[Congressional Record Volume 143, Number 133 (Tuesday, September 30, 1997)]
[Senate]
[Pages S10205-S10208]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           REFORMING THE IRS

  Mr. KERREY. Mr. President, I come to the floor today to speak about 
bipartisan efforts to reform the Internal Revenue Service because these 
efforts are being publicly challenged and criticized, I regret to say, 
inaccurately by the administration. It is perplexing to me personally 
why this administration would send a message to the American taxpayer 
that despite what they have been hearing the Internal Revenue Service 
does not need comprehensive reform.
  During 3 days of hearings of the Senate Finance Committee last week, 
taxpayers and employees of the Internal Revenue Service testified under 
oath that the legal power to collect taxes has been and continues to be 
abused. Combined with 12 days of public hearings held by the 
congressionally mandated Commission on Restructuring the IRS, which 
conducted thousands of hours of interviews with IRS investigators, 
professional preparers, private sector experts, and taxpayers, a clear 
and convincing conclusion has been reached. The law which creates and 
governs the actions of the IRS needs to be changed.
  Mr. President, if lawmakers in the Senate and the House consider that 
hundreds of new collection notices will be sent to taxpayers every 
working day and that 800,000 monthly contacts in its notices of audit 
or taxes owed will be made, then there is an urgency for us to act 
quickly.
  If we can prevent any of the suffering disclosed in these hearings 
with a change in the law, why would we hesitate to act?
  Of equal importance is the need to increase confidence in this unique 
Federal agency. More Americans pay taxes than vote. Remember, America's 
tax system depends upon our voluntary declaration of taxes owed and a 
patriotic willingness to pay our fair share. If citizens believe there 
is a chance that voluntary compliance will result in their privacy 
being violated, their return unfairly audited, or their lives made 
miserable, all of which we now know is a possibility, then the 
percentage of citizen participation could fall even further. It is safe 
to say that the faith of the American people in our ability to govern 
is linked to the ability of the IRS to function properly.
  The House leadership has declared its intent to pass a new law and to 
pass a law this year--a law which was created in a bipartisan and 
bicameral atmosphere--which would solve many of the problems 
highlighted by the Senate Finance Committee hearings last week. The 
House intends to enact comprehensive reform, similar to that 
recommended by the congressionally mandated National Commission on 
Restructuring the IRS. And the Senate, in my judgment, Mr. President, 
should do the same.
  As cochair of the commission, along with Congressman Rob Portman of 
Ohio, I would like to share with my colleagues the problems that were 
uncovered by our deliberation. To be clear, at no time during these 
deliberations did Congressman Portman and I resort to bashing the IRS. 
Indeed, a former Commissioner of the IRS, Peggy Richardson, was an ex 
officio member of our commission. We gained unprecedented access and a 
window into the operations of the IRS. We visited service centers, we 
worked and talked with employees. It is significant to note that our 
legislation has the endorsement of the National Treasury Employees 
Union.
  We found that the IRS has a law enforcement mentality, but that the 
vast majority of its employees perform functions including tracking 
finances, sending out notices, and assisting taxpayers.
  We find as well the IRS has a general attitude that taxpayers are 
guilty, even though close to 90 percent of taxpayers are compliant.
  We found that taxpayers 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. Indeed, in today's USA Today, a poll shows that 70 
percent of Americans think that the IRS abuses their power.
  We found that training is not a priority, and employees do not have 
the skills of their private sector counterparts.
  We found that the IRS uses employee evaluation measures that do not 
encourage employees to provide quality service to taxpayers.
  We found IRS management and governance structure makes strategic 
planning impossible and has caused a massive failure of the IRS's $3.4 
billion computer modernization program. Mr. President, this conclusion 
has been supported by a GAO report that was issued in 1996.
  We found the IRS computer systems were developed during the 1960's 
and 1970's and lacked the capability to provide taxpayers with quality 
service.
  We found wasteful inefficiencies and high error rates existing in the 
processing of paper forms.
  We found that the Treasury Department has done little to correct IRS 
management problems, and lacks the expertise and continuity to do so 
effectively. In fact, Treasury officials were noticeably absent at last 
week's Finance Committee hearings.
  We found as well the congressional oversight of the IRS is scattered 
and can send confusing signals to the IRS that can be manipulated by 
the IRS to avoid accountability. Indeed, witness after witness came 
before our committee, knowledgeable witnesses who assist taxpayers in 
preparing their returns, and laid equal blame upon the executive and 
the legislative branches.
  We found as well that complexity and constant changing of the Tax 
Code is a major obstacle that intensifies all of these problems.
  The administration continues to criticize the legislation introduced 
by Senator Grassley and I on this floor on the 23d of July, and 
Congressman Portman and Congressman Cardin in the House in the same 
week. They continue to criticize our legislation unfairly and, most 
important, inaccurately. In order to perhaps clear up some of the 
differences between what we are proposing and what the administration 
would like to see happen, I would like to review the complaints made 
against the IRS in last week's hearings and show how the law as 
proposed by Senator Grassley and I, the IRS Restructuring Reform Act of 
1997, would change things.
  Criticism No. 1. Citizens have no power in a dispute with the IRS. 
Our law would create in law new protections for the taxpayer and new 
rights if a taxpayer dispute arises. At a minimum, the law should, one, 
expand authority of the taxpayer advocate to issue taxpayer assistance 
orders; two, to expand the authority of the taxpayer to recover costs 
and fees by permitting awards relating back to the 30-

