[Congressional Record Volume 143, Number 110 (Wednesday, July 30, 1997)]
[Senate]
[Pages S8287-S8290]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       THE INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT

  Mr. GRASSLEY. I have the privilege this morning, with our outstanding 
colleague, Senator Kerrey of Nebraska, to announce my intention to 
introduce a piece of legislation, the Internal Revenue Service 
Restructuring Act, that is a product of the National Commission on 
Restructuring the IRS. That commission functioned for approximately 12 
months. The success of the commission is a result of the leadership of 
Senator Kerrey and Congressman Rob Portman of Ohio.
  As a member of the Commission on Restructuring the IRS, also as a 
current senior member of the IRS Oversight Subcommittee on the Finance 
Committee, and as the chief Senate sponsor of previous legislation that 
has been called the Taxpayers Bill of Rights I and the Taxpayers Bill 
of Rights II--and of course I am a taxpayer myself--I have been 
involved in several ways for many years in an effort to finally reach 
this point that we will make substantial changes, hopefully passing 
legislation, that will make substantial changes in the IRS and how it 
functions.
  Congress is on the verge of a very major shift in power from the 
Federal Government to the people. The recommendations of this 
commission are a blueprint for the transfer of power. Understandably, 
there is much anxiety within the Federal Government at this moment. It 
is in anticipation of this loss of power. The anxiety is at the highest 
levels in the executive branch that I have seen it.
  The American taxpayers have waited a long time for this to happen. 
They have suffered through decades of encounters with an agency that 
has been unaccountable, unresponsive, misleading, arrogant, and even 
abusive. The IRS has been granted enormous powers that at times seems 
to disrespect, even to undermine, civil liberties. The responsibilities 
to our citizens that go along with such power was not exercised by that 
agency.
  Furthermore, IRS management seemed to have taken a vacation. Billions 
of dollars have been wasted. Performance failures were not met with 
discipline. Questionable activities were covered up by secrecy, mostly 
by abusing the authority of what we would all recognize as section 
6103, the so-called privacy provisions. Congressional oversight of the 
IRS has been rendered all but impotent because of absurd 6103 
restrictions. These restrictions make the Pentagon's highly secret and 
highly restrictive Joint Chiefs of Staff vault seem like a Freedom of 
Information office.

[[Page S8288]]

  I urge my colleagues to seize the moment. IRS reform is long overdue 
and is very vital.
  Mr. President, I want to highlight just a few important issues 
recommended by the commission.
  To restore accountability to the taxpayers, the commission has made 
several recommendations.
  The one attracting the greatest attention has been the commission's 
proposal for an independent board to oversee the IRS. The commission's 
belief is that an independent board will provide an infusion of talent 
from the private sector to set appropriate performance measurements and 
reward or discipline managers who either meet or fail to meet these 
performance measures.
  In private meetings, the administration appears to be divided on 
another proposal, the proposal for an independent board to run the IRS. 
But it appears unfortunate that some who oppose this proposal are doing 
so only because it signifies a monumental power struggle that they 
stand to lose.
  Treasury officials, who years ago could not find the IRS even if they 
were standing at the corner of 11th and Constitution, are suddenly in 
fits about losing some control over part of their budget and their 
bureaucracy.
  They must be reminded that the IRS is one of the few Government 
agencies that has a significant impact on almost every American. The 
American taxpayer deserves a modern IRS that provides taxpayer customer 
service on a level equal to that provided by private financial 
institutions throughout this country.
  We have seen a lot of promises of reform coming from the Treasury of 
late, wholly in response to the work of this commission. Treasury 
assures us that IRS reform is their top priority and their best people 
are on it. But if Congress turns its back now on reforming the IRS and 
listens to the siren song of the Treasury Department, I predict that a 
year from now Congress will face the justified wrath of the American 
taxpayer.
  Treasury officials who are locked in this power struggle trying to 
preserve their bureaucratic empire would do well to remember the quote 
of the first Secretary of the Treasury, Alexander Hamilton, who said, 
``Here, sir, the people govern.'' That is the essence of what this 
commission would do, return power from the Federal Government to the 
people of this country.
  I am also pleased that the commission did not call for the easy 
solution. The easy solution around Washington is just to give more 
money to some Federal bureaucracy. And the plea was made to us: More 
money is what is needed at the IRS. One Treasury official privately 
admitted recently that the IRS never would be serious about embracing 
reform as long as Congress kept throwing money at the bureaucracy.

