as you're carrying through these other
responsibilities?
Mr. Rossotti. Well, it depends on whether you count
seasonal employees. I mean, actually, in terms of what is
called equivalence, which is, if you work two people half-time,
that's one equivalent, it's about 90. The exact number is
98,500. And it is down over 5 years. We're down about 16,000
employees over the last 5 years compared to where it was, let's
say, in 1993.
Ms. Dunn. Good. Well, I just had the very pleasant
experience of meeting with two of your employees in my office,
Willa Royer, who is the Taxpayer Advocate for the State of
Washington, and Judy Moneham, who is the communications person,
and they were very impressed by the strength of leadership. So
I think that's a great compliment to you, and you ought to know
that people are talking about that out there.
What kind of response are you getting from the employees of
the IRS as you move through the RRA?
Mr. Rossotti. Well, let me be very, very candid with the
Committee about this issue because I think it's an extremely
important issue. I think about the time that I took office, in
the fall of 1997, the IRS had been, and was continuing to be,
subject to a great deal of criticism from a variety of sources.
And I think that many of the employees in the IRS were really
very, very committed to try and do the best job they can. We
were somewhat demoralized and somewhat confused, actually,
about where the IRS was going. I think the passage of the bill
in July of last year and the efforts that we've made internally
to communicate what this means, not just in the little details,
but in the bigger picture, has begun to turn that around.
I was glad to hear your comments about the employees
because what we've said is, we now have our marching orders. I
mean our marching orders are clear from the bill. It told us,
develop a mission statement; focus on serving the taxpayers.
We've done a new mission statement. It doesn't mean that we're
not still in the business of collecting taxes, but we have to
put more emphasis on how we serve the taxpayers while we're
doing that.
I think that you know we put out the mission statement in
July. You can go into almost any person's office and see this
mission statement. And I think that while there's still a lot
of confusion over many details, I think there's at least a
sense of direction, and I think that's very positive.
So I believe that we still have a recovery period, if you
will, from the difficult period we were in, but I honestly
believe that we have at least turned the corner in the sense
that the people in the organization feel now that we have a
sense of direction and we know where we're going. I guess
that's the best answer I can give you to that, and I think you
ought to ask Mr. Oveson the same question----
Ms. Dunn. Good.
Mr. Rossotti [continuing]. When he comes up, because he's
been traveling around a lot the same as I am and can give you,
I think, a good perspective on it.
Ms. Dunn. And as I understand in reading the pieces on the
restructuring, you've brought in a lot of the employees to help
you make some of these changes, and I think that's very useful.
Are there any areas that concern you, particularly with the
requirements that the Congress has put on you, as you go
through restructuring?
Let me just bring up one point. For example, you continue
to do the collection, the enforcement, that sort of thing, and
we have told you that you can no longer track perennial
evaders. Is that going to be a big problem and are there other
areas like that?
Mr. Rossotti. Well, let me be honest on this also. OK,
there are a large number of provisions in the Restructuring
Reform Act that deal with IRS procedures; you mentioned several
of them. Some of them are quite detailed. There's a whole
section, for example, that deals with due process and
collections which gives taxpayers certain rights. Many of these
are rather complicated, and we are just in the process of
getting out now the internal guidance, the manuals, and the
training.
I think that if you're out in your districts and you happen
to be talking to some IRS employees, you may very well get some
complaints from some IRS employees along the lines that, look,
we've got all these complicated provisions; we've not yet
gotten adequate training. And my answer to that is, they are
right; we haven't given them adequate training yet because
we're still developing it in some cases. In some of these
provisions, literally every single one of the 100,00 employees
has to be trained.
So for the rest of this year our job of leadership here is
to work with the employees and work with these provisions and
get some experience with it, and help do a better job of
training the employees. I think if we come back next year at
this time, we will have had a year of experience, and we will
be better able to answer your question about whether there are
some areas that need to be adjusted.
I think we will learn a lot from the implementation of some
of these things. Some of them are rather complicated. It would
not surprise me if there were some adjustments that were
required, but we're not really yet in the position to be able
to intelligently comment on that because we're just really in
the process of rolling them out.
Chairman Houghton. Mr. Neal.
Mr. Neal. Thank you very much, Mr. Chairman.
Commissioner, let me ask you a question about the
individual alternative minimum tax from a compliance, an IRS/
administration, and from a taxpayer point of view. As you know,
nonrefundable personal credits like the child tax credit, the
new education credits, and the dependent care credit, are not
allowable against the AMT. This means that hundreds of
thousands of taxpayers with middle incomes could suddenly find
themselves as AMT taxpayers. We fixed this problem last year,
and the administration in the President's budget proposed a fix
for 2 additional years. If this were ever to go into effect,
and hundreds of thousands of middle-income tax payers suddenly
had to make alternative minimum tax calculations, what would
that do to the IRS in terms of compliance challenges, given the
fact that many people would not pick up on the notion that they
should be making AMT calculations? Would this lead to problems
with the administration of the tax system by the IRS, such as
drawing off resources that check returns, sending notification
of additional taxes due, or simply explaining why? Given you
are dealing with individuals, do you think that this would
significantly increase taxpayer frustration with the system?
I was much involved with this issue last year and we were
able to come up with at least a fix that will get people
temporally through the problem, but, once again, Commissioner,
it's my hunch--and I'm interested in your opinion--that we're
about to confront another nightmare with this question.
Mr. Rossotti. Well, let me just say that we worked with the
Joint Committee to try and help them figure out a way to get
that fix in at the last minute before the tax year. And as you
noted, there is, I believe, a proposal in the administration's
budget to extend a solution to this going forward, without
having done a specific analysis. I don't have details. I would
generally concur with the thrust of your question. To the
extent that you have more taxpayers getting involved with
another provision, and it requires a separate calculation, that
would certainly impose time on the taxpayers as well as on the
IRS. That's very true.
Of course, it would depend on how many taxpayers were
affected? To the extent that it affected a larger number of
taxpayers, I think that the thrust of your question would
generally be borne out.
Mr. Neal. The second part of my questioning is that last
year, of course, we made a big deal out of the IRS here, and we
were able to hear much testimony about the problems of the IRS.
Obviously, some of those issues have been repaired, but let me
ask you about resources. Is the Congress doing enough, do you
believe, in appropriating the necessary means to ensure that
you have the opportunity to not only upgrade and to, as Mr.
Hayworth indicated, speak to many of the technological changes
that are coming along, I guess the short of it is, are you
prepared?
Mr. Rossotti. Well, I think that Congresswoman Dunn made a
good point, which was that prior to this fiscal year that we're
in now, there was, as a result of budget depressurization, a
significant drawdown in the number of staff at the IRS and at
the same time the volume of returns, the economy, and in some
cases the complexity of the law was going up. So this was not a
trend that could continue.
I think, in addition to that, it's no secret we have a
very, very seriously deficient situation with respect to the
technology that we depend on. You put those two together, and
we had turned that situation around.
In fiscal year 1999, which is the year that we're in now,
with the cooperation of the Congress, we were able to turn that
situation around. There are two main things: to stabilize the
size of the work force, so that we would at least keep it the
same, which is, I think, what we need to do in order to cope
with our workload; and also to invest some money, to have some
money invested in the two or three major things we need to do,
which is the technology, the training of the work force, and
the organization of the workforce.
For fiscal year 2000, the President has just submitted his
budget, and I'll be testifying in the Appropriations Committee
later this month. We have proposed a budget that will sustain
us on both of those key items, assuming that we can get the
money that's in the President's budget.
So I think that basically answers the question. I will say
this: That this is not a short term; it's not just fiscal year
1999 and 2000. We're into a program here, in order to deliver
on all the commitments that have been made to the public via
the RRA and deal with our technology shortfalls and our
training shortfalls, we're going to be really having to invest
this money for a number of years to come. So I think we made a
good start in fiscal year 1999, and we're attempting to use
that money wisely, but we will have to sustain a level of
investment in training and technology and management for quite
a few years.
Mr. Neal. I see that my time is about to expire. Thank you,
Commissioner.
Chairman Houghton. Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman.
I'd like to start off with a statement, which is, having
spent a lot of time on IRS issues in the last few years on the
Restructuring Commission as co-chair, and then on this
Subcommittee, this is not your father's IRS. We are truly
beginning to see some changes, and I think that is going to be
evident when we hear from the new Taxpayer Advocate as well.
And I want to commend both of you for the steps that you've
taken, even over the last several months, since enactment of
the legislation.
The Restructuring and Reform Act gives you the tools, we
think, to be able to make the kind of fundamental change in the
IRS over the next few years that are necessary. I think this
year will be, though, the key year, and both on Capitol Hill
and at the IRS we have to be sure that the changes are being
implemented properly. I'm optimistic but, although it's not
your father's IRS, it could fall back into it. I think, as
we've noted today with the questions, there still are a lot of
challenges. So while commending you, I think we also need on
this Committee and at the IRS to keep our eye on the ball.
With regard to complexity, I applaud Chairman Houghton, our
new chairman of this Subcommittee, for raising the issue right
off the bat. I think it's the most important next step in terms
of IRS reform, and that is reform of the Tax Code itself, and
simplification.
I will say three things. First, in the legislation we just
finally got enacted in July, we have three provisions which
help do that. One is this complexity analysis that the Joint
Tax Committee now has to do with all those tax credits that you
talked about, and we didn't have that before. Now whether in
the end that's going to stop those new complexities from being
enacted or not, we'll have to wait and see, but at least there
will be a balance now and there will be a much better
information as to the impacts on the taxpayer and on the
system.
Importantly, in the legislation we require that the IRS be
part of the process in terms of giving input. Second, we have
this report that's before us which has legislative
recommendations, and I applaud you on those recommendations. I
think there's a lot there we might want to look at very
seriously even for this year.
But as important in the legislation, as you know,
Commissioner, we require that you give us a report, separate
and apart from the Taxpayer Advocate's report, on the very
topic of complexity, and finally, we put in the legislation
that we want the IRS at the table as tax legislation is being
developed. We don't, frankly, think that input only from the
Treasury Department is adequate. We're happy to have Treasury's
input, and we're going to get that through the White House.
That's the tax policy input, but we really need the IRS to be
independent of the Treasury in regard to telling us how these
great-sounding tax legislative proposals are going to impact
the Service and the taxpayer--how many new lines on a form; how
many new schedules; how many additional hours, as Mr. Houghton
talked about.
I guess the one thing that we tried to do in the
legislation, and the message I hope we're sending forward
today--and I think the chairman started off with this--is:
Don't be shy. I mean, we want to hear it unvarnished from you,
what is the impact--not, frankly, with the layer of tax policy
and politics that necessarily has to accompany the White House
and the Treasury view on these proposals, but from the people
who are administrating the Code.
The second point I'd like to touch on is the new aspects of
the law as it relates to the Taxpayer Advocate. And again,
we're just passed and enacted them in July--it creates a new
system around the country, as you know, of the taxpayer
advocate reporting directly to the National Taxpayer Advocate.
This was quite controversial, and I heard from our local
taxpayer advocates as recently as today that it has helped them
to strengthen their position locally. They think it has worked
well, but I'd love, Commissioner, to get your views on that, if
I could.
Then second is the Taxpayers' Assistance Orders. How's that
working? We made it easier for taxpayers to get a TAO, made it
easier for taxpayer advocates to use TAO, which was hardly used
at all prior to that time, in the case where a taxpayer would
otherwise suffer significant hardship.
Finally, again on the annual report to Congress, I just
want to say I think it's a very good report. It's the third one
we've had. It's better, I think, than the previous year and the
previous year, and particularly I want say that you haven't
been in government long enough because you still write plain
English. [Laughter.]
Maybe some of us in Congress need to work on that, but it's
very plain-spoken and honest, and I want to applaud you for
that.
Finally, let me make one other point--then, if you could
answer, Commissioner--how you think the Restructuring Act
provisions as to the Advocate are working. With regard to the
oversight board, the legislation required that the President
send nominees to the Senate for this new public/private
oversight board that's going to give the IRS over the long-term
the kind of continuity of oversight that we all think it needs;
the expertise we've talked about that is necessary in order to
have these long-term changes at the IRS.
That oversight board date deadline has come and gone. It
was January 22. That's how I count--6 months from passage of
the legislation. I would just make a strong pitch today from
the congressional side that we were serious about it. I know,
Mr. Commissioner, you are very serious about it and want the
right people there, nonpartisan people, who can give you the
expertise that you need. But I would hope that you would give
this Committee today some sense of what the process is there,
what the status is of those nominees.
With that, Mr. Chairman, I've gone over my time. I would
ask the Commissioner if he could respond to that.
Chairman Houghton. Yes, we are going to try and stick to
our time limits, if we can. So, if you could give some short
answers, we would appreciate it.
Mr. Rossotti. Well, I can give a really short answer to the
second one because, as was reported in the press today, there
is a list of nominees awaiting final approval at the White
House. Of course, they will have to go through the vetting
process, but at least, as best as I know, that is very close to
being completed. Then it will be a matter of how long it takes
to go through the process.
I will say I'm very much looking forward to having this
board. The more I've learned in the last year, the more I see,
there's a great deal of wisdom to the recommendation that was
made by the Commission to have this board. I believe that with
the continuity and with the people that I think are likely to
be appointed to it, we will have a dialog there with a set of
people on management issues that, given how long it's going to
take to implement some of these things like technology, is
really very important.
As far as how the restructuring provisions affect the
Taxpayer Advocate, I'll just make that very brief because
that's what Mr. Oveson is here for, but I think there are a
number of things I mentioned. No. 1, it is an independent
organization--independent in the sense that it doesn't report
to the compliance functions. I think that's appropriate and I
think that will help to make them effective.
There still has to be a relationship there because, you
know, these issues need to be worked out by the compliance
functions effectively in the first place, so they don't end up
having more and more cases going to the taxpayer advocates. So
that's the challenge that we face, but having them independent
is a good idea. We're in the process of working out even more
details on how that's going to work.
The other point is that we have brought in Mr. Oveson as a
person from outside the IRS, although he has tax administration
experience, as we've done in a number of other positions. I
think that brings a fresh perspective to the whole thing. I
think it's extremely useful to everybody. I think this is true
not only with Mr. Oveson, but with some of the other positions
we've filled. So those are all positive things that will help
us very much in going forward.
Chairman Houghton. Well, thanks very much, and thank you,
Mr. Portman. You've done a fabulous job in terms of the whole
IRS reform; your knowledge is very deep here.
I'd like to call on Dr. McDermott.
Mr. McDermott. Thank you Mr. Chairman. Sometimes we pass
legislation; you wonder what happens. In the interviews of
taxpayers on problem-solving days out there, do you have some
feeling for what those have turned up and how many there have
been, how many people show up, and what's the nature of the
thing they bring to the----
Mr. Rossotti. Well, the problem-solving days were actually
an issue in November 1997. In fact, my third day in office I
went to the first one that started up. There's a GAO report,
actually, which I will be glad to give you if you don't have a
copy, that was done on them, which actually, indicates a great
deal of taxpayer satisfaction with the service they've gotten.
