[Congressional Record Volume 144, Number 54 (Tuesday, May 5, 1998)]
[Senate]
[Pages S4237-S4244]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998
The PRESIDING OFFICER. Under the previous order, the Senate will
resume consideration of H.R. 2676, which the clerk will report.
The bill clerk read as follows:
A bill (H.R. 2676) to amend the Internal Revenue Code of
1986 to restructure and reform the Internal Revenue Service,
and for other purposes.
The PRESIDING OFFICER. The time until 12:30 p.m. shall be for debate
only, unless the managers' amendment is offered.
Mr. ROTH addressed the Chair.
The PRESIDING OFFICER. The Senator from Delaware is recognized.
Mr. ROTH. Mr. President, I urge my colleagues to come down to debate
this important piece of legislation. A number of individuals have
indicated they want the opportunity to discuss this legislation, the
restructuring of IRS. We do have an hour and a half available for any
Senators who want to come down and give their comments with respect to
this legislation. This is their opportunity, and I urge that they do so
immediately.
Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. KERREY. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER (Mr. Brownback). Without objection, it is so
ordered.
Mr. KERREY. Mr. President, the Internal Revenue Service Reform and
Restructuring Act of 1998 will touch the lives of hundreds of millions
of Americans.
More Americans pay taxes than vote. The perception of how our
government treats us--its citizens--is rooted more in our contact with
the IRS than with any other U.S. agency or entity.
How we are treated by the IRS--and our tax laws--effects our
perception of whether or not we believe we have a fair shot at the
American Dream and whether or not we are a government of, by and for
the people.
During our deliberations this week, we must be mindful of Congress's
complicity in allowing the IRS to become what it has become. The IRS is
not Sears & Roebuck--we are its Board of Directors. We write the tax
laws, we are responsible for the oversight and it was on our watch that
the IRS became the mess we now try to clean up.
Mr. President, I remind my colleagues that Congress has changed the
tax code 63 times since 1986, and these changes have created a tax code
that costs the American taxpayers $75 billion a year to comply. We do
so without considering the cost for the IRS to administer it, and
without considering the cost for taxpayers to comply. If you doubt that
we have made things difficult I challenge you to take a look at this
year's Schedule D on capital gains and losses. A few years back Dave
Barry noted that we were making progress in our mission to ``develop a
tax form so scary that merely reading it will cause the ordinary
taxpayer's brain to explode.'' He cited Schedule J, Form 118 ``Separate
Limitation Loss Allocations and Other Adjustments Necessary to
Determine Numerators of Limitation Fractions, Year-End
Recharacterization Balances and Overall Foreign Loss Account
Balances.'' If that is not complicated enough, I'd suggest he go back
and take a look at this year's Schedule D.
The American public knows that Congress plays a leading role in all
of this. In a recent poll, 72 percent of Americans blamed Congress for
the ills of the IRS, and not the IRS itself.
According to a special Harris Poll conducted on April 15th, ``[t]ax
evasion is believed by most people to be more widespread than
harassment by the IRS.'' The poll also found that by a margin of 50 to
33 percent, Americans believe more people ``get away with not paying
all the taxes they should'' than pay ``all their taxes and are unfairly
harassed by the IRS.'' Willful noncompliance with our tax laws cost
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those of us who do comply an estimated $100 billion annually. IRS
Commissioner Rossotti testified last week that taxpayer noncompliance
costs the individual American taxpayer $1,600 annually.
Today 85 percent of Americans comply with our tax laws willfully,
without incident. If we do not adequately address the issue of
noncompliance, we will be sending the wrong message.
It is our responsibility to not only change the culture at the IRS so
that those who do comply are treated fairly and with respect, but we
must also change the law to allow Commissioner Rossotti the authority
to make the changes he needs to and to provide the IRS with the proper
resources to catch those who choose to break the law.
I urge my colleagues to consider the overall importance of the bill
before us this week. What we do will have a profound impact on the IRS,
how Congress writes tax law and how Americans perceive this body and
our government.
Let us move forward, swiftly and in a cooperative manner, and give
the IRS the overhaul it needs, provide the congressional oversight that
is required, the IRS Commissioner the statutory authority he lacks, and
the taxpayers the relief they deserve.
Mr. President, I know from the hearings in the Finance Committee held
by the distinguished chairman, Senator Roth, last September, and over
the last several weeks--very, very needed and very, very worthwhile
oversight hearings--that among other things which were focused on in
those hearings were the actions taken by the Criminal Investigation
Division. I know that there were an awful lot of citizens--in fact,
every single member of the Finance Committee--who were outraged
listening to some of the stories told about how the strong arm of the
law was used to go after not necessarily innocent but certainly
taxpayers that were not a threat to the life and limb of their
neighbors. There was a substantial amount of force used in all of the
cases. I don't pass judgment as to whether or not the IRS was right in
the claim itself. But there is no question that there are times when
the IRS uses more force than is necessary to carry out its function
under the Criminal Investigative Division.
We hope that the changes in our law and instructions to Commissioner
Rossotti will enable us to reduce and eliminate that kind of excessive
use of force. Mr. Rossotti himself has indicated that he is going to
ask former FBI Director William Webster to evaluate the Criminal
Investigation Division and come up with a set of protocols that will
enable them to eliminate the times when they use unnecessary force to
enforce the law.