  Until 2 years ago, the IRS had seen continued increases in its budget 
for 40 years. This commission uncovered that hundreds of millions of 
taxpayers' dollars were being wasted. Clearly, the problem at the IRS 
is management, not money.
  The commission made several findings and recommendations about 
protecting taxpayers and strengthening taxpayers' rights. I note that 
in the past, the Congress has focused its energies on giving rights to 
taxpayers who are in dispute with the IRS. The commission's 
recommendations build on this. We recommend a strengthening of 
taxpayers' rights in a number of areas, but I think of equal importance 
is the emphasis the commission has placed on protecting taxpayers, that 
is, preventing problems even before they ever happen by emphasizing 
quality of work and customer service by our IRS employees.
  We all know the story of the small business owner who gets a notice 
from the IRS that he owes maybe $2,000 in additional taxes. The 
business owner goes to his accountant, who says he does not owe the IRS 
$2,000, but it is going to cost $5,000 to fight the IRS. So what does 
the small businessperson do? He pays the $2,000.
  Why does this happen? Because the IRS puts such little emphasis upon 
quality control and upon taxpayers' rights. The IRS still measures its 
managers on dollars assessed, whether or not it is a proper tax owed.
  Is it any surprise then that when a taxpayer does appeal, the IRS 
loses 72 cents on the dollar? It is wrong that many taxpayers have to 
spend millions of dollars fighting the IRS because there is no quality 
control.
  I am pleased that the commission also emphasized the need for 
customer service. We recommend that taxpayers who are subject to 
examination or collection efforts or who simply try to contact the IRS 
to resolve a problem are provided a chance to comment on the service 
given. While revolutionary to the IRS, this is old hat for many State 
tax collection agencies as well as for business in the private sector. 
By measuring managers on customer service, we hope to begin to change 
the culture of the IRS and its employees.
  Emphasizing quality service and customer service are ways to protect 
the taxpayers in the first place. It is also a way to measure the 
performance in an appropriate manner that will hold managers and 
employees at the IRS accountable for their action.
  I suggest that the emphasis upon quality service and customer service 
is in keeping with what many saw as a mandate given to the Congress in 
1994--moving power from Government to the people. The reforms suggested 
by the commission certainly emphasize that it is the taxpayer who comes 
first and it is serving the taxpayer as a customer that must be a top 
priority at the IRS.
  Mr. President, I want to just briefly touch on a third point, the 
need for greater openness at the IRS. The commission found that the IRS 
was a very closed and insular organization. The commission put forward 
a first step to make the IRS more open to the Congress, more 
importantly, to the press as a policing agency within our process of 
Government. If we are going to be at all successful in changing the 
culture of the IRS, a key ingredient must be greater openness at the 
organization.
  To encourage openness and also ensure accountability, there are three 
areas.
  One, the IRS must be timely in responding to Freedom of Information 
Act requests.
  Two, the IRS should not abuse its authority under section 6103 to 
cover up embarrassing information about management mistakes. For 
example, the commission highlighted that the IRS had abused its 6103 
authority to hide from the press the fact that the IRS had provided 
Congress false information.
  Three, the IRS must maintain and preserve documents. The commission 
itself discovered first hand several times that the former IRS 
historian Shelly Davis is right--that the IRS doesn't preserve records. 
Many requests by the commission for documents and data were met with 
the response that the data no longer existed or the documents could not 
be found.
  Addressing these three areas of openness may not be headline 
grabbing, but my experience has shown me that they will go far in 
bringing accountability at the IRS and changing its culture.
  My final point is to emphasize the commission's findings on the need 
to simplify the Tax Code. We heard from countless witnesses, as well as 
hundreds of IRS employees and thousands of taxpayers that the 
complexity of the code is crippling to IRS management.
  While I've spent a lot of my time here criticizing IRS, let me make 
clear that the complex code is not the fault of the IRS, it is a burden 
placed on IRS management by Congress and the White House. It is clear 
that if we wish to see improvements at the IRS in customer service and 
relations with taxpayers, steps must be taken to simplify the code.
  This IRS Restructuring Act will lead to better management of the IRS 
and better customer service in the field. I encourage all of may 
colleagues to cosponsor it.
  Mr. President, before I yield the floor, my colleague is responsible 
for the tremendous product of this commission. It is not me. It is 
because he gave it the time it needed, the expert leadership it needed. 
I speak of Senator Kerrey of Nebraska.
  Mr. KERREY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nebraska is recognized.
  Mr. KERREY. Mr. President, I am pleased to announce my intention to 
introduce the IRS Reform and Restructuring Act of 1997 with the senior 
Senator from Iowa, Senator Grassley, who also was a day-to-day 
participant