There's been about 32,000 or 30,000-some odd taxpayers that
have come in person for these days. They can either come in
with an appointment or they can walk in, although many of them
come in with appointments. The days, really have been most
useful in addressing problems that have lingered for a period
of time--the problems that haven't been able to get solved for
whatever reason. Either the taxpayer didn't understand it or
the IRS didn't do a good enough job. We've had the people on
the spot right there that could deal with all aspects of these
problems from all the different technical disciplines of the
IRS.
Taxpayers like being able to deal in person, get the answer
on many cases right there on the spot, or if not get the answer
there on the spot, have a person that could follow up with it.
We've done satisfaction surveys for every taxpayer that's been
in, done by an independent contractor, and we've gotten really
exceptionally high ratings.
What's interesting to me is this has occurred, despite the
fact in a significant number of cases it is not possible within
the law to give the taxpayer the answer to their tax problem
that they would like. Sometimes the taxpayer simply owes the
money and we can work out maybe a payment mechanism, but they
still have the obligation that they came in with. But despite
the fact that this clearly occurs in a significant number of
cases, the mere fact they've gotten the right kind of treatment
and the right kind of service has been very satisfying. And
we're trying to build the lessons of this into the way we
operate every day. We try and make these very same things
happen on a regular basis every day. So the taxpayers can get
the right kind of treatment, get the answers they want, and get
it when they want it.
We're not there yet by any means, as I answered Mr.
Hayworth. We have a lot of work to do, but we're doing a lot of
things to make it more practical every day, such as the phone
lines being open, the Saturday hours of service, and that sort
of thing.
Mr. McDermott. Do you have regular problem-solving days?
Mr. Rossotti. Yes, we do. We have a problem-solving day
once a month in usually every district and we have some that
are coordinated nationally, so there will be more publicity,
but many of them are managed by the local districts according
to what the schedules are that make sense in that district. So
they will rotate, for example, different cities within a
district usually in a given State. There's a district office in
one city, but then they'll be posted to do other places in
other cities throughout that district. They will rotate these
problem-solving days throughout the different parts of the
district.
Mr. McDermott. So if I go to a community meeting and
somebody tells me they have a problem with the IRS, I can say,
call the office, and go in to a problem-solving day.
Mr. Rossotti. That's the way to do it. And they can call
the hotline, and the taxpayer advocates' lines, by the way, are
now listed, which is a new provision as well. We've now just
listed all the local taxpayer advocate phone lines in each
district, as well as the one that I gave you, the 877 line. But
they don't need to wait for problem-solving day; they can try
to get their problems resolved with us right there, but if
there is a particular reason such as a more complex problem,
they can certainly go to a problem-solving day.
Mr. McDermott. How many people come away from those
winners?
Mr. Rossotti. Winners?
Mr. McDermott. How many losers? Well, I mean, they come
because they don't want to pay, right?
Mr. Rossotti. Well, not necessarily, not necessarily.
Actually, surprisingly enough, people come--I have been to
quite a few of these; you get people that have had a problem
and many of them just want to get the problem resolved one way
or the other. They're just confused or they try to get it
resolved and they haven't been able to pay. There are people
that have come in that haven't filed. I was actually at a
problem-solving day and was sitting down with a taxpayer and a
fellow brought in a shoebox full of information, and said, ``I
simply didn't file my return for I don't know how many years.''
He had just filed once and then he just got scared, or
whatever, and he didn't file.
Because there was a problem-solving day, he came in, and
that person helped him prepare his returns. Now, he's actually
due a refund. That's not the most common case, but actually
it's not that uncommon. There are people that come in with a
whole variety, range of things.
Now, as I said to you, I don't have the statistics--maybe
Mr. Oveson does--of exactly how many people get the result that
they sought, but it's certainly well less than 100 percent. And
yet people are still responding to these surveys, saying
they're quite satisfied with the service. This is basically a
model of how we want the whole IRS to work. We want the IRS to
work in such a way that we provide each taxpayer exactly the
service they need, help them get to the answer that is within
the law, but get there promptly and quickly and not have these
problems linger.
Mr. McDermott. Thank you.
Chairman Houghton. Thanks very much. Mr. McInnis.
Mr. McInnis. Thank you, Mr. Chairman.
Commissioner, I think you're doing an excellent job, but
any time the IRS is in an office, it has a fairly threatening
presence. It reminds me, when I was young, I had a friend who
used to be able catch a bumblebee by its wings when it landed,
and of course, when you do that with a bee, it stings; the
stinger goes out. The bee still survives for about 15 minutes,
and then he would go over and drop it down somebody's shirt.
The presence of the bee, despite the fact we weren't very
persuasive in telling the person to calm down because the bee
had no stinger, just the presence of the buzzing in the back of
the shirt created a panic. And sometimes that's what the IRS
does.
Let me give you an example kind of the analogy that I'm
trying to go into. About 5 years ago in Montrose, CO--let me
tell you, my district is all the mountains in CO district, and
I am a Republican. When I ran as a Republican, one of my big
deals was working with the IRS, trying to get a response. I
think we've come a long way there, but this particular
constituent in Montrose, CO--we've had excellent service, by
the way, response to me, by your employees out there--this
particular person underpayed their taxes by 1 cent. And the IRS
immediately sent out a notice--I think it was the Federal
Employment Taxes sent out a notice that they were going to
seize his accounts, and so on and so forth. It's kind of like a
bee down a shirt. I didn't really think it had a sting, but
there certainly is a very threatening presence. The publicity
that the IRS got was extremely negative. The IRS deserved it.
So I sat down with the IRS and I called your regional
office, if I remember correctly, in Salt Lake or in Provo
maybe, Utah, wherever in Utah. And they said, ``Well, it's the
computer program; the computer automatically kicks out these
notices on anybody that's delinquent.'' I said to the
gentleman, ``Why don't you have it, if it's under $5 or if it's
underpaid by a dollar, why don't you red-flag it? Then let a
supervisor see whether you really need to pursue this or
whether you can just call the person and say, `Send your penny
in,' or maybe you have got a little coffee pot collection;
throw a penny in for the guy.''
So he assures me it can't be done because it's the computer
system, but they're going to start doing that. Well, about 2
weeks ago it happens again, and it happens in Montrose. This
time it's not 10 cents. I mean, last time it was a penny; this
time it's 10 cents--same thing.
So all the goodwill that you, as Commissioner, and your
employees out there, have been trying to accomplish, it's long
overdue, but you've been trying to accomplish in the last year.
In that region it has gone with newspaper articles. This one is
entitled, ``IRS wants a dime plus penalty fees.'' It's a $100.
He underpaid by a dime. They sent him a penalty assessment for
$100.
I don't understand, Commissioner, why you can't have a
policy in there--look, you've got to instill a little common
sense, and if anything under this amount of money, the computer
kicks it out, it goes to a supervisor, and then the supervisor
determines whether or not that should go forward.
The second thing I think that would be helpful to the IRS
is we recently had a large bankruptcy by an individual in CO
who owned a baseball team. This individual owed the IRS
millions of dollars and the IRS settles with him. Of course,
the IRS does this confidentially and they won't release the
settlements, the terms of the settlement. So I have my
constituents who are lucky to make $25,000 a year and they get
hammered by the IRS; they were in violation; it wasn't
wrongful. I think the IRS needs somehow, when they make a large
settlement like that, they need to have some kind of
explanation. So the average Joe out there, which is most
people, because most people aren't in this income bracket,
understand why, if you're a fat cat, so to speak--and I don't
say that derogatorily, but that's what they are--you can walk
away from the IRS owing them millions because they'll do the
settlement.
So, if you wouldn't mind commenting briefly on this stuff,
10-cent stuff?
Mr. Rossotti. First of all, you've identified some of the
kinds of communications challenges, as well as factual
challenges, we have in regaining fully the confidence of the
public as a result of those stories. There should be
tolerances; they shouldn't be sending people bills for 10
cents. As a matter of fact, there are tolerances in most of the
programs that we have that do cutoff certain bills. So I don't
know how that particular one occurred.
I can tell you that, given the number of different systems
we have, it could be that there's a problem with that
particular system, where it doesn't have the tolerance in it
that would prevent that kind of a notice from going out. We are
going to be looking, this year, at some of the tolerances
across the board to make sure they all still make sense.
In other words, you're absolutely right, and it's a matter
of implementing it in a sensible way. It's not as easy to do,
given the systems we have, as it sometimes seems, but we're
going to try and do that.
As far as the other question on the settlement that was
published in the paper, the fact that the IRS doesn't comment,
this is one of the real things as a new person with this job
that is really very difficult for an average person to
understand. I mean, the laws have been passed by the Congress
for very good reasons, to protect privacy of taxpayers, and
they're really very, very stringent. I cannot even acknowledge,
if somebody is the taxpayer, even if it's in the press--let
alone, say anything about the case. This leaves the possibility
open in a variety of different kinds of issues for any kind of
information to come out publicly without the IRS being able to
comment on it. I have certainly not got the solution to that
problem.
I have one of my other new recruits that came from outside
the IRS who is our Chief of Communications and Liaison, who
worked on Capitol Hill, Mr. Williams, who is here with us
today. One of his jobs, which is a very challenging one, is to
try and figure out a strategy where, while we stay within the
privacy laws, we communicate much more information to the
public about the way we do business.
Without getting into a specific case, we are trying to
explain things more to the public, why things are the way they
are. We have made a little bit of progress. For example, people
are constantly asking, how do you select people for audit? You
know, this was a very mysterious process to a lot of people. We
have put out a publication now--it's just a couple of
paragraphs--as was requested in the law, that gives at least an
explanation of different ways that people are selected for
audit. We're going to try to go more in that direction to try
and explain these kinds of things.
I don't think that was a high priority, as far as I can
tell, in the past, to try to de-mystify, if I could use that
word, the way some of these things are done. There are many
cases, I can tell you, that I've looked at where there have
been things repressed or reported that just would clearly look
crazy to the average taxpayer or look wrong to the average
taxpayer. When you look under the surface, you find that, yes,
there really was a reason. If you could figure out a way to
explain it, it wouldn't look that crazy. By the way, some of
them really were crazy and there wasn't any way to explain it,
but that was more the exception.
I am personally committed, as one of our guiding principles
for our whole plan, to figuring how we can have more open and
straightforward communication with the public on a variety of
things, in order to regain or gain or increase the confidence
of the public that we're actually doing the right things when
these things happen.
Chairman Houghton. Thanks very much. Mr. Lewis.
Mr. Lewis. Thank you very much, Mr. Chairman.
Mr. Commissioner, thank you very much for being here and I
want to thank you for all of the wonderful work, the great
work, that you've been doing.
Recently, in the 5th district of Georgia, the IRS
established two electronic filing centers. In one case I know
of in particular where a woman came in, a taxpayer, she
received assistance or help from the IRS to file her taxes in
electronic fashion. She was so happy that she asked the agent,
did she owe him anything, could she pay, and the agent said no.
She was so happy and overcome she started crying. It is very
unusual to have people being so happy leaving the IRS center.
So you've made a lot of progress. You made at least one person
in Atlanta in the 5th district very happy. I'm sure you've made
a lot of people very happy around the country. So I want to
thank you for that.
Mr. Rossotti. Thank you, Mr. Lewis.
Mr. Lewis. The Internal Revenue Service has made tremendous
efforts to encourage taxpayers to pay their taxes through
electronic filing. Still, most taxpayers have to pay somebody
else to do the electronic filing for them, or to purchase
filing software that can be very intimidating for those who are
not very computer literate. Are there any plans to make it
possible for the taxpayers to file electronically without
having to hire any electronic filer or purchase filing
software?
Mr. Rossotti. Yes, sir, Mr. Lewis. We have, actually, I
think, made some pretty good progress this season on that, and
there are actually about three different ways, and I'm looking
at my book to get the exact numbers, but we've got three
different ways of trying to help make that happen.
One is the way that you mentioned with the woman in your
district, and I really appreciate getting that comment, in the
IRS walk-in site. With service sites, some of which are open
Saturday, you can walk in and get help in actually filing your
return electronically right there on the spot.
A second way is through a variety of low-income and
volunteer sites that we have. We have several hundred that we
staff with different volunteer organizations around the
country, that help people prepare their returns. Some of those
we're equipping to be able to file electronically. I hope that,
as we go forward, we'll have a lot more of them.
The third way is to use some partnerships we've had with
some vendors through the Internet, where, for example, with one
particular vendor, you can actually sign on to the website, if
you're a low-income tax payer. I think the cutoff is $25,000.
They will allow you to use the software right on the Internet
and file your return free of charge.
So that's three different ways that we've got this year for
providing free electronic filing. I think that we have an
opportunity to actually increase that over the coming years as
part of our strategic plan for Electronic Tax Administration.
Mr. Lewis. Thank you. Mr. Commissioner, the IRS has been
kind enough to help hold an EITC workshop in my district later
next month. The purpose of this workshop is to help taxpayers
understand the EITC program and whether they qualify for the
tax credit. I believe that outreach efforts like this, and the
taxpayer day sponsored by the Service, can go a long way to
improving the IRS image among taxpayers.
Can you tell me what type of feedback you're receiving from
your outreach efforts around the country?
Mr. Rossotti. Well, as you point out, we have a number of
those outreach efforts specifically directed to EITC. Around
the country we're having these various Saturday workshops.
We're also working with different volunteer groups to help
publicize and educate both practitioners and employers about
that. We don't have any feedback from this season yet because
it's too early, but I can tell you that last year we began this
effort for the first time. I actually went to a couple of these
on Saturday last year myself, one of the EITC awareness days.
While I don't know if there are any people that reacted as much
as the constituent in your district, I have to say I was at a
shopping mall in, I think it was in suburban county in
Maryland, where we had an EITC awareness day. We had a booth
set up where people came in. The only thing that I can say is
that a lot of those people were just amazed that there was
anything like this happening, which is unfortunate, because we
should be doing these things more readily.
So I think the reaction, when people know about it, is
very, very good. Our challenge is to let people know about it.
We're still learning how to publicize these kinds of activities
and, to use a business buzzword, make use of sales and
marketing techniques to get out there through outreach efforts
and let people know that these services are available. That's
the direction we're going to go in in the future. When
taxpayers do know about it and when they do take advantage of
it, they certainly have a favorable reaction.
Mr. Lewis. Thank you very much, Mr. Commissioner. Thank
you, Mr. Chairman.
Chairman Houghton. Thanks, Mr. Lewis.
We've got a couple of other questions, if you can stay a
minute longer. Mr. Portman wants to ask a question and then Ms.
Dunn. Do you want to ask another question, Mr. Neal? OK, so
it's just two other questions.