Let me caution Members who are outraged to be careful when they come
and propose amendments to that particular section of this law. The
caution needs to be based upon our desire, I hope, to keep the streets
safe for Americans. It is my judgment that mission No. 1 for a
government is to protect its citizens. We don't have public safety if
we do not have citizens feeling safe when they are walking the streets,
or when they are engaging in commercial transactions. If that doesn't
occur, we have anarchy, and citizens not only are going to be quite
concerned but they are apt to throw all of us out of office.
All of us know that a combination of events has reduced crime across
the Nation. Americans like that. They want to feel safe. They don't
want to feel they are at risk, having people preying on them for a
variety of reasons.
The IRS is an important part of our effort to get that done. All
Members who are concerned about the Criminal Investigation Division and
who may have some changes they want to make in that division, I am
likely to support those if it will reduce the incidents of force being
used against citizens who pose no threat but will oppose those that I
fear will make it easier for drug dealers, money launderers, and other
sorts of criminals who are preying on the American people. If Members
come to the floor and want to weaken the capacity of the Criminal
Investigation Division to keep Americans safe, I will introduce into
the Record, as I did in the hearings, 14 examples, and more if
necessary, to show this body what the Criminal Investigation Division
is doing to keep Americans safe. If there is somebody out in America
who is a drug dealer or a money launderer, they don't have on their
forehead ``drug dealer'' or ``money launderer.'' They are apt to look
normal. One of the things we very often fail to do is get both sides of
the story when we hear stories of abuse.
I could bring every single person who is in Nebraska's prison system
in front of any committee here in Washington, DC, and every single one
of them will tell you the government abused their rights. There is
nobody who is guilty in our prisons. They are all innocent. They are
all abused by the government in some way, shape or form.
So let's be careful as we evaluate the Criminal Investigation
Division. We have Mr. Webster who has been assigned by Mr. Rossotti to
examine their procedure and protocol, but let's be careful that we
don't change the law to make it easier for people to prey on Americans
to get their job done.
All of us understand there is an amendment to the Constitution, the
fourth amendment, that provides us protections against unreasonable
searches and seizures. I am encouraged that many who have been silent
on this protection that is guaranteed to all citizens are now starting
to understand that it can be a substantial problem to infringe upon
that fourth amendment right. But if a law enforcement entity has
probable cause and gets an arrest warrant as a consequence of having
probable cause that somebody is violating the law--a drug dealer, money
launderer, and so forth--again, walk down the street. These people
don't stand out for you and say, well, there's somebody who is a threat
to our society. If they have probable cause, if they believe it is
necessary to get a search warrant, they don't call that person up and
say, hey, Jim, next Wednesday I am going to be over to get the
evidence, because they know that unless they have the element of
surprise, the evidence is going to be destroyed.
I believe the legislation before the body today, the variety of
things that are being done, will substantially improve the operation of
the IRS and will give the American people better service, will shift
more power to the taxpayer. In title I, there is a section I may end up
reading on this floor. I am a cosponsor of the bill. It was originally
introduced by John Breaux.
The Taxpayer Advocate will be much more independent, have much more
power, and I guarantee you that the taxpayers will know the
independence that the Taxpayer Advocate has; that he will be required
annually to come to us and say, here are provisions of the Tax Code
that are causing the IRS special problems. These are problems and
difficulties that we are facing as a result of the laws that you all
pass and make recommendations for changing those laws. So that, again,
the goal ought to be to write the law so that the IRS presumes all
Americans are law-abiding citizens willing to voluntarily comply. They
just want to know the size of their tax bill so they can pay it but
reserve the authority and power of the IRS to go after individuals who
either intentionally do not want to comply or, worse, are criminals who
are preying on innocent Americans in a variety of different ways.
I hope during the deliberations we will have a constructive debate. I
know we are waiting for the caucuses to find out what Members are going
to do with both nongermane amendments as well as germane amendments
that could kill the bill. I say, again, the importance of this cannot
be overstated. The citizens' confidence in Government of, by, and for
the people is at stake. We now have a declining number of Americans who
believe the IRS is getting the job done. It is one of the least popular
agencies at the Federal level. We have a significant role in creating
that unpopularity because we wrote the law to begin with. The law that
governs the IRS has not been rewritten since 1952. It is long since
passed the time it was necessary to rewrite those laws.
I thank Senators Roth, Moynihan, Grassley, Congressman Portman,
Congressman Cardin, and many others who have been involved in this from
the very beginning. It started way back in 1995 when Senator Shelby,
the distinguished manager, and I were managing an appropriations bill.
We had attempted to fence an appropriation dealing with tax systems
modernization in 1994. It failed. We got it fenced
[[Page S4239]]
in 1995. We didn't believe it was enough. We saw the taxpayer money
being wasted. We created in the appropriations bill the National
Commission for Restructuring the IRS. That Commission deliberated with
Congressman Portman and 16 other people for well over a year. Senator
Roth, last year, picked the ball up and had wonderful oversight
hearings, and did so again this year.
It is time to get the bill passed. The House bill passed 426 to 4
last September. The bill that is before us today is a substantial
improvement over that bill in what the House has done. I say on behalf
of 200 million Americans who pay their taxes every single year, let's
get this thing done as quickly as possible so they can have these new
powers that they will have under the law and so the IRS Commissioner
has the power and authority he needs to manage this agency.
Mr. President, I yield the floor and I suggest the absence of a
quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. BREAUX. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER (Mr. Hutchinson). Without objection, it is so
ordered.
Mr. BREAUX. Are we on the bill or are we in morning business, Mr.
President?
The PRESIDING OFFICER. We are on H.R. 2676, the IRS reform bill.