[[Page S10206]]

day notice letter, allowing awards for pro bono services, increasing 
net worth limitations, and allowing recovery for IRS negligence up to 
$100,000; third, require the IRS to provide more information to 
taxpayers, such as making public their general audit selection criteria 
and explaining certain rights to taxpayers before audits such as joint 
and several liability and extensions of statutes of limitations.
  The question of fairness of audits can be solved by requiring the IRS 
to provide general audit selection criteria. Remarkably, the only 
information we currently have about how the IRS audits comes from a 
researcher who used the Freedom of Information Act to force the IRS to 
surrender some data. There simply is no good reason for us not to write 
a law requiring an annual disclosure.
  Fourth, force the IRS to resolve its dispute with the National 
Archives in which allegations have been made that historical records 
have been mishandled or destroyed.
  Fifth, help taxpayers pay their fair share of taxes by establishing 
national and local allowances for offers-in-compromise; eliminating the 
interest differential; dropping tolling penalties during installment 
agreements; and providing safe harbors to qualify for installment 
agreements.
  Sixth, open low-income taxpayer clinics with matching grants up to 
$100,000 a year for up to 3 years to help low-income taxpayers and 
especially small business.
  No. 7, expand the jurisdiction of the tax court to allow more 
taxpayers to take advantage of the simplified small case procedures.
  And, eighth, require a study of the administration of penalties, 
especially penalties that will fall heavier on married filers and the 
burden of proof needed before penalties are determined valid.
  These are eight suggested changes in the law that would give 
taxpayers more power, more authority. They are not made as a 
consequence of receiving a number of complaints. They are made as a 
consequence of thoughtful deliberation between Republicans and 
Democrats, trying to figure out what the payers themselves say need to 
be done. We examined it in a bipartisan and bicameral fashion with the 
full cooperation and participation of former Commissioner Richardson 
who says today that she would support these provisions. These changes 
in the law, all by themselves, would solve many of the problems that we 
heard before the Senate Finance Committee last week. And all by 
themselves, would go a long ways toward increasing citizen confidence 
that they are going to be able to get a fair deal from the IRS.
  The administration's bill, which they introduced--had Members 
introduce for them--has no taxpayer protections or rights provisions. I 
want to underline that. One of the things the administration has been 
saying is we like the Portman-Kerrey bill but we don't like the board. 
We like everything in it. If they like everything in it, the question 
is why don't they have taxpayer protections or rights provisions? I 
believe the reason is they introduced their bill, had their bill 
introduced, just so they could say we want to change the IRS as well.
  A second criticism we heard was that the IRS is isolated from the 
taxpayer. Anybody who does not think the IRS is isolated has not 
examined the structure. It is buried in Treasury. The Secretary of 
Treasury is in charge of oversight, not just of the IRS, the 115,000-
person organization, but the Secretary of the Treasury obviously has 
lots of other things on his mind--whoever the Secretary is. It does not 
have to be Secretary Rubin--any Secretary faced this. They also have to 
manage Secret Service, Customs, the Bureau of Alcohol, Tobacco and 
Firearms. Keeping the operational side inside Treasury buried as it is, 
makes it difficult to achieve accountability.
  This, in my judgment, may be the most common thread that ran through 
the decisions, the criticisms that we heard, not only last week but for 
the entire last year.
  Tax Code complexity, outdated technology, a primitive management 
structure contributed to the problem, but these factors alone did not 
explain a bureaucratic culture that produced allegations of taxpayers 
being hounded based on their vulnerability; confidential returns being 
snooped; or records being altered to reflect the IRS's point of view. 
Those flaws are the symptom of an agency isolated from the customers it 
is supposed to be serving. The IRS is languishing under a suffocating 
bureaucracy from which it is getting inadequate oversight and far too 
little input from the taxpayer.
  Our new law would do a number of things. First, it would create a 
Presidentially appointed citizens oversight board that would oversee 
the operation of the IRS. The members of this board, for example, could 
have expertise in the operation of large service organizations or in 
other areas. What we tried to do was give the President maximum 
flexibility, so he could make selection of individuals who had 
expertise--the Secretary of Treasury is on the board, the head of the 
National Treasury Employees Union is on the board--because we believe 
that there are going to be significant personnel decisions that have to 
be made. We believe it is important to have a representative on the 
board, making those decisions and getting support as a consequence.