Mr. Portman. Just a quick followup: We had talked about the
complexity issues, and there's been discussion earlier about
interest and penalties. I notice in the Advocate's report we
have some specific recommendations as to how legislation could
be developed to make the interest and penalties provisions work
better. Again, I think there's a lot of meat here. I know that
comes from the Advocate, and not necessarily from the IRS or
from Treasury.
But there is also in the legislation which was enacted last
year a requirement--I think it was one year from the date of
enactment--that there be a Treasury and joint tax report,
independent, as I recall, on the interest and penalty issue.
Is the IRS working on that? Then a comment, which would be,
if not, I hope you are. Because, again, what we are really
looking for, although Treasury is the tax policy arm of the
government, is the input from you all, along the lines of what
Mr. Oveson's going to talk about later, as to how we could
reform current practice to make it work better for the system
and the taxpayer.
Mr. Rossotti. As a matter of fact, as you noted, that is a
Treasury lead, but we are working with them on it. We have
staff people working on it.
Let me just say, one thing I've learned is that there have
been any number of studies on interest and penalties. In fact,
there was one that was done that I heard about just when I came
into office, and I said, ``Can I see that study I heard about
on interest and penalties?'' It was about this thick
[indicating].
So I think the challenge is going to be, although there is
ample information there, to sort out what's really practical to
do and can be enacted in legislation and will be acceptable
from a revenue standpoint and other standpoints. There is
information, and the studies and analysis is there. So I hope
that it will be productive in terms of giving recommendations
to the Congress.
Mr. Portman. Final question--and I agree with you on that;
many people felt we bit off more than we can chew on the IRS
Restructuring and Reform Act, but that was one area where we,
in essence, punted, simply because of the difficulty in coming
up with an answer that was able to be accepted by you all,
frankly, and on a bipartisan basis here on the Hill. So it's a
complex area and it's difficult to make those tradeoffs.
There's a second report that is required--and, again, I'm
raising these issues because we pass this great-sounding
legislation and sometimes there is not followup. We want you to
know we're serious about following up on these reports and on
making them not only useful in terms of Committee hearings, but
in terms of actual legislative action.
Your report on March 1 addresses sources of complexity in
the administration of the tax laws. I guess my question to you
today is, are you taking into account what the Taxpayer
Advocate is giving us today, so there is not overlap or
duplication that's unnecessary, and are you comfortable with
that report? Indeed, it's going to be submitted to us by March
1, as required by the Ways and Means and Finance Committees.
Mr. Rossotti. Maybe I'm confused. I thought that it was
another year. I guess I'm a little confused on which report
that one is--the overall IRS report on complexity.
Mr. Portman. This is not from the Advocate; this would be
from the IRS.
Mr. Rossotti. Yes, in terms of the date, I know we're due--
if it's due March 1, I think I'm in trouble because that's only
a few weeks from now. I guess I thought it was a little bit
later than that.
Mr. Portman. I think it is March 1, but I guess it's good
that we raised it because I could be wrong; maybe it's a year
from March 1.
Mr. Rossotti. I may be slightly confused, but I'll have to
go back and check and get you the answer.
[The information had not been received at the time or
printing.]
Mr. Portman. Well, maybe it's good that we raised it, and
again, that's information that we're looking for. My thought
was, given that this Taxpayer Advocate's report perhaps has
more substance in that area than we have had in the past, that
this is part of the input----
Mr. Rossotti. Let me just say, although I'm a little unsure
of the date, that we are working on the overall complexity
analysis required by the law. And we will be definitely taking
into account the information from the Taxpayer Advocate.
Mr. Portman. Apparently, it is due March 1 and it's a
separate report. It's telling us what the sources are of
complexity in the administration and current tax laws. So it's
a little different than the complexity analysis, and certainly
it should be something that could be done in conjunction with
that.
Mr. Rossotti. I'll have to go back and check up on that.
Mr.Portman. Sorry to add to your workload and tax policies.
Thank you, Mr. Commissioner.
Chairman Houghton. Ms. Dunn.
Ms. Dunn. Thank you, Mr. Chairman.
Mr. Rossotti, since we have you here, would you take a
minute or two to bring us up to date on the IRS preparations
for the year 2000?
Mr. Rossotti. Yes. I think I can summarize that. Our
biggest goal was to get almost all or most of our systems, our
key systems, compliant--in other words, ready to run for this
tax filing season. So we had to be ready by now, and we have
achieved that goal. We have almost all of our major systems
back into production with Y2K compliance fixes in this current
filing season, which I think was an important, very important,
milestone to be reached.
The other point that needs to be understood about that is
that because of all of those changes, over a billion dollars'
worth of technology changes, plus, all the tax law changes, we
have consistently said that we have considerable amount of risk
of potential errors during this filing season, especially as we
go into the next 60 days into the peak period. So far, we have
been relatively good. We have had a few minor problems, but we
really expect that there will be localized things that will
come up.
We've taken some very special precautions with all our
practitioner groups and our website, and other places, to react
very quickly if a taxpayer is impacted and our goal, of course,
is to not have any impact on the taxpayer. We will achieve that
goal, but we want to react very, very quickly in case there are
problems that come up as a result of all these different
changes that have been made.
So by the time we get through this filing season in the
next 60 days, we will have gone through what I think is really
the highest-risk period that we have. There's still a lot of
work to do for the rest of this calendar year because we still
have some significant completion of pieces of it, the smaller
pieces, and some rollout of new equipment that we have to do.
Then we have a big test to do in terms of actually rolling the
clock forward, testing all these systems. But I think it is a
very important milestone, that we've gotten all this stuff back
into production for this filing season.
Ms. Dunn. Let me just follow up, Mr. Rossotti. I think when
we were talking about this a year or so ago, you were going to
go--your system was going to go online in September of this
year. You have, obviously, moved that way up. When will the
debugging process start?
Mr. Rossotti. Well, I think that I was referring to two
different things. We have tested each system one at a time to
make sure it's compliant and put it back into production for
the filing season. In parallel, we have what we call the end-
to-end test, and I think that was what we were talking about
with you, where we actually test the whole set of systems front
to back with the clock rolled forward, as it's called, in other
words, set for January 2000. We did also start that, as was
planned, last fall, and actually, that was quite successful.
We tested the first piece of it. We are continuing that
test for the rest of this year with bigger and bigger pieces of
the system. That's really the main job that we have to do, the
biggest single piece of work that we have to do for the rest of
this calendar year. So those are both going on in parallel, so
to speak, and both of them have been pretty much on schedule.
Ms. Dunn. [Ms. Dunn crosses her fingers.]
Mr. Rossotti. That's my feeling exactly.
Chairman Houghton. Well, thanks very much. We've had some
wonderful Commissioners of the IRS, but I've never seen anybody
get off quite so easy and had so many compliments as you have,
Mr. Rossotti. [Laughter.]
So, I think all of you sitting in the back who work for the
IRS ought to be very proud.
Two points: Clearly, as you look out at a multi-year
schedule, you're going to have to do some investment in
technology and equipment, and I would imagine that might be one
of the big Achilles' heels. I don't know what your program is,
but I think it's required that you submit a budget at least to
the board, and then the board, in turn, will give it to us. Do
you have any plans for a multi-year budget?
Mr. Rossotti. Yes. That is a very, very good point. It is
absolutely the case that we will have to be investing over a
period of years, and I think that's where the board can play a
very beneficial role. We are working on putting together a
multi-year budget. We are just starting. In fact, I had a
meeting today at the Treasury about this. We are just starting
a process that will allow us to put together a meaningful
multi-year process. We have some extrapolations now, but, quite
frankly, they're not all that meaningful.
We are working on a process, I think, for the fiscal year
2001 budget, which is the one after the one that's already been
submitted. We're going to have some progress on that,
particularly with respect to the technology. By the end of this
fiscal year, we will have an updated strategic plan for the
major updating of the technology. That is already underway.
We've got work going, and by the end of this fiscal year, we
will have that, which is a key piece that has to go into the
long-term strategic plan. So we have a lot of work to do to get
ready, to have a truly meaningful strategic plan that takes
both operations and investment into account. In anticipation of
having the board, but even just because we think we need it for
internal management, we are starting to work on that. I think
it will take us about 2 years, 2 calendar years of work, to
really do all the things we need to put together a multi-year
plan that I would consider adequate and meaningful.
Chairman Houghton. Peter Drucker used to say there were two
issues when you confront a problem. One is doing things right
and the other is doing the right things. It seems to me that
you are doing the things right, that you are trying to organize
this very complicated group of people and functions into a
really efficient, effective unit. Doing the right thing to me,
ultimately, is making sure that the customers, the consumers,
the citizens out there, not only feel that, but feel that you
are reducing the time and the compliance cost for them to fill
out their tax forms.
I hope the next time that you appear for us that you will
expand on that. So thank you very much, Mr. Commissioner.
Mr. Rossotti. Thank you very much, Mr. Chairman and Members
of the Committee. And now we'll have Mr. Oveson.
Chairman Houghton. Yes, Mr. Oveson, the Taxpayer Advocate.
Mr. Oveson, if you would like to give us your testimony, we'd
be delighted to have it.
STATEMENT OF W. VAL OVESON, NATIONAL TAXPAYER ADVOCATE,
INTERNAL REVENUE SERVICE
Mr. Oveson. Thank you, Mr. Chairman. Mr. Chairman, and
distinguished Members of the Subcommittee, I'm delighted to be
here to give my first report to Congress since I assumed the
position of National Taxpayer Advocate several months ago. I
welcome the opportunity to share with you my vision for the
Advocate's roles and the progress that we made last year, and
to talk to you about our agenda for the next year on behalf of
the American taxpayers.
I appreciate and support what Commissioner Rossotti has
expressed in his testimony. Consistent with his words, he has
supported me with his actions and he's committed to having a
strong taxpayer advocate organization. He believes that the
taxpayer advocates have a unique vantage point that will help
us to determine how we can best serve the American taxpayers.
As you remember, he strongly encouraged Congress to
strengthen the Advocate's role in the Restructuring Act last
year, and he has great expectations that I will be able to use
my expanded authority, as you intended, to meet taxpayers needs
for assistance.
Since starting work on September 8 of last year, I have
spent a great deal of time learning the organization and
getting to know the people both inside and outside the
advocates' organization and inside and outside of the IRS. As a
member of Commissioner Rossotti's top management team, I have
spent a lot of time with the agency's top leaders. In addition
to learning from these leaders and these meetings, I've also
had the opportunity to share my views and to promote a more
taxpayer-sensitive and service-
oriented IRS.
The climate has changed and the support for the Taxpayer
Advocate's office is at an all-time high. Mr. Rossotti and the
Treasury Department officials have been very supportive of me
in the new independent role. Our local taxpayer advocates are
also enthusiastic about the new structure, and they are
responding well to the new organization.
As many of you have mentioned, we have many of the
advocates in the town this week, unrelated to this hearing;
it's coincidental they are here. Many of them are here, and I
acknowledge their presence, I wish that I could introduce each
of them individually to you. They are wonderful people with the
desire to get the job done.
More taxpayers and stakeholders are aware of the new role
and are expecting the National Taxpayer Advocate's Office, or
expecting me, and my colleagues to have a strong customer
service influence within the IRS. With strong support from all
directions, I'm optimistic that we can make a difference.
The annual report that I recently submitted to you covers
fiscal year ending September 30, 1998. While much of the
material in that report that you've referred to and that you
have is prescribed by statute, I will be evaluating the style
and the format during the next year, and will be developing new
approaches and new ways to communicate this material and
information to you. I look forward to working with you and your
staff to help shape and form the report, so that we get the
best product possible in your hands. I have reviewed the
recommendations, obviously, and have gone through them and
validated them both inside and outside this IRS, and I
recommend them to you for action.
Last year was a busy year on many fronts for the Taxpayer
Advocates Organization. With the intense scrutiny that the IRS
had on it, it highlighted the visibility of this office and its
programs. I believe that the resulting legislation, RRA 98,
will help the Taxpayer Advocate Organization to effectively
promote change and to work as a catalyst to create a better
treatment for taxpayers in the Service.
Last year taxpayer advocates resolved more than 270,000
cases and received requests for assistance from 32,049
potential hardship cases. We were able to grant relief or
provide assistance to 74 percent of the taxpayers who applied
for Taxpayer Assistance Orders. In three cases, three
instances, agreement could not be reached between the advocate
and the functional areas that they were working with, and
enforced Taxpayer Assistance Orders were given in those three
instances. I can review those with you later, if you'd like.
They are very interesting situations.
In many of the other cases the law prohibited us from
providing relief, and that is appropriate; we are not to go
outside of the law, obviously. But it is very effective, the
program, in dealing with many, many taxpayers who had problems
and concerns with the IRS.
In April 1998, less than a year ago, my office was
delegated a new authority by Commissioner Rossotti to issue
Taxpayer Advocate Directives. This authority allows the office,
or allows me, to grant the equivalent of a Taxpayer Assistance
Order for agencywide procedural issues and to correct actions
that negatively impact on large groups of taxpayers or all
taxpayers.
On December 7, 1998, I issued the first Taxpayer Advocate
Directive, which directed the districts and the service centers
to abate penalty on those innocent spouse cases that were
suspended, pending guidance on the new equitable treatment
provisions of RRA 98 which you passed last year.
That Taxpayer Advocate Directive also recommended that the
regulation interpreting the abatement of interest statute be
reopened to allow more taxpayers to qualify for the benefits of
the statutory provision. This delegated authority is a powerful
tool. It can change systemic procedural management practices
that are inequitable and burdensome to taxpayers. To the extent
possible under the laws and regulations, we have a desperate
need to change the processes and practices up front before
there is need for taxpayer advocates to get involved and
intervene in a difficult case.
During my years in the tax business, I've become familiar
with the phrase ``protecting the interest of the Government.''
As I speak to particular groups of my own profession around the
country, I've asked them if they have ever heard the term
``protecting the interest of the Government from the IRS.'' And
I get a resounding ``yes'' from every audience that I talk to.
In studying RRA 98, and applying the spirit as well as the
letter of the law, I am convinced that you, Congress, have
liberated us, literally liberated us, from thinking in the same
philosophy as protecting the interest of the Government, which
most of the time means maximizing the revenue to the
Government. And that is so offensive to the taxpayers, and I
believe that we are on a new wave, a new vision, of moving from
that.
I see my red light is on, and we will just go whipping
right through here. The report I know you have seen----
Chairman Houghton. You will be able to add whatever you
want later on in answering the questions. In fact, many people,
when questions are asked, answer another question. [Laughter.]
Mr. Oveson. I was going to highlight the citizen advocacy
panels that we are working on. You have read about that, and we
can talk about that in questions, if you would like. It affects
many of your areas.
Problem-solving days is a tremendous program during the
last year that we have been very involved in, and programwise
we are responsible for operating that program. The district
directors and the district employees are the ones that carry
the bulk of the work and have done a great job.