Mr. BREAUX. I thank the Chair.
I rise in support of the legislation and say to all of my colleagues,
and to the American public as well, it is very good news that we are
now at the point of not talking about it as much as we are actually
trying to do something to fix the problem. The problem I speak of is
the information that Congress and the Senate have received over the
past several weeks regarding what I will argue are fundamental abuses
within the Internal Revenue Service and how they treat many American
citizens.
The hearings the Finance Committee held really brought out some very
disturbing facts and information about the interaction of the Internal
Revenue Service with average Americans. We have a tax system in this
country with which most people completely and totally comply. We have
one of the highest rates of compliance of any free nation anywhere in
the world. It is something of which we can be very proud.
Also, it is interesting to note--and maybe people don't realize--that
less than 2 percent of American taxpayers are audited each year,
substantially less than 2 percent as a matter of fact, which means most
Americans file their tax returns, pay what they owe during the year,
and at the end of the year that is it in terms of their dealings with
the Internal Revenue Service. But still, in all, it seems there is a
very disturbing feeling by most Americans that the Internal Revenue
Service, an agency of our own Government, is not only on their side but
actually is against their basic interests in how they deal with their
own Government. I know that for a fact. I even feel somewhat
intimidated by calling the agency myself on behalf of a constituent.
The response seems to come back: How dare you call us. We are the IRS
and you have no business making an inquiry.
The other story that goes around is people have pointed out one of
the greatest lies ever told is: I'm from the Government and I'm here to
help you.
It is like someone who gets a letter from the Internal Revenue
Service; generally it evokes a tremendous amount of fear from the
average citizens in this country when they get such a letter. It is
always the butt of so many evening television shows, jokes about people
actually having a fear of their own Government and an actual fear of
the agents of our own Government, who are Federal employees, who
actually work for the citizens of this country.
I think the hearings show this is a feeling among far too many people
in this country. What we are doing is bringing legislation to the floor
to try to correct some of those abuses and make it work more on behalf
of American citizens instead of against American citizens.
A couple of weeks ago, I was back in Louisiana and someone from my
State said, ``What do you have coming up this week?'' I said, ``We are
going to have more hearings on the Internal Revenue Service.'' And my
constituent said in response, ``My God, you have had enough hearings.
When are you going to do something about fixing the problem? We know
there is a problem; when are you going to fix it? Are you going to
spend the whole year talking about it? We got the message; there is a
problem. The question is, What is Congress going to do to attempt to
fix the problem?''
I am pleased to report that is why we are on the floor of the U.S.
Senate today with legislation that has been reported out in a
bipartisan fashion. Under the leadership of the distinguished chairman,
Senator Roth, and the ranking Democrat, Senator Moynihan, we have
brought this piece of legislation to the floor. I want to particularly
commend Senator Kerrey from Nebraska, who has been on the floor this
morning and yesterday outlining this legislation. He chaired a
commission which really did a great deal of work prior to the Congress
bringing up this legislative proposal. His work as commission chairman
really was the genesis for bringing about this real effort to reform
the Internal Revenue Service.
Some would say, ``Just throw it out, scratch it, do away with it.''
That is all fine and good. I can give a great speech anywhere in the
country talking about abolishing the IRS. But also, it is important to
find out, what are you replacing it with? What type of agency do you
have to collect the revenues to run the Government?
I think people legitimately are concerned. They want the services of
Government. They want the highway trust fund to work. They want the
highway program to work. They want Medicare and they want the Medicaid
programs to work. They want education to work. They want the services
of Government, but in order to have that, you have to have some
mechanism to collect taxes in a fair manner. We should do everything we
can to make the system more fair and make it more simple than it is,
but eventually we are going to have to have some agency that is going
to participate in helping collect those taxes under a fair system.
I think what we do today is to try to improve that system. We say we
are going to make it work better, we are going to attempt to eliminate
the abuses in the system and abuses by people who work for the Internal
Revenue Service.
I would like to concentrate just on one feature of the bill that is
now before the Senate, and that is something that I have worked on
hard--in fact, introduced a separate bill on, to create a National
Taxpayer Advocate to help taxpayers when they have problems with the
Internal Revenue Service.
Back in 1996, in the Taxpayers' Bill of Rights, we established this
Taxpayer Advocate. The concept was not very complicated. It was, when
people have a problem with the Internal Revenue Service, they generally
are at the mercy of the system. The Government has literally thousands
of attorneys and tax attorneys and prosecutors to go after individuals,
but the individual citizens don't have anyone to represent their
interests in dealing with the Internal Revenue Service. The National
Taxpayer Advocate concept was to have someone who was on the side of
the taxpayers, to help the taxpayers put together what they need to
show what they have done was entirely honest and appropriate.
The National Taxpayer Advocate did establish this position of a
Taxpayer Advocate Office, and the function was to assist the taxpayers
in resolving their problems and to identify areas in which taxpayers
have problems in dealings with IRS, and also propose any administrative
changes that would help make the system more fair, and identify any
legislative recommendations that we in Congress could institute to make
it more fair and easier for the average taxpayer.
The problem with the old law in 1996 was that the Taxpayer Advocate
designated authority, under these assistance programs, to the local and
regional resolution officers who worked for the Internal Revenue
Service. This really undermined the independence of the Taxpayer
Advocate. It is very important, if you are going to have people who
help the taxpayer, that they should not be totally dictated to by the
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Internal Revenue Service itself. It was something that, while it had
the right intention, did not work as it should.