  The board would be responsible for oversight, approval of strategic 
plans and review of operational plans. The President would appoint 
board members for 5-year terms and would have the authority to remove 
any of these members at will.
  The board would approve an advisory budget of IRS, prepared in 
conjunction with the commissioner. It would have no access to taxpayer 
return information and it would not participate in law enforcement. 
This is what has drawn the most heat from the administration, and leads 
me to suspect that their principal concern is relinquishing any 
authority to a board that would have any authority over the decisions 
that are being made.
  They have misrepresented and said that the board is going to be 
composed of chief executive officers--not mentioned in the law. They 
have suggested of these board members, as recently as yesterday, there 
were going to be significant conflicts of interest. If that be the 
case, how could the Secretary of Treasury sit on the board? How could 
anybody from the private sector sit on any advisory board that we have 
in all of Government? We understand conflicts of interest and we deal 
with them. It is not accurate to say that we cannot protect ourselves, 
especially when this statute says that this board will have no access 
to taxpayer return information and it will not participate in law 
enforcement.
  Equally important, and oftentimes lost in the debate over this board, 
is that our law would create a requirement for two annual joint 
hearings of tax writing, appropriating, and oversight committees. It 
would also expand the duties and reporting requirements of the joint 
committee on taxation.
  The Finance Committee hearings last week were the first oversight 
hearings in 21 years. It is the inconsistent oversight that we are 
trying to deal with, with this provision. But, in addition, we heard 
from individual after individual, the restructuring commission did, 
that one of the most important things you have to do before you make a 
technology decision or other allocation decision, you have to get a 
shared agreement on what the mission is going to be. Having a new 
oversight board for the IRS, working with a new oversight committee on 
the congressional side, would give us the possibility of achieving this 
common and shared mission.
  In our deliberations, we found that congressional oversight of the 
IRS had no coordination. This provision will allow the IRS Citizens 
Oversight Board and Congress to reach agreement on regulations, goals, 
and objectives. It will enable the authorization of new initiatives 
after IRS satisfies rigorous contingencies to assure financial 
accountability, subject, of course, as always to the approval of the 
appropriating committees.
  For example, decisions about the design and purchase of computer 
systems will be made after the legislative and executive branches have 
agreed on a plan. The strategy is to collect taxes owed from those 
Americans unwilling to pay their fair share, must also be jointly 
approved in order to survive congressional funding cycles.
  Finally, we must provide funding for the century date change. As all 
of us have looked at that particular problem know, if you think the IRS 
computer

[[Page S10207]]