There are other programs that I can talk about that we are
involved with to better publicize the Advocate's Office, as you
directed last year. But let me say, in closing, that I want to
thank the Subcommittee for giving me the opportunity to report
this year on the activities of the office. I will do everything
within my power to see that the taxpayer rights are protected
and that the IRS treats all taxpayers with dignity and respect.
I will also continue to recommend administrative and
legislative changes that I feel are needed to make the Nation's
tax system more responsive and less burdensome. I know that
this is an enormous task. However, I am confident that with the
sustained continued commitment from you in the Congress, from
the Treasury, from the Commissioner, and all 98,000 IRS
employees, we can meet the challenge to provide a better
service and a greater equity to America's taxpayers. Thank you,
Mr. Chairman.
[The prepared statement follows:]
Statement of W. Val Oveson, National Taxpayer Advocate, Internal
Revenue Service
Mr. Chairman and Distinguished Members of the Subcommittee:
I am pleased to make my first appearance before the Congress
since I assumed the job of the National Taxpayer Advocate of
the Internal Revenue Service. I welcome the opportunity to
share with you my vision of the Taxpayer Advocate's role, the
progress we made during fiscal year 1998 and the agenda we hope
to carry out in fiscal year 1999 on behalf of America's
taxpayers.
I appreciate the support Commissioner Rossotti expressed in
his testimony. Consistent with his words, he has supported me
with his actions and is committed to a strong Taxpayer Advocate
organization. He believes that the Taxpayer Advocates have a
unique vantage point that will help us determine how we can
serve taxpayers more effectively. As you may remember, he
strongly encouraged Congress to strengthen the Advocate role in
the Internal Revenue Service Restructuring and Reform Act of
1998. He has great expectations that I will be able to use my
expanded authority as you intended to meet the taxpayers' needs
for assistance in dealing with the Service.
Since starting work on September 8, 1998, I have spent a
great deal of time learning the organization and getting to
know people both inside and outside the Advocate's office. As a
member of Commissioner Rossotti's top management team, I have
spent time meeting with the agency's leaders. In addition to
learning from these leaders, I have used these meetings to
promote a more taxpayer sensitive and service-oriented IRS.
The climate has changed and support for the Advocate's
Office is at an all time high. Commissioner Rossotti and
Treasury Department officials have been very supportive of me
and the new independent role. The local taxpayer advocates are
also enthusiastic about the new structure and they are
responding well to the new organization. More taxpayers and
stakeholders are aware of the new role and are expecting the
National Taxpayer Advocate to have a strong customer service
influence on the IRS. With such strong support from all
directions I am optimistic that we will succeed.
The annual report that I recently submitted to Congress
covers the fiscal year ended September 30, 1998. As I stated in
the foreword, the format and the underlying statistical
information were determined before I arrived. The format is
based on the management information systems that have existed
for many years. While much of the material is prescribed by
statutes, I will be evaluating the style and format during the
next year and will be developing new approaches and ways to
communicate the recommendations.
Nevertheless, I reviewed the recommendations that were made
through the process put in place last year, validated the
contents of the report with the local taxpayer advocates, and
recommended the results to you for action. The taxpayer
treatment initiatives and legislative proposals in the 1998
annual report reflect the direction that I will pursue on
behalf of America's taxpayers in the future.
Fiscal year (FY) 1998 was a busy year on many fronts for
the Taxpayer Advocate organization. The intense scrutiny on the
IRS heightened the visibility of my office and its programs. I
believe that the resulting legislation, the RRA '98, will help
the National Taxpayer Advocate organization to effectively
promote change and to work as a catalyst in creating better
treatment for taxpayers and enhancing customer service.
During FY 1998, the Taxpayer Advocates resolved more than
272,000 cases and received requests for assistance on 32,049
potential hardship cases. We were able to grant relief or
provide assistance to 74% of the taxpayers who applied for
Taxpayer Assistance Orders (TAOs). Local Advocates in only 3
instances could not agree with the local functional area with
responsibility for action. In those cases, the local advocates
issued and enforced the TAOs.
In 1,444 cases, the law prevented us from providing the
relief sought. The largest number of cases in this category
concerned the offset of refund payments to other liabilities.
Because the taxpayer's refund was used to collect liabilities
owed to other government agencies, we were not able to provide
hardship relief as intended by the statutes. My report contains
legislative proposals aimed at correcting this problem.
In April of 1998, the National Taxpayer Advocate was
delegated new authority by the Commissioner to issue Taxpayer
Advocate Directives (TADs). This authority allows the National
Taxpayer Advocate to grant the equivalent of a Taxpayer
Assistance Order for agency wide procedural issues and correct
actions that negatively impact a group of taxpayers. On
December 7, 1998 I issued the first TAD which directed the
districts and service centers to abate penalties on ``innocent
spouse cases'' on which the IRS suspended action pending
guidance on the new equitable treatment provisions in RRA '98.
The TAD also recommended that the regulation interpreting the
abatement of interest statute be reopened to allow more
taxpayers to qualify for the benefits of this statutory
provision. This delegated authority is a powerful tool to
change systemic, procedural and management practices that are
inequitable and burdensome. To the extent possible under the
law and the regulations, there is a desperate need to change
processes and practices up front before there is a need for a
Taxpayer Advocate to intervene in a difficult case. I intend to
be involved in the development of new processes and
implementation of new tax laws. I will continue to issue TADs
when I feel it is appropriate to alleviate taxpayer inequity
and burden.
During my years in the tax business, I became familiar with
the phrase, ``protecting the interests of the government.''
Studying RRA '98 and applying the spirit as well as the letter
of the law, I am convinced that Congress liberated the IRS from
this philosophy, where the phrase ``protecting the interest of
the government'' means ``maximizing the revenue to the
government.'' It is obvious to me that Congress intends that
the IRS will balance the interest of the taxpayer with the
interest of the government. This balanced approach will require
the IRS to walk away from issues and situations that they may
not have done in the past.
Last year many of you expressed concern that the Taxpayer
Advocate's Office was one of the IRS's best kept secrets. We
have worked hard to remedy your concerns. We have published the
phone number of each local taxpayer advocate in the phone
directory and we are in the process of setting up the other
independent communications systems that are called for in RRA
'98. We have also established a separate toll-free telephone
number for the Taxpayer Advocate's program. This new number (1-
877-777-4778) was operational beginning November 1, 1998. The
telephone service is provided in four sites, two (Richmond and
Pittsburgh) during `normal' business hours and two (Atlanta and
Fresno Service Centers) for ``after hours'' service. The sites
are staffed with employees trained and equipped to effectively
handle these sensitive calls. This new number has been widely
advertised and is listed in this years' Form 1040 packet under
``getting help.''
Another initiative we began last year was the Taxpayer
Equity Task Force. It was created to identify issues and
recommend changes that will promote fairness and equity in tax
administration and balance the need for equity in individual
cases, with the need for equity for all taxpayers. The Task
Force members represent all the functional areas of the IRS and
is supported by staff of the Taxpayer Advocate's Office. Input
is solicited from all areas of the IRS for equity issues and
regular meetings are held with outside stakeholders.
The Task Force assesses the need for changes using evidence
from case problems and other sources, determines priorities,
and fully researches the problems accepted for review. Where
change is recommended, it is determined whether the
recommendation requires administrative or legislative changes.
Conclusions and recommendations coming from the Taxpayer Equity
Task Force are considered at the highest levels of the IRS.
Administrative recommendations endorsed by the National
Taxpayer Advocate are sponsored by the affected function(s) for
implementation as soon as possible. A recent example of this
group's impact is illustrated by the agreement by the
Operations area to establish a National Interest Administrator.
This new office will provide uniform guidance and consistency
for computing taxpayer interest. I might add, the computation
of interest was a major issue identified in Problem Solving
Days.
One of our greatest successes last year was Problem Solving
Days (PSD). National PSDs provided the opportunity for
taxpayers to have face-to-face contact with an IRS employee to
assist them in resolving problems with the IRS. The first
national PSD was held on November 15, 1997, and approximately
6,300 taxpayers attended throughout the country that day. We
continued to hold monthly events (frequently on Saturdays and
evenings, as well as week days) in all districts offices.
Approximately 43,000 taxpayers attended these events from
November 1997 through December 1998. The Advocate's Office
provides program direction for PSDs and IRS district offices
implement the program. It is truly an agency-wide effort which
has also created a great deal of enthusiasm within the IRS as
employees experienced first hand that taxpayers need face-to-
face contact with knowledgeable representatives who have the
authority to act. Customer satisfaction surveys and employee
surveys are conducted at each PSD. An outside contractor
analyzes these surveys and provides reports. Follow-up taxpayer
telephone surveys were also conducted in May and November,
1998. Survey results indicate:
Taxpayers want to discuss their problems face-to-
face with IRS employees; and
IRS employees like the cross-functional approach
to assisting taxpayers, providing the technical expertise
necessary to resolve problems; and
Taxpayers like being able to make appointments and
come in on evenings and Saturdays.
PSDs are scheduled to occur monthly in every district
office through the end of 1999. These monthly schedules are
published in a number of places, including the Internet at
www.irs.ustreas.gov. The events are also publicized through
public service announcements in national and local newspapers,
TV, radio, and various trade publications.
Problem Solving Days are an extremely important tool for
helping taxpayers, but in the long-term we must make ``every
day a problem solving day.'' The IRS is continuing to gather
data to analyze the effectiveness of PSDs and determine the
best way to deliver top quality customer service to taxpayers.
By building our experiences of PSDs into the IRS day-to-day
operation, the agency can improve the level of customer service
in all areas, including walk-in service. To best serve the
interest of the taxpayers, there should not be a gap in service
between ``regular'' days and ``Problem Solving Days.''
Another exciting initiative involving the Taxpayer
Advocate's Office is the creation of the Citizen Advocacy
Panels (CAPs). The mission of the program is to:
Provide citizen input into enhancing IRS customer
service by identifying problems and making recommendations for
improvements of local IRS systems and procedures; and
Elevate the problems to the appropriate IRS
official and monitor the progress to effect change, and refer
individual taxpayers to the appropriate IRS office for
assistance in resolving problems.
Each CAP will consist of 8 to 15 volunteers from the
district who are willing to commit approximately 100 hours each
year to the panel, and may include one or more tax
practitioners. The applicants are screened and interviewed by
an outside contractor who recommends the top 20 applicants to
the Treasury Department. The Secretary of the Treasury then
decides the panel's membership.
CAPs will hold public meetings at least twice a year in
various locations throughout the districts. They will receive
and review written correspondence from taxpayers to identify
customer service issues, obtain information, identify taxpayer
concerns, and solicit feedback on proposed panel
recommendations for improvement. The panel will also review
recommendations for action from the IRS, prepare special
reports, monitor local IRS effectiveness in serving customers
and handling complaints, and make recommendations to improve
service.
The first CAP was established in June of 1998 in the South
Florida District. Three other CAPs will be started in the
following areas during FY 1999: Brooklyn (comprising the
boroughs of Brooklyn and Queens and the counties of Nassau and
Suffolk on Long Island), Midwest (comprising the states of
Wisconsin, Iowa and Nebraska) and Pacific-Northwest (comprising
the states of Washington, Oregon, Alaska and Hawaii).
The Southern Florida CAP has already developed several
recommendations in the short time they have been in existence.
Our initial assessment indicates that these panels will provide
excellent feedback as the IRS strives to improve customer
services and be more responsive to taxpayer needs.
In closing, I would like to thank the Subcommittee for
giving me this opportunity to report on the actives of the
office and to share my vision for the future of the program. I
will do everything within my power to see that taxpayer rights
are protected and that the IRS treats all taxpayers with
dignity and respect. I will also continue to recommend
administrative and legislative changes that I feel are needed
to make the nation's tax system more responsive and less
burdensome. I know that this will be an enormous task. However,
I am confident that with the sustained commitment of Congress,
the Treasury Department, the Commissioner, and IRS employees,
we can meet the challenge to provide better service and greater
equity to America's taxpayers.
Chairman Houghton. Well, thank you very much. I'm going to
forego my question and turn the questioning over to Mr. Coyne
for a moment. But before I do, it's absolutely essential that
we know that you have the freedom of operation, and that you
are not constrained by the bureaucracy of the IRS. We have to
know that, and we have to support you, because your job is
equally as important as the Commissioner's job. So, with that,
let's go to the questions.
Mr. Coyne. Thank you, Mr. Chairman.
Mr. Oveson, do you have with you or do you have any
knowledge of what the most current compliance rate is for
taxpayers, the voluntary compliance rate for individual
taxpayers?
Mr. Oveson. The only information I have is what I have
heard. I haven't seen the actual report. It was 87 percent----
Mr. Coyne. Eighty-seven?
Mr. Oveson [continuing]. Was the current compliance rate
for taxpayers in the United States, and I am pulling that out
of my memory and from discussions that have gone on in the
months that I have been here, and also being in tax
administration prior, but we can verify that and get back to
you.
Mr. Coyne. OK.
[The information follows:]
We estimate that for the tax year 1992, there was an 83%
voluntary compliance rate for individual taxpayers. That is, we
estimate that individual taxpayers voluntarily paid 83% of the
total tax dollars that were due and owing.
Mr. Oveson. I would like to point out, however, that,
though that percentage is out there floating around, 98 percent
of the revenue comes in without any activity at all by the
IRS--people complying with the Tax Codes. So less than 2
percent of the revenue comes in as a result of enforcement
action. So we really are dealing with a very small percentage
of the population in terms of the service problems that we are
talking about, but it is 87 percent, overall as I understand
it.
Mr. Coyne. Well, my staff just gave me a percentage here of
99 percent for wage-earners. Have you ever heard that figure?
Mr. Oveson. No, I have not.
Mr. Coyne. OK, I would appreciate if you could get those
statistics to me.
So most individual taxpayers file their taxes on time and
there is really not much of a problem overall?
Mr. Oveson. Well, the 99 percent that you just gave is
consistent with what I said, of the 98 percent coming in
without any enforcement action. But I hadn't heard that the
compliance rate was there, but, yes----
Mr. Coyne. What's your figure without enforcement action?
Mr. Oveson. Ninety-eight percent of the revenue comes in
without any enforcement action.
Mr. Coyne. Without having to take any enforcement action to
get it, 98 percent. Thank you.
I have introduced a bill to simplify the capital gains tax.
Have you had a chance to review that?
Mr. Oveson. I have, but you will also have noted that I had
a recommendation in the 38 recommendations that was very
similar. I don't want to upstage you at all in terms of the
proposal you are making, I have looked at the capital gains
issue. The capital gains issue is one that bubbles up from our
case work. And certainly with the capital gains and Schedule D
issue that we faced a couple of years ago, it impacted a great
many taxpayers. It is an issue that's of concern to taxpayers
that we're dealing with in casework on a day-to-day basis.
Solving that issue, particularly for the mutual-fund investors,
which are the regular, normal people of this country, would
certainly be a plus in terms of reducing burden and helping
taxpayers comply with the law.