This legislation contains several very important changes. I am very
pleased to report to our other colleagues that this legislation
corrects some of the problems with the original Taxpayer Advocate
Office. We are going to make it more independent, which it has to be in
order to work. We are going to make it more accountable to the
taxpayers of this country, who are the people they are there to serve,
and make it easier for them to resolve disputes between the taxpayer
and the Internal Revenue Service.
The bill, in doing that, replaces the present law's problem
resolution system with a system of local taxpayer advocates who report
directly to the National Taxpayer Advocate Office and who will be
employees of the Taxpayer Advocate Office, independent from the
Internal Revenue Service's examination, collection, and appeals
function. In other words, they will be working directly for the
Taxpayer Advocate Office and will be independent of the IRS examination
and collection offices and appeals office.
The National Taxpayer Advocate has a responsibility to evaluate and
take personnel actions with respect to any local taxpayer advocate or
any employee in the Office of the National Taxpayer Advocate. And to
further ensure their independence, the National Taxpayer Advocate may
not have been an officer or employee of the Internal Revenue Service
during the 2-year period ending with their appointment and will not be
able to accept employment with the IRS for at least 5 years after
ceasing to be the National Taxpayer Advocate. That means the people who
are going to be running this office cannot just have come out of the
Internal Revenue Service, where their loyalties would be legitimately
questioned. And they have to agree they will not go to work for the
Internal Revenue Service for at least 5 years after they leave this
position.
So what we are creating, I think, is a truly independent National
Taxpayer Advocate Office, to be on the side of the taxpayer for a
change instead of being on the side of the Government, saying they are
going to represent the interests of the taxpayer. There is a conflict
there. If you are going to have adequate representation for the
individual taxpayer, the person cannot be an IRS employee; they have a
different obligation of what they are trying to do.
So this Taxpayer Advocate Office will not be able to be a previous
IRS employee and not be able to go to work right after giving up the
job as a National Taxpayer Advocate. I think that feature is very, very
important, because if you were still an employee of the IRS directly
under their responsibility, it simply would not work. If you just came
out of the IRS, it would not work. And if you knew you were going to go
to work for the IRS as soon as you finished the job as a National
Taxpayer Advocate, then you would be looking over your shoulder to make
sure you didn't make them mad or unhappy in what you did in
representing America's taxpayers.
That conflict has been eliminated by what we have in the legislation
which is now before the Senate. The whole concept is to have a truly
independent National Taxpayer Advocate whose one focus will be making
sure that taxpayers have good representation, are fairly treated, and
have someone, for a change, who is really on their side when they have
a conflict with the Internal Revenue Service.
It is interesting to note that we go further in this legislation and
say that at the initial meeting with any taxpayers seeking assistance
with the Office of Taxpayer Advocate, that the local taxpayer advocate
is required to notify that taxpayer that they operate independently of
the IRS office and that they report directly to Congress through the
National Taxpayer Advocate. At the discretion of the local taxpayer
advocate, he shall not disclose to any IRS employee any contact with or
any information that they provide to the taxpayer.
We are really trying to build some walls between the IRS and the
Taxpayer Advocate and their work with the taxpayers, the American
citizens of this country, to make sure that they, the taxpayers, know
the person they are dealing with is independent, has their interests at
heart, and doesn't have to go report to the Internal Revenue Service
district director about what he or she has discussed or talked about
with the taxpayer who is seeking assistance.
In addition, each local office of the Taxpayer Advocate is to
maintain separate phones, separate faxes, and other electronic
communications access, and a separate post office address. We are
really trying to make it as separate and independent as we possibly
can, so that when the average person gets that letter talking about an
audit or a question that they have, they know there will be someplace
they can go without having to incur the expense of hiring outside CPAs
or outside attorneys and pay them sometimes very high fees just to have
someone help them with their problem. There will be someplace they can
go, which will be independent of the IRS, which will have as their
first, second, third, and last mission to help that taxpayer. They can
be comfortable there will not be communication or sharing of
information of their discussions with the Taxpayer Advocate with the
Internal Revenue Service.
I think this is a very important part of the bill that is before the
Senate today. Other features in the bill are equally as important,
certainly, and I think in the end will go a very long way to assuring
the American taxpayers that they have a system that is not out to get
them, that is not out to intimidate them, that is not out to embarrass
them; that if they are honest taxpayers, they will be treated honestly
and will be treated fairly and, if they have a problem, there will be
someplace they can go to get honest information and help and assistance
that is not directed by the Internal Revenue Service but is being
directed by the Office of the Taxpayer Advocate. That is now part of
this bill, and I think it is a very important part of it as well.
With that, Mr. President, I yield the floor, as I see other Members
who are waiting to speak.
Mr. KERREY addressed the Chair.
The PRESIDING OFFICER. The Senator from Nebraska.
Mr. KERREY. Mr. President, I compliment the Senator from Louisiana. I
have done it a couple of times previously. I was pleased to be able to
cosponsor his legislation having to do with strengthening the Taxpayer
Advocate in this bill. If we can keep the nongermane amendments off and
stick to the business of changing the law to give the taxpayers this
new authority and power with this one provision, the Taxpayer Advocate,
it will be noticed immediately.
This Taxpayer Advocate will be truly independent, with separate phone
numbers, separate faxes, a separate operation, with the capacity to
organize taxpayer advocates in each of the 50 States, to operate
independently, not only settling problems that taxpayers have but
bringing to Congress' attention repetitive problems that they identify
that they think need to be solved by us either changing the law or
changing some other procedures.