system is a mess now, it could get a heck of a lot worse if the date 
change problem is not fixed and not fixed at 100 percent.
  The administration proposal would codify the status quo. Treasury 
proposes the creation of an IRS management board made up of 20 
Government officials, mainly political appointees from departments 
including OMB, OPM, and the Vice President's office. I urge colleagues 
who are concerned about this board that Senator Grassley, Congressman 
Portman and Congressman Cardin and I are proposing, who are critical of 
that, compare it to what the administration is proposing. To repeat, 
the administration wants a 20-person board composed entirely of 
Government officials, political appointees, including people from OMB, 
OPM, and the Vice President's office.
  They also propose an advisory board of citizens. For decades there 
has been a commissioner's advisory group to the IRS, and we were told 
that it was ineffectual and the bureaucracy ignored their advice.
  The reason they ignored their advice, Mr. President, is an advisory 
board has no authority, no power, and no one, to my knowledge, pays a 
lot of attention to advisory boards that lack either authority or 
power.
  Fourteen expert witnesses testified before the Ways and Means 
Committee on September 16. All but two or three testified in favor of 
the bill that Congressmen Portman and Cardin introduced, and all 
testified against the administration's proposal.
  I would like to read the names of some of the experts who testified: 
Eugene Steuerle, senior fellow of the Urban Institute, against; Donald 
F. Kettl, director, Brookings Institution, against; Robert B. Stobaugh, 
Harvard Business School, against; Phillip Mann, section of taxation, 
American Bar Association, against. And on and on, Mr. President.
  The administration's proposal has been opposed by all the people that 
they cite, or some of the people they cite at least as reasons not to 
support the newly constructed oversight board that Senator Grassley and 
I have proposed. Again, I have regrettably reached the conclusion that 
this really is not about what is going to work as it is about making 
certain that no power and authority is relinquished by the Secretary of 
the Treasury over the 115,000 people who work for the IRS.
  The third criticism that we heard not only last week, but all year 
long, was that the IRS management structure does not allow for the 
removal of bad apples. Our law, Mr. President, would create a 5-year 
term for the IRS Commissioner. In current form, our legislation says 
that the board appoints the Commissioner. I would be willing to 
consider having the President appoint the Commissioner with formal 
input from the board and continuing to allow the board to evaluate and 
recommend removal for cause.
  This law would give this Commissioner increased legal authority to 
manage the IRS. Consistent with merit system principles, veterans 
preferences and established labor/management rules, the Commission 
would be given a new rating system to hire qualified applicants and 
flexibility to hire a senior team of managers.
  Remarkably, the IRS Commissioner has very little flexibility in 
managing this agency, and one of the difficulties that he or she is 
going to have, regardless of who they have, in managing with zero 
tolerance is the sort of things we saw last week: the absence of the 
power and authority to be able to manage as I think most of us in 
Congress and most of the American taxpaying citizens would like to see 
done.
  The administration's proposal would create a 5-year term for the 
Commissioner. That is true; that is the same as ours. But it stops 
there. It would not have board members with 5-year terms to provide the 
needed continuity and support to the Commissioner. All the political 
appointees could come and go in the same year.
  One of the biggest problems we have with the IRS is lack of 
continuity, particularly continuity of management oversight. One of the 
defects of a board being all political appointees inside the Government 
is that they tend to turn over more. It is this turnover that makes it 
difficult for us to get the kind of continuity this agency demands.
  The fourth criticism we have heard is it is difficult to file a tax 
return and there is a breathtaking gap between the service taxpayers 
get from the IRS and the service they get in the private sector.
  Our new law would create goals and due dates for electronic filing. 
At the heart of comprehensive reform must be a vision of an IRS that 
operates in the new paradigm of electronic commerce. One of the most 
telling comparisons made by taxpayers who appeared before us was the 
comparison given between an ATM card that is provided by their 
commercial banks and the lack of similar conveniences from the IRS. 
Potential savings to the taxpayers are large: The error rate for 
electronic filers was less than 1 percent, compared with 20 percent for 
a paper file. While we will never have a paperless IRS, Congress must 
change the law to provide incentives and assistance to a new IRS which 
gives its customers services comparable to the private sector.
  The administration proposal would allow the IRS to spend more money 
on marketing electronic filing, but would not include any specific 
goals or requirements for the IRS to take immediate action to increase 
electronic filing.
  The fifth criticism we heard is that Congress has created a monster 
of a Tax Code that is too complex to administer. Under our new law, Mr. 
President, we would create a process for evaluating the cost to the 
taxpayer of tax law complexity by giving the Commissioner, for the 
first time, an advisory role when new tax laws are being considered; 
requiring, as well, a tax complexity analysis during legislative 
deliberations; increasing Federal-State cooperation; and requiring the 
Joint Committee on Taxation to study feasibility of estimating 
taxpayers' compliance burdens.
  We just made the Social Security Administration independent. The 
President's nominee was confirmed by the Senate. When the President's 
nominee came before the Senate Finance Committee, we were able to ask 
the question: If you reach a conclusion that the President doesn't like 
or that we don't like up here, are you going to be able to express that 
conclusion publicly? And the answer is yes. That is what comes with 
independence.
  We need an IRS Commissioner that is able to, while we are debating 
taxes, say, ``Great idea, Mr. President, I saw everybody gave you a 
standing ovation.'' ``Great speech, Senator Blowhard, I see you got a 
standing ovation as well, but guess what it is going to cost the 
taxpayer to comply with your idea? They may give you a standing 
ovation, but if it becomes law, this is what it is going to create as 
far as the taxpayer is concerned.''
  Under the current law, the IRS Commissioner will never come before 
the American people and make that kind of statement. Under our law, 
they would be required to do so. The complexity of the Code may require 
comprehensive reform of our tax law, but in the meantime, why not give 
the Commissioner authority to advise Congress of the potential problems 
of our ideas, and why not require a tax complexity analysis? At least 
we could then evaluate these potential new costs before proceeding. The 
administration's proposal would not do anything to encourage 
simplification of the tax law, although it would allow the IRS to enter 
into cooperative agreements with State tax administrators.
  Mr. President, let me add a closing note about the administration's 
handling of this bill. Honest people can have honest disagreements. For 
that reason, I tried to be restrained in my criticism of the 
administration's proposal. But the ongoing public relations battle they 
are waging requires me to respond.
  First, my broad critique is that the administration's proposal is 
both timid and hollow. We started our proposal with the belief that the 
law needed to be changed. Laws, Mr. President, have teeth. They must be 
enforced. They make a difference. The administration's proposal is more 
a set of suggestions than a set of laws--false substitutes. They become 
dentures rather than teeth.
  Second, the administration has leveled its strongest complaints 
against our proposal for an oversight board comprised of taxpayers. We 
made this proposal because we thought the IRS was culturally isolated 
from the taxpayer, because we believe the IRS