Mr. Coyne. OK. In your opinion, as the advocate, are the
IRS tax forms and publications as simple and clear as they
could be?
Mr. Oveson. No. They are not. And efforts have been made
over the years to change those, and there are some efforts
right now, in terms of rewriting those forms and publications.
They are using some outside contractors, as I understand it, in
helping to accomplish that task. The taxpayer advocate plays a
role with that, and I intend on playing a more aggressive role,
we are able to look at forms from a different perspective.
If you've been working with those forms and publications
year after year after year, sometimes you don't see the way
they are being viewed from the outside. And I'll give you an
illustration. Several years ago, when I was a tax administrator
in Utah, I got a letter from the IRS. I'm used to sending these
letters out with my name on them. I get the letter, and I'm
mad, immediately mad, because of the tone of the letter, how
much it's going to make me go research and do all that is
required. Then I smiled and sat back and said, ``Am I doing
that to people on a daily basis.''
And indeed I was, and it was a very humbling event for me.
I won't go into the details of what happened as a result of the
letter, unless you want to. [Laughter.]
Mr. Coyne. Well, thank you very much. Thank you.
Chairman Houghton. Thank you. Ms. Dunn.
Ms. Dunn. Thank you, Mr. Chairman. And thank you for coming
to talk to us today, Mr. Oveson.
Mr. Rossotti talked about making the taxpayer advocate,
increasing the presence of the taxpayer advocate around the
country. How are you doing that?
Mr. Oveson. Could you repeat the question, please?
Ms. Dunn. Mr. Rossotti, who spoke to us just a little while
ago, talked about making greater the presence of the taxpayer
advocates around the country, the different taxpayer advocates.
How are you accomplishing that?
Mr. Oveson. Well, increasing the presence. We're assuring
that there is one taxpayer advocate in every State, and we're
following RRA 98 in the requirements to publicize--great
requirements, by the way--to publicize the program more. He
mentioned the 800 number. Also, each of the taxpayer advocates
have their local telephone number in each of the local
directories. I can talk to you about the challenges that
presents, because that's the only local number for most of the
IRS offices. So we're getting lots and lots of calls. Outreach
programs in terms of speeches, and meetings with practitioners
and community groups. Those kinds of things are going on.
We also, in cooperation with the general IRS communications
department, cut a series of public-service announcements that
are being aired during this filing season. But the one single,
biggest thing in getting the word out that we're here and that
we're in business and we're there to help is publishing the
taxpayer-advocate number in the 1040 booklet. It's there under
getting help, very prominently displayed.
Ms. Dunn. Are you getting cooperation from local newspapers
when you move out into communities to hold your taxpayer days?
Mr. Oveson. You're referring to the problem-solving days?
Ms. Dunn. That's right.
Mr. Oveson. Yes. Although with the sustained effort of
problem-solving days, having one in each district, it's hard to
sustain that level of interest for free advertising and free
media--the public relations kind. We've refrained from getting
into paid advertising. Maybe we need to look at that in the
future. But we've had great support from the media, but I don't
think we can expect that to be sustained over a long period of
time.
As Commissioner Rossotti said, on that problem-solving-day
issue, we need to, as quickly as possible, work the concepts
and principles of problem-solving day into our normal work
habits and our work schedules so that we can change the nature
of problem-solving days into everyday being problem-solving
days.
Ms. Dunn. Let me ask you a question about electronic
filing. We've talked about this over the last couple of years
because many small businesses were required at one point to
file electronically. We got a, sort of a time gap there, that
we were able to provide for folks who weren't ready to do that.
But, part of the discussion was the education process had not
taken place. Are you feeling confident now that we're getting
information out, and are people beginning to respond more to
the possibility of electronic filing? And are most people eager
to do that or are you finding that it is not used much?
Mr. Oveson. Well, in that particular vision, with small
business on the electronic transfer of funds, there is a filing
component to that, but it's the funds transfer that caused all
of the problems. And I think that is leveling out as the
requirements have been rolled out and more are doing it,
although I have mentioned in the report that penalty
administration is one of the biggest problems, and that
particular area is one that penalty administration needs to be
watched very carefully because it can be very onerous on a
small business who misses the deadline by 1 or 2 days or gets
things messed up with these electronic-funds transfers that are
reviewed. They need to be careful with that.
Ms. Dunn. And so people are responding? There is more
electronic filing taking place now?
Mr. Oveson. Yes.
Ms. Dunn. Good. Good.
One last question I would like to ask you. In previous
hearings we've had with the taxpayer-advocate, I have felt that
there was very little independence and responsiveness to the
taxpayer over responsiveness to the IRS. We tried to change
that. Are you feeling comfortable in the amount of independence
you have to be the true representative of the taxpayer rather
than of the IRS?
Mr. Oveson. I feel a very keen responsibility to make sure
that I maintain that independence in attitude and in spirit.
And we talk about it a lot among the ranks that are sitting
behind me. And I feel I am getting tremendous support from the
Commissioner to be independent. And if I weren't, I'd need to
let you know that. I think that's what you're asking.
What really makes me enjoy my job, and when I go home and
feel like I've really been successful, is when I deal
individually with a taxpayer and can look at the situation
differently, push something within the law, and make a
difference and solve problems. That's what's exciting to me
about the job. That's why I took it when it was offered to me
by the Commissioner, and I feel that we are, that I have the
independence, and we're developing the organizational
independence to meet your expectations and the expectations of
the taxpayer.
Chairman Houghton. Thank you. Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman, and welcome. I
believe this is your first testimony before Congress. Is that
correct?
Mr. Oveson. In this setting, yes. I've done it many other
times in other settings and other issues in my past life, but--
--
Mr. Portman. But as taxpayer advocate, in this life, which
we all hope will be a long and prosperous one for you?
Mr. Oveson. Thank you.
Mr. Portman. Again, I think the report is quite good, and
it's refreshing to see some of the candid assessment of some of
the problems. We have a lot of problems, and you've gone
through in your report a number of them by giving us the top 10
problems taxpayers are experiencing with the IRS, which, of
course, starts with complexity of the Tax Code as we talked
about, but also some other very specific areas where we can do
work. The most litigated tax issues, the legislative proposals,
again I find very helpful, and I think there are some of those
we might be able to work with very soon. And again, some of
those are tough areas that you've gotten into, and I just want
to reiterate what the chairman said and what Mrs. Dunn said,
which is independence. It's absolutely critical here because if
you look at these recommendations you're making, some of them
are quite consistent with the White House or Treasury or the
policy positions this administration might take. Some seem to
vary a little bit from it, and that's very healthy. We want to
hear directly, unvarnished, from you as to what is in the
interest of the taxpayer.
This is a very unusual mechanism that we have, and most
taxpayers aren't aware of it, which is that your job is to look
out for them and their interests, and yet to work within the
system. And there are always, I think, going to be some
inherent conflicts with that and some difficulties. In the
legislation that we enacted in July that's been talked about a
lot today, we specifically made a change in the structure of
your department to try to add to that independence, again, that
the previous questioners asked you about. And what we said was
that instead of the local taxpayer advocates reporting through
the normal processes to the Commissioner, that they would
instead report to you. So you have an army of people out there,
some of whom I think are in the audience today--I know they
were here for a conference this morning--and their job is to
look out for the best interest of the taxpayer, try to resolve
difficult problems, but then ultimately to report to you.
And I guess the question that I would have, which we asked
the Commissioner earlier, has that made them more effective? Is
that working? And what problems do you see--I would suggest one
might be the difficulty of obtaining resources or support, now
that they are reporting to you. What problems have arisen in
that new structure that you might want to tell us about this
afternoon?
Mr. Oveson. Yes, I think it has made a difference, but I
would leave it to them. Their conversations they're having
individually with you, to ask them how they feel about that. My
feeling is that yes they are. Certainly, organizationally they
are not feeling the same amount of peer pressure or pressure to
deal internally as they have before. My sense after 5 months is
that that was a tremendous problem in some areas and in other
areas it wasn't a problem. But psychologically, I think
overall, it's made a tremendous difference.
Mr. Portman. You mean in certain regions or districts it
wasn't as much of a problem as in other regions or districts.
Mr. Oveson. It depended on the local support that they were
getting for their program and for the aggressive nature that
they may have been taking with the taxpayers.
And the second part of your question?
Mr. Portman. It really relates to what difficulties have
arisen because of that new structure. In the examples that I
raise, without trying to put words in your mouth, would be
difficulty in obtaining resources, support, cooperation on
cases, and that sort of thing. Has it changed those
relationships in a way that is negative?
Mr. Oveson. The relationships have changed, but I sense
that I feel a tremendous support from throughout the
organization in terms of resources and--there is a new mood and
a new vision moving through the IRS, and we're on the leading
edge of that, if you will, right now. And there's a tremendous
outpouring of support. Hopefully that will continue and we'll
make the transitions that we need to as an organization.
Mr. Portman. One final question, if I might. My light's
about to go off. In the restructuring bill there is conference
report language, that the national taxpayer advocate should be
able to hire and consult counsel as appropriate. And I just
wanted to ask you, have you exercised that authority to seek
outside counsel? Do you need outside counsel? How do you
receive, specifically, the legal information that you need? Do
you believe somebody who works for the chief counsel's office
can be independent? And how do you intend to proceed on that in
the future?
Mr. Oveson. I talked very early on with the Commissioner
about getting counsel support and help that we very, very badly
needed. And we have been given tremendous support from Stewart
Brown and the Chief Counsel's office. He detailed somebody, and
immediately, with a staff of attorneys, I'm very pleased with
their service. They are becoming a taxpayer advocate within the
Chief Counsel's office in many ways. And that's being made
permanent, and I am satisfied at the current time that my legal
needs are being met in that fashion.
Mr. Portman. The delegation of a specific lawyer to your
area or to you, is being made permanent?
Mr. Oveson. Yes. Again, I have a say in who that attorney
is, but it is an attorney from the Chief Counsel's office. I do
not have independent legal counsel.
Mr. Portman. And do you feel the need to have access to
independent counsel?
Mr. Oveson. Not at the current time, but we may need to
revisit that sometime in the future.
Mr. Portman. Thank you, Mr. Chairman.
Chairman Houghton. Mr. Coyne's got a question.
Mr. Coyne. Thank you, Mr. Chairman.
Sir, relative to the interest in the innocent-spouse cases,
suspending the interest, do you have any recommendation or
could you develop any recommendation that you could send to us
that would correct that problem legislatively? That is to
suspend the interest in the innocent-spouse cases.
Mr. Oveson. Yes. It is one of the recommendations that I
have made--I've made a legislative recommendation that you
could act on, but it's my personal opinion that Treasury could
change the regulation to allow the waiver of interest on a
managerial basis.
Mr. Coyne. In the absence of that, do you have a
legislative recommendation that you've made?
Mr. Oveson. I have. They're both in the report.
Mr. Coyne. OK. All right.
Mr. Oveson. I've made a recommendation to Treasury and the
recommendation is among the ones that are in the report to
Congress.
Mr. Coyne. Thank you.
Chairman Houghton. I'd like to ask a couple of questions,
but first of all I'd like to follow upon what Mr. Portman was
saying. I don't know whether I agree with you in terms of the
counsel. There's a man or a woman, a body, who is there working
as your counsel. And it's being paid for by the U.S.
Government. I can't conceive of you not wanting an independent
counsel in your independent shop.
Mr. Oveson. I am supportive of what we're doing right now,
and I'm hopeful that it will work. If it doesn't work, like I
said, we can revisit this and I can report back to you at a
later time whether that is adequate or not.
Chairman Houghton. Just one overall question, and again we
appreciate your testimony. You submitted a report, a good
report. You've made 38, 39 recommendations. Could you summarize
the two or three really important ones? Give a priority to
them. Also, how they dovetail with the issues which the
taxpayers are most interested in?
Mr. Oveson. There is a crosswalk between the top 20 issues,
the top 10 most litigated issues, and the report. And we could
provide that crosswalk to you--maybe we need--that's what I was
referring to in providing a better format and style to the
report that would be more helpful to you.
Mr. Chairman, I'm reluctant to classify or to prioritize
those recommendations. One of the reasons that I am reluctant
to do that, is one of the geniuses, if you will, of the system
that you've set up here is that we don't have to score those
recommendations. We don't have to look at a lot of the other
things that you and the Treasury Department and others would do
as you seek to implement them. Our recommendations are coming
from a groundswell of casework. So we have an empirical base to
look at, and also a taxpayer perspective. Some of those
recommendations may affect a very few number of individuals,
but they could be still very important to those individuals.
So, if you want that, we could provide that another time.
Chairman Houghton. So all 39 recommendations have equal
importance? I mean if somebody woke you up in the middle of the
night and said, ``Hey, which is the most important?'' What
would you say?
Mr. Oveson. Obviously not. They're not all of equal
importance in terms of the number of people that would be
affected and the amount of revenue that they would cost. Most
of them do cost revenue, incidentally, and again we have not
analyzed that. That's not our perspective, as we're working on
that. But you asked twice, so maybe I shouldn't wait till a
third time. The penalty issue, the late-payment penalty,
eliminating that would be a tremendous benefit to every
taxpayer that found himself in the situation.
The history of that penalty, if you remember from the late
seventies and early eighties, was to stop taxpayers from
wanting to borrow money from the Government instead of from
their bank, a credit card, or other source of money. At that
time, you remember, the interest was fixed and was way below
the market-rate of interest. Times have changed, and we now
have a market rate of interest, and that penalty still is there
and is causing many of these cases that you're seeing where
someone owes 300 and 400 percent of the amount of the tax by
the time you get things resolved.
That's one that would be a real high priority.
Chairman Houghton. OK, well let me follow upon that for
just a second. Late penalties are a problem for taxpayers.
You've identified the late penalty as a problem, which ought to
be addressed by the IRS. Is the IRS addressing that?
Mr. Oveson. That is not within the authority of the IRS to
address that particular issue. There's a law on the books that
says there is a late-payment penalty: 2 percent a month up to a
maximum of 25 percent, I believe that penalty is. And there's
nothing the IRS can do about that.
Chairman Houghton. So, is the IRS about to give us
recommendations in terms of changes to the law that they think
would make their job easier?
Mr. Oveson. On that particular issue?
Chairman Houghton. That or any other important issue.
Mr. Oveson. I'm not privy to----
Chairman Houghton. You might come back to us on that, if
you could. Any other questions?
Mr. Portman. Just to follow up on that point. I think we've
already made it with the Commissioner, but I think it would be
very helpful if the Commissioner would take into account your
real-world experience on the interest and penalty front,
particularly the late-payment issue, but also some other issues
that you addressed. And then in turn the Treasury report, that
I understand is due in July, would include the input from the
Commissioner so that we have in place by this summer some very
well thought out consensus recommendations on how
constructively to move forward because it's a huge issue for
taxpayers as well as an issue for your folks in trying to
administer it. And in the end, it ends up with, in my view,
more taxpayers being out of compliance than need be. And
probably in terms of the revenue impact that you referenced
earlier, as soon as we can get a revenue estimate that takes
into account the dynamics of human behavior probably will
result in more people being willing to come forward without
that enormous--you said 300 to 400 percent--sometimes penalty
on the taxes due.