We have had the Taxpayer Advocate created before under the Taxpayer
Bill of Rights II, when it was created. The change from Taxpayer
Advocate to National Taxpayer Advocate is not by accident. I hope
colleagues have a chance to look at this particular section of the bill
as they consider how we are going to proceed this week. Look at the
language in this particular section and ask yourself the question: Do I
want to give the taxpayers in my State this kind of Taxpayer Advocate,
this kind of power, this kind of representation? Do I think that they
will appreciate the changes they will see in the way IRS operates and
the kind of service they get from that IRS? I think Senators will look
at that and say, ``My gosh, I don't want to slow this bill down. We
need to get this thing done. We have waited long enough. We need to get
this bill done so these new powers can be felt by the taxpayers in my
State.''
Again, I appreciate very much what the Senator from Louisiana has
done. This is one of the most important sections of this bill. It is
not in the House bill. Senator Roth, the chairman of our committee,
talked many times about the need to make certain we took the House bill
and made it as strong as we could. I was constantly pressing that
[[Page S4241]]
we move in an expeditious fashion. This is one of several examples
where the House bill has been substantially improved.
I hope colleagues, as they look at this bill, will remember we are
trying to give the taxpayers in all the States in this Nation new
power, new authority, and an IRS that will much better serve their
needs in a much more courteous and expeditious fashion.
I yield the floor.
Mr. GRAHAM addressed the Chair.
The PRESIDING OFFICER. The Senator from Florida.
Mr. GRAHAM. Mr. President, I appreciate the fact that the leader is
bringing to the floor this week the Internal Revenue Service reform
bill and giving the Senate the opportunity to act expeditiously on this
matter. It is my hope that as soon as we act, there will be a prompt
conference committee with the House, which has already passed analogous
although not as comprehensive legislation, so that soon the American
people will have the benefit of the reforms that are contained in this
legislation.
We did not get to this point easily. I compliment particularly
Senators Bob Kerrey and Charles Grassley, who served on the commission
that reviewed the IRS from which many of the ideas contained in this
legislation have emanated. I congratulate Senators Roth and Moynihan of
the Finance Committee for having led us to this point. And I
congratulate new Commissioner Rossotti of the IRS, who has brought a
fire, an energy, to reform the agency from the inside that has
facilitated the consideration of these structural changes that will be
contained in this legislation.
Privilege of the Floor
Mr. GRAHAM. Mr. President, before I proceed further, I ask unanimous
consent that Kate Mahar, Ed Moore, and Maribel Garcia-Romero of my
staff be allowed the privilege of the floor for the pendency of the
debate on the IRS reform bill.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. GRAHAM. Thank you, Mr. President.
Mr. President, first, I will comment on some provisions which will be
in the Senate bill that I have had a particular interest in and then to
alert the Senate to an amendment I will be offering, possibly with
others, when we reach the consideration of this bill.
This bill follows many months of investigations and hearings by the
Finance Committee, both in Washington and throughout the Nation. It
follows a process in which the committee has first tried to do a
careful diagnosis of what was the problem and then consider the
options, the prescriptions that might deal with that problem, and then
incorporate into this legislation that prescription which was
considered to be the most appropriate.
I compliment the people who have participated in this process.
Specifically, I held a hearing in January in Orlando, FL, where a
number of Floridians had the opportunity to participate in this
thoughtful process of diagnosis and prescription. I know that Senator
Nickles held a similar hearing in Oklahoma. Other Senators communicated
with their constituents through various forums. So this is, in a real
sense, a product of the people of America.
Let me review some of the diagnoses and the pathologies in the IRS
that surfaced. One of those was the need to help taxpayers resolve
their debts. What was discovered was that many taxpayers want to
resolve their IRS debts but the Code imposes so many penalties that
once a liability is established, it is very difficult to satisfy that
debt.
As an example, a Floridian, Carl Junstrom of Tampa, over 10 years
ago, because of misinterpreted advice of an IRS agent, ended up being
responsible for $25,000 in taxes. He entered into an agreement with the
IRS under which he paid $181 a month towards that debt owed. After
having faithfully met that monthly obligation for almost a decade, and
having paid $28,000 towards an original $25,000 indebtedness, Mr.
Junstrom was informed that he still owed $26,000.
How is that possible? The answer is, because the penalty clock kept
running during the pendency of this agreement and, therefore, although
he thought he was paying off his indebtedness and, in fact, paid $3,000
more than he originally owed, because of accumulated penalties during
that same 10-year period, he ended up owing more than he had at the
beginning of the process.
What is the remedy? This bill includes a provision that encourages
the IRS and the taxpayers to engage in installment agreements by, one,
assuring the availability of payment plans for taxpayers with
liabilities of $10,000 or less and, two, eliminating the failure-to-pay
penalty for periods where the taxpayer is making payments pursuant to
an installment agreement.
In the case of Mr. Junstrom, the penalty clock would have stopped as
long as he was making his $181-a-month payments.
Another remedy is to adopt proposals to eliminate the differential
between the interest rate the IRS charges individuals and the rate that
the IRS pays taxpayers. Previously, there had been a higher interest
charged to the taxpayers on a deficit than the interest which the
taxpayer would receive if it was found that they were owed a refund.
That differential is eliminated in this legislation.
A second problem identified was protecting the innocent taxpayer.