[[Page S10208]]

lacked the independence from the bureaucracy it needs to fix the 
problems, and because we believe the agency needs input from outside 
its own headquarters.
  I assume the administration agrees with this observation, because it, 
too, has proposed an oversight board. The problem with the 
administration's board is that its members would come from the same 
bureaucracies that created the problem we heard about last week. 
Taxpayers would have no input except through an advisory panel, and the 
board they propose would have little real power. In fact, all 14 expert 
witnesses, as I said earlier, testifying before the Ways and Means 
Committee said they do not support the administration's IRS governance 
proposals.
  The administration contends our oversight board would consist of 
self-interested CEO's. This is quite simply, and quite directly, false, 
and the administration knows it. They have read our bill. They know 
what is in it. And they continue to describe it inaccurately in order 
to get people to presume they should oppose it.
  Our proposal is for a nine-member board, two of whom will be the 
Secretary of the Treasury and a representative of Treasury employees. 
The other seven could be anyone who the President appoints and the 
Senate confirms--anyone. A small business owner in Lincoln, NE, can be 
on this board, as a taxpayer advocate from anywhere in America. ``CEO'' 
does not appear in our bill. I do not know where the administration has 
concocted this ruse, unless they fear that CEO's are who this 
administration will appoint.
  The administration also claims a board run by taxpayers is a recipe 
for conflicts of interest. At root, this is an argument that the vast 
majority of taxpayers who do not work for the Government lack the 
necessary moral rectitude to participate in reforming the Government 
that belongs to them, and I strongly disagree. Americans who work and 
pay taxes in the private sector contribute to Government all the time. 
In fact, one of them is the Secretary of the Treasury today. He ran one 
of Wall Street's most elite firms. I presume that whatever mechanism 
has been sufficient to protect him against conflicts of interest would 
also be sufficient to guard against conflicts of interest by members of 
this board.
  Finally, it seems to me the administration is intent, perhaps 
determined, on preserving the basic structure of the status quo. They 
wish to strand the IRS in the labyrinth that is the Treasury 
Department's bureaucracy and is the same bureaucracy that has failed to 
run the IRS in a manner that gives citizens confidence.
  The problems at the IRS are not this administration's fault alone, 
but I cannot help but observe that if the Treasury Department had done 
a great job running the IRS the last 5 years, I might be more convinced 
that they ought to keep running it. But the simple truth is, they 
haven't. Perhaps the best summary of the administration's proposal is 
this: If you like the service you get from the IRS now, you'll love the 
administration's IRS protection bill.

  Having responded in kind, Mr. President, I still hope the 
administration will start participating in this debate constructively. 
I still believe we can work out our differences, which are not great, 
as long as they begin to tell the truth about Senator Grassley's and my 
plan.
  Regardless, Congress needs to proceed as quickly as possible to enact 
changes in the law which will result in the best practices being 
applied to the operations of the IRS. Americans want an IRS that can 
quickly answer the question, How much do I owe; an IRS that is customer 
oriented to those payers willing to voluntarily comply as is a 
commercial bank to its customers; an IRS that knows it had better be 
right when it comes after a taxpayer for collection, otherwise it will 
pay for wrongly accusing a taxpayer of being delinquent.
  In the interest of those Americans who voluntarily comply but who 
struggle with a complicated code, a confusing service policy, 
incompatible information systems, and the fear that they could be the 
next in line for harassment, the time has come for Congress to act.
  Mr. President, it is time the IRS starts working for the American 
taxpayer. To further delay is to ask millions to suffer unnecessarily. 
I yield the floor.
  The PRESIDING OFFICER (Mr. Roberts). Who seeks time?
  Mr. FAIRCLOTH addressed the Chair.
  The PRESIDING OFFICER. The Senator from North Carolina is recognized.

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