Chairman Houghton. Yes. Well, thank you. I really feel that
we've got to work together on this thing. Obviously we are
working as a service organization for the country to try to
help taxpayers. So, if we could work together on some of these
issues, I'd appreciate it.
Mr. Oveson. OK. I think this provides a great opportunity,
Mr. Chairman, for us to work with you and your staffs on the
report cycle for next year and, if prioritization of those
recommendations is what you want, let's work with you to come
up with a standard to make that prioritization. Again, the
crosswalk that I've mentioned between the top 20 list, provides
some relationship to that because that top 20 list is----
Chairman Houghton. These are the top 20 in terms of what
the taxpayers want?
Mr. Oveson. Right. And that's quite empirical. I mean we've
gone out and done surveys, we've done focus groups, we've
surveyed internal IRS people, and that is not a willy-nilly
list. It's got a lot of substance behind it. And if we
crosswalk the recommendations to that list, that should provide
some help.
Chairman Houghton. OK. Well thank you very much, Mr.
Oveson. You're doing a great job. We're lucky to have you.
Thanks for your testimony.
Mr. Oveson. Thank you.
Chairman Houghton. OK. Now, we're going to have the third
panel composed of: Cornelia Ashby, Associate Director of Tax
Policy and Administration Issues in the GAO; Mr. Attianese,
Assistant Director of Tax Policy; and, Kelsey Bright, Evaluator
in Charge of the General Government Division.
Thank you very much for being with us today.
The last panel--I will try to do this as expeditiously as
possible. Ms. Ashby, will you begin?
STATEMENT OF CORNELIA M. ASHBY, ASSOCIATE DIRECTOR, TAX POLICY
AND ADMINISTRATION ISSUES, GENERAL GOVERNMENT DIVISION, U.S.
GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY DAVID J. ATTIANESE,
ASSISTANT DIRECTOR AND KELSEY M. BRIGHT, EVALUATOR IN CHARGE
Ms. Ashby. Mr. Chairman, we are pleased to be here today to
assist the Subcommittee in its oversight of IRS' Office of the
Taxpayer Advocate. Our statement highlights three key
challenges facing IRS and the National Taxpayer Advocate as
decisions are made about restructuring the advocate's office.
These challenges are, addressing complex staffing and
operational issues within the advocate's office in a way that
will ensure that it offers an independent means for taxpayers
to resolve their problems, strengthening efforts called
advocacy within the advocate's office to determine the causes
of taxpayer problems so that systemic causes can be identified
and corrected, and developing the performance measures that the
National Taxpayer Advocate needs to manage operations and
measure effectiveness.
Staffing and operational issues are commonplace in most
organizations, but dealing with these issues could be more
challenging for the advocate's office because of the need for
the office to be perceived as independent from IRS operations
while having to rely on those operations to accomplish its
objectives.
To illustrate, until last October, most PRP assistance to
taxpayers who could not get their problems resolved through
normal IRS channels was done by employees called caseworkers
who were not part of the advocate's office. They were in
functional units in the district offices and service centers.
Last October, IRS moved about 20 percent of the caseworkers to
local advocates' offices. In addition, IRS is developing an
implementation plan to have the remaining 80 percent assigned
to local advocates' offices this year.
Herein lies a somewhat unique challenge: developing a plan
for bringing all caseworkers into the advocate's office that
includes mechanisms for giving PRP, on the one hand, the
benefits of reliance on the functions for such things as
caseworker training and managing workload fluctuations, and on
the other, the benefits of a separate operation with actual and
perceived independence, the ability to select highly qualified
caseworkers, and control over its resources.
Workload increases also present a staffing and operational
challenge. Such increases might make it necessary for the
advocate's office to decide which cases to address with PRP
resources. That is, some taxpayers who seek help from PRP, may
have to be referred to other IRS offices. IRS' criteria for
deciding what qualifies as a PRP case are broad enough to
encompass virtually any taxpayer contact. We understand why the
advocate's office would not want to turn away any taxpayer;
however, if PRP accepts cases that could be handled elsewhere
in IRS, the program could be overburdened--a situation that
could reduce PRP's ability to help taxpayers who have nowhere
else to go to resolve their problems.
The Advocate's Office has taken steps to meet its second
challenge--strengthening advocacy efforts. However, Advocate's
Office staff and PRP caseworkers told us that they were
spending only a minimal amount of time on advocacy because of
increased workload. In that regard, our survey of IRS staff who
were doing Advocate's Office work as of June 1, 1998, showed
that advocates and their staffs were spending about 10 percent
of their time on advocacy, and PRP caseworkers were spending
less than 1 percent of their time on advocacy.
We understand the need to give priority to casework over
advocacy when there is not enough time to do both. However,
advocacy efforts are key to IRS' success. As I mentioned
earlier, increased workload might make it necessary for the
Advocate's Office to be more selective in the cases it decides
to handle. This could allow more time for advocacy efforts.
In addition, the Advocate's Office needs to share
information on these efforts throughout IRS to conduct them in
a systematic and coordinated way to reduce the possibility of
duplication of effort. Further, the Advocate's Office has not
identified its top priorities. It has no way to determine the
actual impact of its advocacy efforts. Without such
information, the National Taxpayer Advocate does not know which
advocacy efforts have the greatest potential to reduce
taxpayers' compliance burden.
This leads to the third challenge: developing performance
measures to be used in managing operations and assessing the
effectiveness of the Advocate's Office and PRP. Currently, the
Advocate's Office uses four program measures, but they do not
produce all of the information needed to assess program
effectiveness. Two describe program activity and are useful for
some program management decisions. A third could help the
National Taxpayer Advocate know whether PRP actually serves
those taxpayers who need and qualify for help, but recently
IRS' Office of Internal Audit found that inconsistent data
collection for the measure could affect the integrity and
reliability of the measure's result. Also, the measure is used
only at service centers.
The fourth measure--designed to determine the quality of
PRP casework--provides some data on program effectiveness, but
it does not have a customer-satisfaction component. Without
this component, the National Taxpayer Advocate does not know if
taxpayers are satisfied with PRP services or whether taxpayers
consider their problems solved.
Mr. Chairman, this concludes my prepared statement. We
would be happy to answer any questions you have.
[The prepared statement follows:]
Statement of Cornelia M. Ashby, Associate Director, Tax Policy and
Administration Issues, General Government Division, U.S. General
Accounting Office
Mr. Chairman and Members of the Subcommittee: We are
pleased to be here today to assist the Subcommittee in its
oversight of the Internal Revenue Service's (IRS) Office of the
Taxpayer Advocate. Our testimony is based on our ongoing work
for the Subcommittee. Our work has included (1) interviewing
IRS officials at the National Office, all 4 regional offices,
and 17 of the 43 district offices and service centers; (2)
reviewing numerous documents relating to the work of the
Advocate's Office; and (3) surveying IRS staff who were doing
Advocate's Office work as of June 1, 1998. We are currently
drafting our report, which we expect to issue later this year.
As you are aware, IRS is changing its organizational
structure in response to the IRS Restructuring and Reform Act
of 1998. My statement highlights three key challenges facing
IRS and the National Taxpayer Advocate as decisions are made
about restructuring the Office of the Taxpayer Advocate. These
challenges are to:
address complex staffing and operational issues
within the Advocate's Office in a way that will ensure that it
offers an independent means for taxpayers to resolve their
problems. Specifically, while maintaining independence from IRS
operations, the National Taxpayer Advocate must, to some
extent, depend on other IRS units in developing a caseworker
reporting structure, establishing a resource control and
tracking system, obtaining caseworkers and providing them with
appropriate training, and determining how best to use available
resources.
strengthen efforts within the Advocate's Office to
determine the causes of taxpayer problems so that systemic
causes can be identified and corrected. In that regard, the
Advocate's Office needs to share information on these efforts
throughout IRS and conduct them in a systematic and coordinated
way to reduce duplication of efforts among its offices.
develop the performance measures that the National
Taxpayer Advocate needs to manage operations and measure
effectiveness.
Background
IRS founded the Problem Resolution Program (PRP) in 1976 to
provide an independent means of ensuring that taxpayers'
unresolved problems were promptly and properly handled.
Initially, PRP units were established in IRS district offices
and, in 1979, PRP was expanded to include the service centers.
In late 1979, IRS created the position of Taxpayer Ombudsman to
head PRP. In 1996, Congress replaced the Ombudsman's position
with what is now the National Taxpayer Advocate.
The goals of PRP are consistent with IRS' mission of
providing quality service to taxpayers by helping them meet
their tax responsibilities and by applying the tax laws fairly.
PRP's first goal is to assist taxpayers who cannot get their
problems resolved through normal IRS channels or who are
suffering significant hardships. For example, local advocate
offices can expedite tax refunds or stop enforcement actions
for taxpayers experiencing significant hardships. During fiscal
year 1998, PRP closed more than 300,000 cases, of which about
10 percent involved potential hardships. The second goal of PRP
is to determine the causes of taxpayer problems so that
systemic causes can be identified and corrected and to propose
legislative changes that might help alleviate taxpayer
problems. IRS commonly refers to this process as advocacy. The
third goal of PRP is to represent the taxpayers' interests in
the formulation of IRS' policies and procedures.
IRS has a taxpayer advocate in each of its 4 regional
offices and has local advocates in its 33 district offices, 30
former district offices,\1\ and 10 service centers. The
National Taxpayer Advocate has responsibility for the overall
management of PRP, and regional and local advocates have
responsibility for managing PRP at their respective levels. The
Office of the Taxpayer Advocate funds the advocate positions;
the staff in advocate offices at all levels \2\ and other
resources for advocate offices.
---------------------------------------------------------------------------
\1\ In 1996, IRS consolidated its regional and district offices and
reduced the number of its district offices from 63 to 33. The 30 former
district offices continue to have staff and operations, including local
advocate staff.
\2\ Unless specifically noted, a reference to ``advocate's staff''
or ``Advocate's Office staff'' refers to staff in the Advocate's Office
at all levels.
---------------------------------------------------------------------------
PRP assistance to taxpayers who cannot get their problems
resolved through normal IRS channels is done by employees
called caseworkers, who are not part of the Advocate's Office.
They are in IRS' functional units--mainly customer service,
collection, and examination--in the district offices and
service centers. Most PRP resources, including caseworkers, are
funded by the functions, and about 80 percent of the
caseworkers report to functional managers--not local advocates.
Some offices, however, had a centralized structure in which PRP
casework was done by employees who were funded by the
functions, but reported to the local taxpayer advocate.
Formerly, regional and local advocates were selected by and
reported to the director of the regional, district, or service
center office where they worked. However, in response to a
requirement in the IRS Restructuring and Reform Act of 1998,
regional advocates are now selected by and report to the
National Taxpayer Advocate or his or her designee; and local
advocates are now selected by and report to regional advocates.
Additionally, last October, IRS began moving to a more
centralized reporting structure for the caseworkers--in which
they would report to local advocates instead of functional
management. IRS officially assigned those caseworkers who were
already reporting to local advocates--about 20 percent of the
caseworkers--to local advocate offices. In addition, IRS is
developing an implementation plan to have the remaining 80
percent of the caseworker positions assigned to local advocate
offices this year. IRS plans to submit budget requests that
reflect these staffing changes by transferring funds for
caseworkers to the Advocate's Office.
During fiscal year 1998, the staffing level of the
Advocate's Office increased from 428 to 584 authorized
positions. Our survey showed that, as of June 1, 1998, the
Advocate's Office had 508 on-board staff. At the same time,
there were about 1,500 functional employees doing PRP casework
in IRS' field offices. Advocate staff worked on, among other
things, sensitive cases; cases involving taxpayer hardship; and
advocacy work, such as identifying IRS procedures that cause
recurring taxpayer problems. Caseworkers worked on resolving
individual taxpayer problems as well as participating in some
advocacy efforts. During times of high casework levels, many
Advocate's Office staff are required to do casework in addition
to their other duties.
Resolving Staffing and Operational Issues While Maintaining
Independence
The first challenge facing IRS and the National Taxpayer
Advocate is the need to address staffing and operational issues
while ensuring the independence of the Advocate's Office.
Staffing and operational issues, such as resource allocation,
training, and staff selection, are commonplace in most
organizations. However, dealing with these issues could prove
more challenging for the Advocate's Office because of the need
for PRP to be independent from the IRS operations that have
been unsuccessful in resolving taxpayers' problems.
Independence--actual and apparent--is important because, among
other things, it helps promote taxpayer confidence in PRP.
A key staffing and operational issue is developing an
implementation plan for bringing all caseworkers into the
Advocate's Office that includes operational mechanisms that
will give PRP the potential benefits of both a reliance on the
functions and a separate operation. According to IRS officials,
having the caseworkers in the functions may have facilitated
caseworker training and the handling of workload fluctuations;
however, this arrangement may also have led to the perception
that PRP was not an independent program. In addition, as we
will discuss later, this organizational arrangement may have
contributed to some of the other PRP staffing and operational
issues.
Another, but related, staffing and operational issue is
capturing information about resource usage that advocates need
to manage PRP. Some local advocates told us that the lack of
control over PRP resources, including staff, made it difficult
to manage PRP operations. Advocates do not know the full
staffing levels or the total cost of resources devoted to PRP,
because IRS does not have a standard system to track PRP
resources. Instead, each function tracks its resources
differently. The absence of this type of management information
yields an incomplete picture of program operations, places
limitations on decision-making, and hinders the identification
of matters requiring management attention. In addition, having
this basic program information would improve the National
Taxpayer Advocate's ability to estimate the resources needed in
the restructured Advocate's Office.
Providing appropriate training is also an issue. It is
important that caseworkers and other staff receive adequate
training if they are going to be able to help taxpayers resolve
their problems and effectively work on advocacy efforts. Our
survey of IRS staff who were doing advocate office work showed
that training has been inconsistent throughout the Advocate's
Office and among PRP caseworkers. For example, as of June 1,
1998, more than half of the PRP caseworkers had not completed a
formal PRP training course for their current position.
Caseworkers should be trained in both functional
responsibilities and PRP operations. Functional training, such
as training in tax law changes, is important because resolving
taxpayer problems requires that caseworkers understand the tax
law affecting a particular case. Historically, because
caseworkers were usually functional employees, they routinely
received training in functional matters. The National Taxpayer
Advocate is faced with ensuring that caseworkers continue to
receive needed functional training even if they are no longer
functional employees. In this regard, the National Taxpayer
Advocate is considering whether to implement a cross-functional
training program for caseworkers that would provide training in
multiple IRS functions. IRS officials told us that this would
broaden caseworker skills and might provide faster and more
accurate service to taxpayers.