What is the problem? One example of the problem is that many
individuals filing joint returns find out subsequent to filing those
joint returns that their spouse has understated income or overstated
deductions. Although the individual may have had little or no income
and little or no knowledge of this, the IRS holds that person
responsible for 100 percent of the taxes attributable to the individual
spouse's action. This typically surfaces after there has been a divorce
and one spouse, often the husband, has left town. The wife, who usually
has custodial responsibility for the children, is still there and is
accessible, so she becomes the target for the IRS collection activity.
About 50,000 women a year are in that category which is generically
referred to as the ``innocent spouse.'' An example is Karen Andreasen,
a Floridian. Her signature was forged on a joint return, but she ended
up being held liable for her ex-husband's debts.
The remedy? The remedy incorporates legislation which Senator D'Amato
and others, including myself, have introduced as discrete legislation.
This generally would adopt an approach recommended by the American Bar
Association which essentially says that each spouse is to pay his or
her share of the tax liability in proportion to what he or she
contributed to the original tax return. If, for example, the return
represented income that was 80 percent the husband's earning and 20
percent wife's earning, in a subsequent dispute the wife would be
limited to a responsibility of 20 percent of any deficiency. That is a
very important provision in this legislation, which will have an
immediate benefit, because this legislation applies this new standard
retroactively to existing open cases for many tens of thousands of
spouses caught in this vice.
Another issue that surfaced was assisting taxpayers in their
negotiations with the IRS. What is the problem? The problem is that
many taxpayers, especially small businesses and moderate-income
families, find themselves unable to negotiate with an agency which has
the power to seize, levy and garnish wages. An example, Betty Bryant of
Miami, Florida started a small business to supplement her income as a
State employee. She actually overpaid her taxes but filled out the form
incorrectly and ended up with wages being garnished while this matter
was in controversy. Another example, Thomas Jones, submitted an offer-
in-compromise to the IRS. The offer was rejected even though the IRS
admitted they couldn't find his file. They rejected his offer even
though they didn't have the information upon which to make an
intelligent judgment as to whether the offer was appropriate or not. He
also was not apprised of his right to appeal the rejection of his
offer.
What is the remedy? The Finance Committee includes proposals to
require a review of any IRS decision to reject an offer-in-compromise
by collection. This will assure that there will be some independent
party reviewing the offer in compromise. Moreover, the bill requires
that the taxpayer be notified of this right.
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In addition, the bill requires the IRS to suspend collection efforts
if the taxpayer appeals the rejection of an offer-in-compromise.
The committee also approved proposals to expand the IRS Alternative
Dispute Resolution Program. In many jurisdictions, the development of
alternative dispute resolution procedures has provided a significant
and frequently much more efficient alternative to traditional
litigation. This proposal would build upon a pilot program initiated by
the IRS pursuant to the Alternative Dispute Resolution Act of 1996. It
would allow third-party mediation of cases of tax disputes. It would
also establish a pilot program for the use of arbitration in tax
disputes.
The legislation also provides a proposal to require acceptance of an
offer-in-compromise if the IRS has lost the taxpayer's file.
Another area where Senators found deficiencies in the IRS is customer
service. What is the problem? Many taxpayers feel they are treated as
criminals rather than as customers. The IRS is often unreachable and
difficult to pin down on advice they give to taxpayers on how to
properly fill out a return. Jim Stamps of Jacksonville provided
testimony that it had taken him 4 years to get a letter stating that he
had paid off all the taxes that he owed. Without that letter, many
opportunities that were available to him personally and in business
were frustrated.
Mr. Junstrom, who I mentioned earlier, the man who had the $25,000
bill, paid $28,000 but still owed $26,000, and had requested the IRS to
sit down with him to explain what he owed. He never was afforded that
opportunity and continued to receive confusing and conflicting notices.
What is the remedy? The bill reported out of the committee includes a
requirement that the IRS evaluate employees on their customer service
as well as on their collection ability. The Finance Committee heard
testimony indicating that in the past not only was there almost a total
focus of evaluation based on how much money an agent collected, but
that those standards became numeric, and if you didn't meet the
standard of collections, then you received a downgrade on your
evaluation.
This legislation repeats and expands upon a directive that Senator
Grassley wrote into the Taxpayer Bill of Rights that made it illegal to
evaluate an IRS employee based on a numerical standard of how much was
collected. But this legislation goes beyond that and says that employee
evaluation will give emphasis to their customer service as well as
their other responsibilities.
The IRS reform bill will also increase accessibility by a very simple
thing--pick up the telephone book today and look under U.S. Government
in virtually any community in America and then look under IRS. One
thing you will see is an 800 number as to where to call to get service.
There are two things that you typically do not see. First, you may not
find a local telephone number that you can call in the event that the
800 number is busy, which happens frequently, particularly during
periods just before April the 15th. Second, what you don't see is an
address so that the taxpayer who wants to go down and actually meet
face to face with a human being to review their problem will know where
to call and where to go. This legislation will require the IRS publish
both its local telephone number and its local address.
The legislation requires the IRS to issue annual statements to
taxpayers who have entered into installment agreements, like Mr.
Junstrom. The statement would include amounts paid, remaining balance,
and projected pay-off time so that the taxpayer will be in regular
knowledge of where he or she stands with the IRS.
None of us purports that this legislation will solve all of the
problems and all the taxpayer complaints with the IRS. And we should
resist the temptation to oversell this legislation. The IRS will have
to take many administrative actions to implement these laws and
undertake other reforms to achieve that goal. Fortunately, I believe
the IRS is moving expeditiously to become a more user-friendly agency.