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in this effort and gave it a great deal of energy and expertise. As one 
can tell from listening to him, he has offered a tremendous amount of 
enthusiasm and orientation to the taxpayers concerned, the customers 
themselves, as well as the need to open the IRS up. He cited the 
example of Shelly Davis, who brought to the attention of the public, 
the taxpayers, the significant problems the IRS is having and found 
that, as her reward for doing that, she lost her job. I very much 
appreciate Senator Grassley's leadership. I look forward to working 
with him on the Finance Committee to try to get this piece of 
legislation heard and marked up and, hopefully, on to final passage yet 
this year.
  This legislation reflects the recommendations of the National 
Commission on Restructuring the Internal Revenue Service. My co-
sponsor, Senator Grassley, and I have been the Senate members of the 
National Commission for the last year, and have been part of the most 
unprecedented review of a government agency that an independent 
commission has ever conducted. Senator Grassley and I will shortly 
introduce legislation based on this commission's work. The goal of this 
legislation is to make the IRS work for the American taxpayer.
  This legislation is so important because there are twice as many 
people who pay taxes as vote. Citizens' faith that their government can 
be fair and efficient is dependent on a well functioning IRS. The days 
of the old-fashioned tax collector are over--the core of this 
legislation is based on a vision for a new IRS. We believe, in today's 
world, the job of the IRS is to operate as an efficient financial 
management organization. It is a myth that the bulk of the Federal 
revenue is generated through heavy enforcement. While the IRS must 
maintain a strong enforcement presence, its core and the core of the 
Federal revenue stream lie in a revamped, modern organization that can 
assist taxpayers promptly and efficiently, track account information, 
and send out clear notices. There is a breathtaking gap between the 
service levels of the IRS and those of the private sector.
  The IRS has a 20-percent error rate for processing paper returns and 
expends an incredible amount of resources and focus to correct these 
errors. It captures only 40 percent of the data from returns and is 
still drowning in a sea of paper. It is typically 18 months before a 
return can be matched against 1099s. A private sector business that 
took on average 18 months to send someone a bill, certainly wouldn't 
stay in business very long.
  This legislation offers both a realistic goal for those who will take 
charge of the agency and a credible plan for reaching that goal.
  We spent the last year studying the problems and solutions for the 
IRS.
  Clearly, our access to the IRS's operations and employees was 
unprecedented. We spent 12 days in public hearings, interviewed 300 IRS 
employees in field offices, and interviewed over 500 current and former 
officials from the IRS, the Treasury Department, congressional 
committees that oversee the IRS, and other IRS experts. We also 
commissioned consulting reports and internal reviews of IRS management, 
governance, work force, compliance, and customer service. Finally, we 
heard directly from citizens through town meetings and surveys. During 
all of this work, we continually asked the question: How can we make 
the IRS serve the American people?
  There are many visible problems at the IRS that should be noted by 
all colleagues, especially those who take the view that perhaps we 
don't need to change. All of these visible problems dictate that we act 
and that we change the law.
  The IRS has a law enforcement mentality, but the vast majority of its 
employees perform service functions including tracking finances, 
sending out notices, and assisting taxpayers.
  In addition, the IRS has the general attitude that taxpayers are 
guilty, even though 90 percent of taxpayers are compliant.
  Taxpayers also have a low opinion of service levels provided by the 
IRS and do not believe the IRS is trying to help make paying taxes 
easier.
  Next, training is not a priority, and employees do not have the 
skills of their private sector counterparts.
  Fifth, the IRS uses employee evaluation measures that do not 
encourage employees to provide quality service to taxpayers.
  Next, the IRS management and governance structure makes strategic 
planning impossible and has caused a massive failure of the IRS' $3.4 
billion computer modernization program.
  Further, IRS computer systems were developed during the 1960's and 
1970's and lack the capability to provide taxpayers with quality 
service.
  Wasteful inefficiencies and high error rates exist in the processing 
of paper forms.
  The Treasury Department has basically left the IRS to its own 
devices, leaving a vacuum in executive branch oversight of the agency.
  Congressional oversight of IRS is scattered and can send confusing 
signals to IRS that can be manipulated by the IRS to avoid 
accountability.
  Last, complexity and constant changing of the tax code is a major 
obstacle that intensifies all of these problems.
  We heard from witnesses who estimate that the American taxpayers 
spend nearly $200 billion a year just to comply with the Tax Code. 
Complexity is a problem, not only in giving customer service, but as 
far as a drain on the U.S. economy.
  A key problem identified by the Commission was a lack of a coherent, 
accountable structure to implement a long-term vision and goals. At the 
top levels of the IRS and at Treasury there are murky lines of 
accountability, a lack of necessary expertise to operate in the new 
information age, and no people of authority with significant tenure to 
get the job done. The officials at the Treasury Department have 
expertise in tax law, but do not have the expertise in areas of 
customer service, technology, and management to oversee the IRS. Worse, 
they are not around long enough to ensure focus on multi-year projects 
like the tax system modernization [TSM] or changing the culture of the 
agency to be more responsive to taxpayers.