Acquiring qualified PRP caseworkers has been an issue. In
the past, the quality of caseworkers depended on the office and
the function that assigned the caseworkers to PRP. Local
advocates told us that they had no assurance that the functions
would provide PRP with qualified staff. It is important for the
Advocate's Office to develop mechanisms to ensure that
qualified caseworkers are selected so that program goals are
met. Once the Advocate's Office is no longer dependent upon the
functions for its staff, it can implement a competitive
selection process for PRP caseworkers that should help ensure
that it gets the staff it needs.
As IRS restructures the Advocate's Office, it must consider
how best to handle workload fluctuations. Over the past 18
months, the Advocate's Office and PRP's workloads have
increased. Factors that have affected and could continue to
affect workload include increased media attention, the
introduction of a toll-free telephone number for taxpayers to
call PRP, and Problem Solving Days.\3\ Historically, PRP has
relied on the functions to provide additional staff to cover
workload increases. However, as the office is moving toward a
structure that would place all caseworkers in the Advocate's
Office, this source of additional caseworkers may no longer be
available. Many local advocates told us that it would be
difficult to handle workload fluctuations without the
traditional ability to obtain additional caseworkers from
functional units.
---------------------------------------------------------------------------
\3\ Beginning in November 1997, IRS began holding a series of
Problem Solving Days in each of its 33 districts. The purpose is to
give taxpayers with unresolved tax problems the opportunity to meet
face-to-face with IRS staff in an effort to resolve those problems.
---------------------------------------------------------------------------
Workload increases may also make it necessary for the
Advocate's Office to decide which cases to address with PRP
resources. That is, some taxpayers who seek help from PRP may
have to be referred to other IRS offices. Local advocates told
us that workload increases could compromise PRP's ability to
help taxpayers. For example, an increase in the number of PRP
cases could negatively affect the timeliness and quality of PRP
casework.
IRS has three criteria for deciding what qualifies as a PRP
case. The first two criteria are specific--(1) any contact by a
taxpayer on the same issue at least 30 days after the initial
contact and (2) no response to the taxpayer by a promised date.
However, the third criterion--any contact that indicates
established systems have failed to resolve the taxpayer
problem, or when it is in the best interest of the taxpayer or
IRS to resolve the problem in PRP--is broad enough to encompass
virtually any taxpayer contact. We understand why the
Advocate's Office would not want to turn away any taxpayer.
However, if PRP accepts cases that could be handled elsewhere
in IRS, the program could be overburdened, potentially reducing
PRP's ability to help taxpayers who have nowhere else to go to
resolve their problems.
Using Advocacy to Prevent Problems From Recurring
The second challenge facing IRS and the National Taxpayer
Advocate is to strengthen advocacy efforts within the
Advocate's Office. Advocacy efforts are key to the success of
the Advocate's Office because the improvements they generate
can reduce the number of taxpayers who ultimately require help
from PRP. Ideas for advocacy efforts are generated at the
national, regional, and local levels. These efforts are aimed
at eliminating deficiencies in IRS' processes and procedures
that cause recurring problems. Through advocacy efforts, the
National Taxpayer Advocate can recommend changes to the
Commissioner, IRS functions, and Congress to improve IRS
operations and address provisions in law that may be causing
undue burden to taxpayers.
The Advocate's Office has taken steps to promote advocacy,
such as implementing regional advocacy councils and identifying
strategies to increase awareness of advocacy within IRS. The
Advocate's Office has encouraged the functions to play a
greater role in assisting taxpayers and improving procedures to
reduce taxpayer compliance burden. For example, the Advocate's
Office is working with functional management through an
executive level group--called the Taxpayer Equity Task Force--
to develop ways to strengthen equity and fairness in tax
administration. The Task Force consists of a cross section of
executives from IRS' functions and staff from the Advocate's
Office. It was established to ``fast-track'' potential
administrative changes and legislative proposals recommended to
the National Taxpayer Advocate.
However, the Advocate's Office staff and PRP caseworkers
told us that they were spending only a minimal amount of time
on advocacy. In that regard, our survey showed that as of June
1, 1998, advocates and their staffs were spending about 10
percent of their time on advocacy, and PRP caseworkers were
spending less than 1 percent of their time on advocacy.
Advocate office staff and PRP caseworkers told us that
increased casework limited the time they could spend on
advocacy.
We understand the need to give priority to casework over
advocacy when there is not enough time to do both. The National
Taxpayer Advocate's ability to deal with these competing
priorities is hampered, however, by the absence of (1) a
systematic and coordinated approach for conducting advocacy
efforts and (2) data with which to prioritize potential
advocacy work.
To provide information on advocacy to field offices, the
Advocate's Office has developed a list of ongoing advocacy
projects. However, the list includes only national-level
projects; there is no corresponding list of local efforts, even
though those efforts could be addressing issues with agencywide
implications. Advocacy staff told us that because there is no
system for sharing information on local advocacy efforts, there
is some duplication of effort among field offices.
Additionally, field staff told us that there is no system that
provides feedback on the status of advocacy recommendations.
For example, in one district, staff told us that they forwarded
the same recommendations to the Advocate's Office over the
course of several years but never received feedback on what
actions, if any, were taken on those recommendations.
The Advocate's Office also has not identified its top
advocacy priorities, and it has no way to determine the actual
impact of its advocacy efforts. Without such information, the
National Taxpayer Advocate does not know which advocacy efforts
have the greatest potential to reduce taxpayers' compliance
burden.
Developing Measures of Effectiveness
The third challenge facing IRS and the National Taxpayer
Advocate is to develop performance measures to be used in
managing operations and assessing the effectiveness of the
Office of the Taxpayer Advocate and PRP. Developing measures of
effectiveness is a difficult undertaking for any organization
because it requires that management shift its focus away from
descriptive information on staffing, activity levels, and tasks
completed. Instead, management must focus on the impact its
programs have on its customers.
Currently, the Advocate's Office uses four program
measures, but they do not produce all of the information needed
to assess program effectiveness. The first two measures--the
average length of time it takes to process a PRP case and the
currency of PRP inventory--describe program activity. While
these two measures are useful for some program management
decisions, such as the number of staff needed at a specific
office, they do not provide information on how effectively PRP
is operating.
The third measure, PRP case identification and tracking,
attempts to determine if potential PRP cases are properly
identified from incoming service center correspondence and
subsequently worked by PRP. This measure is an important tool
to help the National Taxpayer Advocate know whether PRP
actually serves those taxpayers who need and qualify for help
from the program. However, a recent review of this measure by
IRS' Office of Internal Audit found, among other things, that
inconsistent data collection for the measure could affect the
integrity and reliability of the measure's results. Also, the
measure is designed for use only at service centers; there is
no similar measure for use at district offices, resulting in an
incomplete picture of whether taxpayers are being properly
identified and subsequently referred to PRP.
PRP's fourth measure--designed to determine the quality of
PRP casework--provides some data on program effectiveness. This
measure is based on a statistically valid sample of PRP cases
and provides the National Taxpayer Advocate with data on
timeliness and the technical accuracy of PRP cases. Among other
things, selected PRP cases are checked to determine whether the
caseworker contacted the taxpayer by a promised date, whether
copies of any correspondence with the taxpayer appeared to
communicate issues clearly, and whether the taxpayer's problem
appeared to be completely resolved. Caseworkers and advocate
staff in the field told us that the quality measure was helpful
because the elements that are reviewed provide a checklist for
working PRP cases. According to staff, this helps ensure that
most cases are worked in a similar manner in accordance with
standard elements.
The quality measure, however, does not have a customer
satisfaction component. The Advocate's Office is piloting a
method for collecting customer satisfaction data, but the
results of this effort are unknown. Because IRS does not
collect customer satisfaction data from taxpayers who contacted
PRP, the National Taxpayer Advocate does not know if taxpayers
are satisfied with PRP services or whether taxpayers considered
their problems solved.
The National Taxpayer Advocate has the formidable task of
developing measures that will provide useful data for improving
program performance, increasing accountability, and supporting
decisionmaking. To be comprehensive, these measures should
cover the full range of Advocate Office operations, including
taxpayer satisfaction with PRP services and the effectiveness
of advocacy efforts in reducing taxpayer compliance burden.
Summary
In summary, the responsibilities of the Office of the
Taxpayer Advocate--helping taxpayers who have not been able to
resolve their tax problems through normal IRS channels, helping
taxpayers experiencing financial hardship, and promoting
advocacy--require the office to become involved in most, if not
all, of IRS' varied operations. These broad responsibilities
must be fulfilled if IRS is to provide the level of customer
service envisioned in its mission statement. As the Office of
the Taxpayer Advocate restructures, it will be faced with many
challenges. Addressing these challenges is pivotal to the
National Taxpayer Advocate's success.
Mr. Chairman, this concludes my prepared statement. I would
be happy to answer any questions that you or the Members of the
Subcommittee may have.
Chairman Houghton. Thanks very much. Mr. Coyne.
Mr. Coyne. Thank you, Mr. Chairman. I wonder if you could
explain to us where the taxpayer Advocate's Office fits into
the new IRS organizational structure. Were you able to
determine that?
Ms. Ashby. Well, the new structure is being developed,
although it is actually too early to answer that question.
There is a team that is looking into the structure of the
Advocate's Office and how that structure might change in the
new environment. There are also teams looking at other aspects
of the reorganization. I know that the team is developing a
blueprint and has actually done quite a bit of discussion and
drafting of the blueprint so far. But there are no final
decisions that have been made.
Recently, as I said in my statement and here briefly, there
have been some changes to the Office in moving some of the
caseworkers from the functions to the Advocate's Office, and
there are plans to do more of that. There have been other
changes under restructuring such as now making the line of
authority from local advocates to the National Advocate as
opposed to through functional directors. But in terms of
ultimately how the structure looks, it is really too soon to
answer that.
Mr. Coyne. Could you explain the advantages and
disadvantages of having employees who traditionally do the
functional work, collections and appeals being assigned to the
taxpayer advocate's section? Are there advantages and
disadvantages to that?
Ms. Ashby. There are. One advantage is that the Taxpayer
Advocate's Office would have control over those resources.
Right now, that office doesn't really know how many resources
there are, how many caseworkers there are in the functions
working on PRP cases. In order for us to determine that
information as of one point in time, June 1998, we had to
actually survey functions in district offices and service
centers and ask how many of your staff is working on--could you
identify your staff that are working on PRP cases. And we were
able to come up with what we think is a pretty good number for
a particular point in time.
The National Advocate's Office cannot do that. So control
over resources would be one advantage. Another would be an
increased perception of independence, I think. Right now, with
a lot of the caseworkers being assigned to the functions that
created the problems that brought the taxpayers to the PRP
program, that might give a sense of lack of independence,
although in reality, that might not be the case.
And advantage of having the caseworkers in the function is
workload fluctuations. They can be dealt with more easily.
Caseworkers who work part time on PRP, in times with less
workload, could work on other matters, and in times of heavy
workloads more could be put on PRP. That's not to say that
there can't be arrangements made even with the caseworkers
being in the Advocate's Office for the same thing to occur. But
those mechanisms will have to be put in place. They aren't
currently.
And I'll ask Mrs. Bright or Mr. Attianese if they have
anything they can add to that.
Ms. Bright. Some of the other advantages to having the
caseworkers within the function, in addition to as Cornelia
said, handling fluctuations, is that you do have the functional
expertise out there to handle very difficult cases. And you
also have a routinized way to handle training for the
caseworkers. The caseworkers need to be trained not only in PRP
matters but, very importantly, in the functional matters. This
would include tax-law changes to keep them current on what's
happening. And they are dealing with these taxpayers every day,
and they need to be kept up to date on the changes in the tax
law.
Another advantage to having the caseworkers in the
functions is that the functions then feel the pain. They know
what the problems are that the taxpayers are experiencing as
opposed to having a separate group out there to deal with any--
kind of their cleanup. They are going to have these problems
and they are just going to figure that PRP will eventually
clean it up for them.
But like Cornelia said, there are many advantages to having
the independence of the caseworkers.
Mr. Coyne. Thank you, Director.
Chairman Houghton. Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman. And I want to say
that we're delighted the GAO has the ability to help this
Subcommittee stay up with some of these issues because we don't
have the staff and the resources--speaking of resource
problems--to do this kind of in-depth interviewing and
surveying.
I think that this is a kind of mixed report card. I would
ask you what your opinion is, but I think what we're ending up
with is a snapshot of a place in time of a system that's
getting on its feet in terms of the new independence, new
reporting. And I'm concerned, following on Mr. Coyne's
questions, which I think were excellent in terms of what are
the advantages and disadvantages of this flexible workload or
the flexible personnel were coming in and out, about training.
I think the thing I see here that concerns me the most is
what you're saying about inconsistency in training, whether
it's taxpayer advocates locally who are in the PRP program all
the time, or whether it's these people who are coming in from
the functional areas, and, as Ms. Bright just said, one
advantage is they kind of get trained in PRP while they are
doing this work. But if the training is inconsistent and these
functional folks are used to dealing with taxpayers, frankly,
in more of a contentious way, or at least, less of an
advocate's way, how can we improve the training so that when
you have this workload fluctuation you can respond to it with
personnel flexibility but still have the training there. So
ideally, first comment on my general summary which seems like
its kind of mixed but seems like it's going OK given that it's
new, but specifically as to the training. How would you address
that now and in the future?
Ms. Ashby. All right. I wasn't calling this a report card.
I think it is more of a progress report. We were not evaluating
the Advocate's Office. We were looking at it in terms of a
snapshot, as you said, of a point in time, where things are.
And particularly for purposes of this hearing, we were focusing
on what we saw as the challenges, the things that IRS, the
National Taxpayer Advocate, and Congress need to be aware of as
restructuring takes place and as legislative proposals are
considered.
A good plan is on the books, or on the table, but whether
or not it works out depends on how well these challenges are
met. And they have to be in order for IRS to meet its current
mission.
With regard to the training issue, the inconsistency comes
about because right now most of the caseworkers, until
recently, all of the caseworkers really were part of functions.
And they were getting the training that their counterparts
would get in the function. And that has varied across
districts, service centers, and at different points in time.
Mr. Portman. That's a different issue.
Ms. Ashby. That's a different issue. We have not done an
in-depth study of training, although that is something that we
possibly would look at in the future. But that's where the
inconsistency comes in.
Mr. Portman. So it's not so much within the National
Taxpayer's Advocate's Office as it is in the different
districts and regions as to all the IRS employees at the
function level.
Ms. Ashby. That has certainly been the case to date. We did
not look at training in the Advocate's Office.
Mr. Portman. Which has been a problem in the past. And I
remember hearing horror stories a few years ago of a region
that decided in order to save some of their budget dollars,
that they weren't going to do any training for a year. I think
there was some basis for that allegation, and therefore, the
taxpayers suffer because you have people who were not up to
speed, as Ms. Bright said on legislation and people who were
not up to speed on other taxpayer service and customer-service
issues.