It is dealing with a culture which in the past has focused inside the
agency, what was to the convenience of the agency, like not publishing
the address so that taxpayers wouldn't come down to the IRS office and
ask a lot of questions, to an agency that is moving to a culture of
being consumer friendly and saying: Here is where we are, come down and
we seriously want to render service to the taxpayer.
Commissioner Rossotti has implemented a broad range of reforms and
has undertaken investigations to get to the bottom of other allegations
that have been made about the agency's activities. The IRS has extended
its hours, implemented problem resolution days, and has stopped
evaluating collection agents based on the numerical amount of taxes
they collect. This legislation will continue that effort. Mr.
President, all of what I have just said is in the bill that we will
soon be considering, and I recommend that bill and these provisions to
my colleagues.
Let me now turn to a provision that is not currently in the bill. It
is my intention to offer an amendment to ensure that the new IRS
Oversight Board will have at least one member with expertise on small
business issues.
One of the recurring themes of the hearings that we have had is the
concentration of problems between taxpayers and the IRS, especially
when that taxpayer was a small businessman or woman--an individual who
frequently is relatively new to business, learning what the difference
was between an expense deductible item and an item that had to be
amortized over time, a person who frequently did not have access to or
could not afford expert professional advice, but a person who was
trying to comply with their legal responsibilities.
These are not evaders of taxation, they are people who need help, and
up-to-date information, in order to meet their responsibilities.
We are creating in this legislation an oversight board. That
oversight board is intended to provide a new window of enlightenment,
in both directions, from the public to the IRS, and from the IRS back
to the public. Under legislation crafted in the Finance Committee, the
current board would be composed of 9 individuals. Those 9 individuals
will include the Secretary of the Treasury, the IRS Commissioner, and a
representative of the IRS employees. In addition to those 3 named
individuals, there will be 6 Presidential appointees. Each of these 6
must possess expertise in at least one of the following areas:
Management of large service organizations, customer service, Federal
tax laws, information technology, organization development, and the
needs and concerns of taxpayers.
Missing from this list is any specific requirement for expertise in
small business issues--an omission that I consider to be glaring given
the fact that small businesses are the backbone of the American economy
and such a large target of concern for IRS activities.
I believe that at least one of the members of the IRS oversight board
should have practical experience in small business issues.
Let me outline the reasons why I feel so strongly about this, and why
I will be introducing an amendment to make this part of the IRS reform
legislation.
Small businesses have more difficulty dealing with the complex
Internal Revenue Code. Small businesses have relatively less time,
money, and expertise than large corporations. They need an IRS that is
sensitive to these limitations.
Let me explain how I came to this conclusion with a specific example
that relates to this bill.
In January of this year, I hosted a Retirement Security Summit at the
University of South Florida in Tampa. One session of that Retirement
Security Summit specifically focused on the issue of small businesses
and their pension plans.
Delegates, small business owners and their representatives discussed
their frustrations and their experiences with the IRS. They told me
that many small businesses do not offer retirement plans for their
employees because they fear the draconian penalties that the IRS can
impose for inadvertent violations of complex pension laws.
Mr. President, this is a very serious issue of security for tens of
millions of Americans who work for small businesses, the fastest-
growing sector of
[[Page S4243]]
our economy, but whose employers do not provide pension and retirement
programs.
We identified that one of the reasons for that unwillingness to
provide these programs is the concern of the consequences of subsequent
IRS enforcement if the small business finds itself in some technical
violation.
Several of my Senate colleagues and I began to consider whether
congressional action would help solve this problem. We drafted
legislation to provide that companies that correct errors prior to
audit would not be subject to sanction. But before we offered the
proposal as an amendment to the IRS Reform bill, we wrote to the IRS
commissioner, Mr. Rossotti, and asked him if the IRS proposed to change
the imposition of penalties for inadvertent errors.
Commissioner Rossotti responded immediately, in a matter of days, and
committed to expanding existing self-correction programs and allow
taxpayers to rely on those self-correction programs. We were pleased
with the quick action of the commissioner in issuing Revenue Procedure
98-22, which many small businesses have characterized as a common
sense, reasonable solution to their problem.
That process made me realize how difficult it is for many small
businesses to comply not only with the complexities of tax laws as they
relate to pension plans, but the whole array of rules that the Internal
Revenue Code has spawned. It made me further realize that the IRS needs
to be sensitive to small businesses when it issues regulations and
enforces the tax laws.
Small business owners often have fewer resources, but must still
comply with the same complicated Tax Code as large businesses. Small
businesses cannot afford to hire full-time lawyers and accountants to
monitor the Tax Code for changes that may apply to them. And small
businesses should not have to wait for Congress to be able to change
the law where solutions can be found by administrative action.
The myriad of challenges that small businesses face have been
reflected in the hearings the Finance Committee has held this year on
IRS reform. Many of the taxpayers who have testified so persuasively
about mistreatment at the hands of IRS agents have been small business
owners.
In my opinion, by adding a small business person to the IRS oversight
board, we will be able to provide for a more prompt, more sensitive
understanding of the needs of small businesses and the ability of IRS
to respond internally.
Even the IRS has acknowledged the unique needs of small businesses.
In testimony before the Senate Finance Committee on January 28 of this
year, Commissioner Rossotti proposed reorganizing the IRS into 4
units--each charged with end-to-end responsibility for serving a
particular group of taxpayers. He proposed dedicating one of those four
working units to small businesses.