  Additionally, Treasury does not coordinate its own oversight: The 
Commissioner of the IRS must deal with various assistant secretaries on 
budget, operations, computers, and others. At the end of the day, the 
IRS Commissioner really reports to the Deputy Secretary who also 
manages 11 other agencies--not to mention the economy. The recently 
retired Commissioner of the IRS, Margaret Richardson, told us that she 
reported to three different Deputy Secretarys during her 4-year tenure 
as IRS Commissioner. Aware of these glaring problems, the Restructuring 
Commission began developing ideas for a new governance structure. Our 
criteria for success were: First, clear accountability, second, 
expertise in running a modern customer-oriented organization, and 
third, continuity.
  To provide for accountability, expertise, and continuity the 
legislation we will introduce will include:
  First, an Internal Revenue Service Oversight Board, appointed by the 
President for staggered 5-year terms. The board will: Approve the 
mission, objectives, and annual strategic plans of the IRS; oversee the 
IRS management; have significant tenure to force change throughout the 
organization; and have unique public and private sector expertise in 
managing large service organizations.
  Second, the Commissioner will be appointed for a 5-year term, so he 
or she will be around long enough to achieve real change.
  Third, the Commissioner will be given greater flexibility to hire or 
fire his or her own team of executives, who will bring new expertise 
into the IRS. While the board will keep an eye on long-range strategic 
issues, the Commissioner will run the organization and be given greater 
authority to do so.
  Fourth, congressional oversight will be coordinated among the 
authorizing committees, the appropriating committees, and the 
Government oversight committees. Our legislation codifies coordinated 
oversight, stating that committee leaders, majority and minority, meet 
regularly to ensure that the IRS receives clear guidance from Congress, 
and that Congress is given the proper information to oversee the IRS.
  This legislation draws clear lines of accountability between tax 
policy and tax administration, leaving all tax policy matters to the 
Secretary of the

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Treasury. The legislation makes the Secretary of the Treasury a member 
of this new board, recognizing the link between tax policy and tax 
administration. Additionally, the Secretary of the Treasury would 
continue to have final say over the IRS budget before it is sent to 
Congress. Under this legislation, the board would send Congress a copy 
of their budget at the same time they send it to the Secretary, giving 
Congress an independent view of how much money to appropriate. In 
short, our new structure will bring heightened accountability to the 
IRS and tax administration.
  Mr. President, the American people know that the status quo is no 
longer tolerable and that the IRS needs fixing; $3.4 billion was wasted 
on a failed modernization project. IRS operations are antiquated and 
outdated, and taxpayers--close to 90 percent of whom voluntarily pay 
their taxes--are generally, and unfairly, treated as if they are guilty 
of something when they contact the IRS.
  The IRS's problems are rooted in the lack of strategic vision and 
focus, measures that do not encourage employees to treat taxpayers 
well, operational units that do not communicate with each other, and a 
systemic lack of expertise and continuity in management and governance. 
The legislation Senator Grassley and I will introduce will put the IRS 
on the road to recovery with a reasoned, comprehensive approach to 
fixing these problems. When implemented into law, I am confident the 
result will be: Restored public confidence in the IRS; increased focus 
on customer service; cohesive oversight and governance; efficiency 
gains in IRS operations; and innovative compliance and customer service 
programs.
  We hope for expedited action on our legislation so that the American 
people have the IRS they expect and deserve. Our work to restructure 
the IRS will go a long way toward restoring taxpayers' faith not only 
in our tax system, but in our Government, as well.
  Mr. President, again, I congratulate and applaud and appreciate the 
dedicated service and expertise and leadership of the distinguished 
Senator from Iowa, Senator Grassley.
  Mr. FEINGOLD addressed the Chair.
  The PRESIDING OFFICER. The Senator from Wisconsin.
  Mr. FEINGOLD. Mr. President, I yield to the Senator from Arizona such 
time as he may require.
  The PRESIDING OFFICER. The Senator from Arizona is recognized.

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