But specifically on training, is the taxpayer Advocate's
Office doing the right kind of training and who controls that
training? Is it done through Washington, through the National
Taxpayer Advocate? How does their training take place? And is
that adequate?
Ms. Ashby. Well, as I said, we did not do an evaluation of
training in the Advocate's Office or any other part of IRS. The
Advocate's Office does have a budget. It has funds that it uses
to support its operations, the National Advocate's operation
and that of the local advocates, and so forth. And I would
imagine that would include training. I'll ask Mrs. Bright, who
actually did a lot of the site visits and actually talked to
the people in the National Office, if she could elaborate on
that.
Before that, I want to make it clear that with all of these
challenges, we are not saying these challenges cannot be met
under either organizational structure. We're not suggesting one
is better than the other at this point. But we are simply
saying that these are challenges, and these are things that
will have to be dealt with regardless. There are pluses and
minuses with the caseworkers either in the functions or under
the Advocate's Office. And, in either case, there would have to
be mechanisms put in place that allow for training, that allow
for adjustments to workload fluctuations, and so forth.
Ms. Bright. I think what you're alluding to, Mr. Portman,
was there are really two different tracks of training that the
caseworkers need. They need to be trained in PRP matters as
well as functional matters. And if you're going to pull in
someone from a function to work in PRP, they have to be trained
that way, and vice-versa. And it isn't a matter of one day you
show up and slip on another hat and you're a PRP worker. So
traditionally the PRP would be handled by the taxpayer
advocates. They get trained in certain quality standards and
how to handle PRP cases and things like that. So it's really
two different training tracks. I think you were absolutely
right on that. And they are handled separately, as it is now.
Now when the caseworkers come underneath the local
advocate, I think that it would present an opportunity to try
to routinize the training so that they receive both. Now one of
the challenges will always be, how do you train the functional
employees in the PRP matters when workload increases require
them to come and then help out. That's something they are going
to have to look at. But the Advocate's Office does have a
training task force that started last year, and they're doing a
training needs assessment. And I know that they're doing
training for the Advocate's Office staff as well as developing
PRP training, at least updating it because they think it was
several years out of date.
Mr. Portman. Mr. Chairman, just one final question, without
looking for an answer but of potential or maybe a future
report. These new performance standards, which we think are
very important to reforming the IRS over time, in other words,
not having people given bonuses or promotions based on revenue
brought in by taxpayers, but based on other standards like
efficiency, how efficient they are in audits, or
professionalism, whether they know what your particular
business is like if you're running a small business or
individuals. Whether they understand whatever your complicated
transactional problems are that ended up having you interact
with the IRS. Courteousness, those kinds of standards.
On the PRP, or the taxpayer advocate's measurements, I
would just be interested to know whether they are developing
performance standards that are consistent with the goal of our
legislation, again, to kind of move away from the traditional
performance measures, make it more like the private sector. And
I would just leave that as an issue we may address in the
future.
Chairman Houghton. Would you like to comment?
Ms. Ashby. Well, not beyond what we said in our statement.
But that fourth measure I mentioned, the measure that
supposedly measures quality, there is a systematic way of
determining a value for that measure. There's statistical
sampling involved. The issue we have there, there's one
component of knowing whether the Advocate's Office has been
effective, and that's asking the taxpayer that initially had
the problem. And it does not do that. But that measure is
promising.
Ms. Bright. They also do have a task force that they just
chartered to look at the performance measures for their office.
I'm not sure what the membership of the task force is, but I
know it does include people within the Advocate's Office. So
they are looking into this right now.
Chairman Houghton. Well, this may be a bit redundant, but
I'd like to piggyback on the issue that Mr. Portman brings up
because you talked about the different challenges in your
report, and then you say that the Advocate's Office use four
different measures. One of the measures, you talk about, is the
quality of the caseworker. Then, you go on to say, and I'm
going to read you this; perhaps, you can sort of explain it a
little better. The quality measure does not have a customer-
satisfaction component, and that's what we've been talking
about. The Advocate's Office is piloting a method for
collecting customer-satisfaction data, but the results of this
effort are unknown because IRS does not collect customer-
satisfaction data from taxpayers who contacted PRP. The
National Taxpayer Advocate does not know if taxpayers are
satisfied with the services or not. I would think that would be
the most important of all things to do. Maybe you can help us
on that.
Ms. Ashby. Well, we certainly think it's important. Whether
it's the most important of all, I guess that's a matter----
Chairman Houghton. Well, in the world I have lived in, the
most important person was the customer; you worked back from
there.
Ms. Ashby. It's a little bit complicated here because a
taxpayer might be dissatisfied because he or she had to pay
taxes, and legitimately so. So you have to temper this. It's a
little bit different than selling a product and wanting to know
if your customers are satisfied with it or not. But at the same
time, for a program like this where taxpayers who have not been
able to have their problems resolved through normal IRS
channels, actually contacted the PRP and asked for some kind of
help, I think it is very important to know whether the
taxpayers feel they got the help or not.
Chairman Houghton. What--just to follow up here--what might
your report look like next year? I mean are there things that
you are going to be following up on--that you're concerned
with?
Ms. Ashby. In terms of the current work we're doing for the
Subcommittee?
Chairman Houghton. Absolutely.
Ms. Ashby. We are currently drafting the report. So in
terms of, generally the things that are in the statement and
the things I've mentioned here this afternoon, we'll be
covering those, but we'll have a lot more information in it.
We'll cover some areas that haven't been mentioned.
In terms of following up a year from now, our report will
be out a lot sooner than that, in the next 2 or 3 months. In
terms of following up, we are following the restructuring
efforts throughout IRS. We are on top of what is going on with
the various design teams and not just with the taxpayer
Advocate's Office, but the performing business units and
various other aspects of the reorganization. We just wish to be
prepared to do our work, all of our work, just about, certainly
our work on the administration side. We need to know what is
going on with restructuring. So we are following up on every
aspect.
Chairman Houghton. Good. Any other questions. Well listen,
thank you very much. We certainly appreciate your time, your
testimony, and your patience. Thanks very much.
[Whereupon, at 4:40 p.m., the hearing was adjourned.]
[A submission for the record follows:]
Statement of Bob Kamman, Phoenix, AZ
Mr. Chairman and Members of the Subcommittee: Today's
hearing demonstrates that you recognize that the IRS Taxpayer
Advocate program deserves serious attention. Such Congressional
oversight is all the more important, because appointments have
not yet been made to the IRS Oversight Board, in many ways the
centerpiece of last year's heralded ``New IRS'' legislation.
The IRS Restructuring and Reform Act of 1998 (RRA98) required
that the President appoint seven members to this Board within
six months of July 22, 1998. It is unfortunate that the
Administration has not been able to comply with this deadline.
Two years ago, I had the opportunity to testify before the
National Commission on Restructuring the IRS, concerning
taxpayer-rights issues. At that time, I expressed concerns
about the IRS definition of a ``hardship'' that is required to
trigger action by the Taxpayer Advocate under Code Section
7811. I wrote:
When Congress passed the first Taxpayer Bill of Rights, it
authorized the issuance of Taxpayer Assistance Orders in cases
where a taxpayer ``is suffering or about to suffer a
significant hardship as a result of the manner in which the
internal revenue laws are being administered by the Secretary
[of the Treasury].'' IRS Problem Resolution Officers have taken
a stoic view of ``hardship'' ever since. One of their favorite
form letters is one that informs applicants that their case
does not qualify for special treatment, because hardship has
not been demonstrated. The instructions for Form 911, the
Application for Taxpayer Assistance Order, tell distressed
taxpayers that ``a significant hardship normally means not
being able to provide the necessities of life for you or your
family. Examples of such necessities include, but are not
limited to: Food, shelter, clothing or medical care.''
According to this standard, Japanese-American interns of World
War II relocation camps suffered no significant hardship.
So I was pleased that RRA 98 acted on the NCRIRS
recommendation that the hurdle be lowered. ``Hardship'' now
includes ``an immediate threat of adverse action; a delay of
more than 30 days in resolving taxpayer account problems; the
incurring by the taxpayer of significant costs (including fees
for professional representation) if relief is not granted; and
irreparable injury to, or a long-term adverse impact on, the
taxpayer if relief is not granted.''
However, I am disturbed that the repealed definition of
``hardship'' continues to be displayed on the IRS website. The
Taxpayer Advocate's Annual Report asks you to believe that
``communication and outreach efforts continue to be high
priority items for the NTA. Several ways to improve
communications with taxpayers are being pursued. These include:
A site on the Internet. Currently, the NTA's site is part of
the IRS's Internet home page, The Digital Daily.'' (Report,
pages 5-6.)
Thousands of taxpayers access the IRS website daily. Some
are directed to the Taxpayer Advocate page by links from other
sites, such as Washington Post Internet pages. Why is the
repealed definition of ``hardship'' still in place there,
unchanged after six months? Why is the new toll-free PRP
Telephone Number, which was implemented more than three months
ago, still unlisted at the Taxpayer Advocate website? Compare
this neglect to other areas of the IRS website--like the
collection of press releases--which are updated daily.
(The subcommittee's hearing started at 2:30 pm on February
10, 1999. At 4:41 pm that afternoon, the Taxpayer Advocate
website was updated to add the new definition of hardship.
However, the old definition was not deleted, and is still
displayed in a more prominent position than the new one.)
Unfortunately, it is not just taxpayers who are missing the
latest news from the Taxpayer Advocate. It is Taxpayer Advocate
employees, as well. In December, a Problem Resolution
specialist at the Ogden Service Center was still quoting the
repealed ``hardship'' standard to me, when trying to explain
why expedited assistance was not available to a client.
The existence of such unreformed IRS hard-liners should be
expected. The lack of a program to identify and retrain them,
should not be. Nine years ago, in the December 11, 1989 Wall
Street Journal, I wrote, ``How well can the Ombudsman's office
[predecessor to the NTA] be taking care of misbehavior
elsewhere if it can't take a second look at its own work? How
can it evaluate the job it does--and help Congress review it--
if it has no system for letting taxpayers explain why they
think the Ombudsman has failed?'' While IRS rates an A+ for the
public-relations accomplishments of its Problem Solving Days, I
would like to share one case history that shows how these
questions still need to be answered, nine years later.
Kathleen [her full name and details of her private life are
already public record in Tax Court proceedings, because the
Taxpayer Advocate program refused to help her] is the victim of
a Service Center correspondence audit. Such audits frequently
deny taxpayers many of the rights that are provided by an
examination in an IRS district office--for example, a face-to-
face meeting with an IRS employee, and an Appeals Office review
before assessment of more tax.
On August 13, 1998, the Philadelphia Service Center mailed
Kathleen a ``Notice of Deficiency,'' disallowing the Earned
Income Credit she had claimed for 1995 and 1996. With
penalties, the tax due would be almost half of her annual
income. On August 22, 1998, IRS held a ``Problem Solving Day''
in Butler, Pennsylvania, near Kathleen's home. Kathleen went to
the IRS office and met with a revenue agent. He concluded that
Kathleen's returns deserved review, either by a local auditor
or the IRS Appeals Office. He told me later that he wanted to
call the Service Center, but no one there was assigned that
Saturday to back up the District employees who worked at
``Problem Solving.''
The revenue agent turned the case over to the local
Taxpayer Advocate in Pittsburgh, who contacted the Service
Center Examination Division Chief to ask that the audit be
transferred to the district's Appeals Office. His request was
denied. An acting Section Chief at the Service Center later
told the revenue agent that this was an ``EIC Project'' case
and the Service Center ``would not let go of it.'' At no time
did anyone in the Pennsylvania District Taxpayer Advocate's
office try to contact anyone in the Philadelphia Service Center
Taxpayer Advocate's office. When a Service Center manager says
``NO'' to a local Taxpayer Advocate, the case is closed.
However, had the Service Center Taxpayer Advocate been
asked to intervene, it is unlikely that the results would have
been different. In early October, I helped Kathleen and her
Enrolled Agent prepare an ``Application for Taxpayer Assistance
Order'' requesting that the case be released to the District,
and the 90-day letter rescinded pending a decision on the
merits.
We did not use the old Form 911, which had not been revised
and still contained the repealed definition of hardship still
posted on the IRS Website. We wanted to point out that the
hardship Kathleen was suffering included ``the incurring by the
taxpayer of significant costs (including fees for professional
representation) if relief is not granted.''
The Service Center Taxpayer Advocate's office received
Kathleen's request on October 13, 1998. It did not respond
until November 13--the day after the deadline for filing a Tax
Court petition had passed. In a call to Kathleen's Enrolled
Agent, a Service Center caseworker said that the IRS revenue
agent at Problem Solving Day was wrong to have become involved.
A week before the Tax Court filing deadline, I called the
Washington office of National Taxpayer Advocate Val Oveson. I
spoke with one of Mr. Oveson's assistants on November 4, and
faxed him the details of Kathleen's case as he requested. When
I received no response by Monday, November 9, I sent another
fax pointing out that the Tax Court petition deadline was three
days away. At 5:00 pm EST on November 10, as IRS was closing
for the Veteran's Day holiday and I was beginning to prepare a
Tax Court petition, a member of Mr. Oveson's staff called to
ask me to repeat the basic facts of the situation. It was clear
that my earlier correspondence had been lost.
I filed the Tax Court petition, then spoke by phone with a
staff member in the Pennsylvania District Taxpayer Advocate's
office, who defended the system. IRS did not deny our appeal
rights, he told me, because the Tax Court case would now be
assigned to the Appeals Office for review. Kathleen must just
``sit and wait.'' The problem, he informed me, is with
``someone deciding to get placed ahead of every other taxpayer
in the same situation. When the system is working, we allow the
system to work.''
Two months later, the Appeals Office in Pittsburgh--where
Kathleen wanted her case to be transferred, when she went to
Problem Solving Day--agreed that she owes nothing. The Tax
Court case is being dismissed, thanks to my pro-bono help. But
I know that there are hundreds of other such audits at the
Philadelphia Service Center, of taxpayers who are denied a
hearing, from both the Appeals office and the Taxpayer
Advocate's office.
IRS has a form for nearly everything, but it has no form
for me to file with the National Taxpayer Advocate to voice my
complaint about the failure of the system--in the District, in
the Service Center, and in his own office. Because there is no
complaint form, there is no section in the Annual Report with
statistics on the number of complaints filed, how many were
investigated, and how many were found to have merit. Because
there is no such system for filing, investigating and
evaluating complaints, there is much less data for the General
Accounting Office to examine, when it audits the Taxpayer
Advocate program
In a letter responding to my 1989 Wall Street Journal
commentary, then-IRS Ombudsman Damon Holmes wrote, ``I invite .
. . taxpayers and tax practitioners who have complaints about
the program to contact my office, where I promise there will be
an independent review of the complaint.'' Perhaps the
Subcommittee could suggest to Mr. Oveson that he renew this
vow.
Thank you for the opportunity to present these comments,
and for your continued vigilance in protecting taxpayer rights.