Mr. President, it is for those reasons that it is my intention, with
other Members of the Senate, to offer an amendment to this bill, when
it is before the Senate, to include a representative of small business
as one of the 6 presidential appointees to the IRS oversight board. I
believe this would be of substantial benefit to the enforcement of our
tax laws as they relate to the special needs of small businesses.
Mr. President, before I conclude, I want to acknowledge the efforts
of Senator Kit Bond, who chairs the Small Business Committee. He has
included a similar provision in legislation that he will be
introducing.
Should the requirement that the oversight board have small business
expertise not be incorporated in the bill through Senator Bond's
amendment, I will urge adoption of this targeted amendment that I will
intend to offer.
The amendment is simple, fair, and essential if we are to bolster our
Nation's small businesses. Mr. President, I urge my colleagues to
support legislation to include small business on the IRS oversight
board. I ask the managers to let us know when it would be appropriate
to introduce this amendment.
Mr. President, I appreciate this opportunity to discuss the process
by which the items in the IRS reform bill have been developed. It has
been thoughtful and it has received the strong, steady support of our
chairman, Senator Roth, and has led to a set of reforms that I believe
the Senate will be very much carrying out the wishes of the American
people in adopting.
With respect to small business, Commissioner Rossotti stated:
Another very important group of taxpayers are small
businesses, including sole proprietors and small business
corporations. There are about 25 million filers in this
category. Compared to other individual taxpayers, this group
has much more frequent and complex filing requirements and
pays much more directly to the IRS, including tax deposits,
quarterly employment returns, and many other types of income
tax returns and schedules. Providing good service to this
group of taxpayers is more difficult than wage and investment
filers, and compliance and collection problems are also much
greater. Small start-up businesses in particular need special
help. By dedicating a fully responsible unit to providing all
IRS services for the self-employed and small business, this
unit will be able to work closely with industry associations,
small business groups and preparers to solve problems for the
benefit of all.
Commissioner Rossotti is right. The IRS needs to focus resources on
helping small businesses, and that focus needs to be reflected on the
Oversight Board.
The amendment that I propose to offer is also needed because small
businesses play such a central role in our nation s economic strength.
The numbers tell the story:
Small Business Administration figures indicate that of the 5,369,068
employer firms in 1995, 78.8% had fewer than 10 employees, and 99.7%
had fewer than 500 employees.
Employers with fewer than 500 employees increased from 4,941,821 in
1988 to 5,261,967 in 1994, a 6.5% increase.
The number of small business owners (as measured by business tax
returns) in the United States increased by 57% since 1982.
According to the Small Business Administration, America's small
businesses created 11,827,000 jobs from 1992 to 1996. This number
represents the vast majority of all new jobs created during that
period.
Small microbusinesses with 1-4 employees generated about 50% of all
the net new jobs from 1992-1996, while firms with 5-19 employees
created another 27% of new employment opportunities.
The fastest growing of small-business-dominated industries during the
past several years include restaurants, outpatient care facilities,
offices of physicians, special trade construction contractors, computer
and data processing services, and credit reporting and collection.
Ninety-four percent of high technology firms have less than 500
employees; 73% have fewer than 20 employees.
In my home state of Florida, the productivity of small business is
astounding.
In 1996, Florida had 348,000 businesses with employees. 99% of all
businesses with employees had less than 500 workers.
The state also had 412,000 self-employed persons in 1996, for an
estimated total of 760,000 businesses.
In Florida, small businesses created 1,081,000 or the 1,194,000 net
new jobs from 1992 to 1996. Very small businesses (less than 20
employees) created 71.7% of the small business growth with 775,000 new
jobs. These numbers reflect the importance of small businesses as job
creators.
Recent IRS statistics reflect the rapid growth of small businesses.
They indicate that net income reported by sole proprietors has doubled
in the last decade.
It is because of these reasons and trends that I urge my colleagues
to support this effort to give small businesses a voice on the IRS
Oversight Board.
Mr. President, I want to acknowledge the efforts of Senator Kit Bond,
Chairman of the Small Business Committee, in this area. He included a
similar provision in his IRS Reform bill.
Should the requirement that the Oversight Board have small business
expertise not be adopted via a broader amendment, I will urge the
adoption of this targeted amendment.
The amendment I propose is simple, fair, and essential if we are to
bolster our nation's small businesses. I urge my colleagues to support
it--and ask the managers to let us know when it is appropriate to
introduce the amendment. The amendment that I propose to offer will
extend its benefits in a very significant way to the most important
part of the American economy, the small business community of this
Nation.
[[Page S4244]]
Thank you, Mr. President.
Mr. ROTH. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER (Mr. Sessions). The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. ABRAHAM. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. ABRAHAM. Mr. President, I ask unanimous consent that I be
permitted to speak as in morning business for the purpose of
introducing a piece of legislation in conjunction with Senator Allard,
who will be soon joining me to speak.
The PRESIDING OFFICER. Does the Senator have a time limit on that?
Mr. ABRAHAM. I would like to speak for up to 10 minutes, to be
followed by Senator Allard for up to 10 minutes.
The PRESIDING OFFICER. Is there objection? Without objection, it is
so ordered.
Mr. ABRAHAM. Mr. President, I also seek unanimous consent that at the
conclusion of Senator Allard's remarks the Senate stand in recess for
purposes of conducting the weekly policy luncheons.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Michigan is recognized.
Mr. ABRAHAM. I thank the Chair.
(The remarks of Mr. Abraham and Mr. Allard pertaining to the
introduction of S. 2033 are located in today's Record under
``Statements on Introduced Bills and Joint Resolutions.'')
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