[Congressional Record Volume 144, Number 55 (Wednesday, May 6, 1998)]
[Senate]
[Pages S4379-S4405]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998
The PRESIDENT pro tempore. The clerk will report the pending
business.
The assistant legislative 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 Senate resumed consideration of the bill.
Mr. ROTH addressed the Chair.
The PRESIDENT pro tempore. The Senator from Delaware.
Mr. ROTH. Mr. President, I further ask that at the conclusion or
yielding back of time the Senate proceed to vote on the Roth amendment
followed by a vote on the Kerrey amendment.
The PRESIDING OFFICER (Mr. Allard). Without objection, it is so
ordered.
Mr. ROTH. Mr. President, before we begin debate today, I would like
to offer some comments about the consent agreement that governs the
offering of amendments. Basically, amendments that are to be in order
must be relevant to the purpose of the IRS reform legislation, which
covers three major areas.
First, it reorganizes, restructures, and re-equips the IRS to make it
more customer friendly in its tax-collecting mission.
Second, it protects taxpayers from abusive practices and procedures
of the IRS.
Third, it deals with the management and conduct of IRS employees.
These are the main purposes of the bill. While there are provisions
dealing with electronic filing and congressional oversight, that is
basically what this bill does.
Title 6 of the bill is an entirely different matter. That title
contains technical amendments that run the breadth of the tax code. In
the House of Representatives, this title was reported by the Ways and
Means Committee as a separate bill--which, in fact, it is.
Title 6 is unrelated to IRS reform. It contains only technical
corrections to previously enacted tax legislation that meet the
following criteria:
[[Page S4380]]
First, they carry out the original intent of Congress in enacting the
provision being amended.
Second, by definition, the technical correction does not score as a
revenue gain or loss.
Third, the policy has been approved by the Treasury Department, the
Joint Committee on Taxation, and the majority and minority of both the
House Ways and Means Committee and the Senate Finance Committee.
As a consequence, amendments which are relevant because of provisions
in title 6 must meet a more difficult standard under the consent
agreement. They must not only be relevant, but must be cleared but the
two managers and the two leaders. And in clearing provisions that
relate to title 6, I will apply the same criteria that the provisions
of title 6 had to meet to become part of that title.
I hope this explanation provides a clearer understanding of the
application of the consent agreement to possible amendments.
Amendment No. 2339
(Purpose: To ensure compliance with Federal budget requirements)
Mr. ROTH. Mr. President, I send an amendment to the desk.
The PRESIDING OFFICER. The clerk will report.
The assistant legislative clerk read as follows:
The Senator from Delaware (Mr. Roth) proposes an amendment
numbered 2339.
Mr. ROTH. Mr. President, I ask unanimous consent that reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
On page 401, strike line 3, and insert: ``beginning after
December 31, 1998''.
On page 415, between lines 16 and 17, insert:
SEC. 5007. CLARIFICATION OF DEFINITION OF SPECIFIED LIABILITY
LOSS.
(a) In General.--Subparagraph (B) of section 172(f)(1)
(defining specified liability loss) is amended to read as
follows:
``(B) Any amount (not described in subparagraph (A))
allowable as a deduction under this chapter which is
attributable to a liability--
``(i) under a Federal or State law requiring the
reclamation of land, decommissioning of a nuclear power plant
(or any unit thereof), dismantlement of an offshore drilling
platform, remediation of environmental contamination, or
payment of workmen's compensation, and
``(ii) with respect to which the act (or failure to act)
giving rise to such liability occurs at least 3 years before
the beginning of the taxable year.''
(b) Effective Date.--The amendment made by this section
shall apply to net operating losses arising in taxable years
beginning after the date of the enactment of this Act.
SEC. 5008. MODIFICATION OF AGI LIMIT FOR CONVERSIONS TO ROTH
IRAS.
(a) In General.--Section 408A(c)(3)(C)(i) (relating to
limits based on modified adjusted gross income) is amended to
read as follows:
``(i) adjusted gross income shall be determined in the same
manner as under section 219(g)(3), except that--
``(I) any amount included in gross income under subsection
(d)(3) shall not be taken into account, and
``(II) any amount included in gross income by reason of a
required distribution under a provision described in
paragraph (5) shall not be taken into account for purposes of
subparagraph (B)(i).''
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2004.
SEC. 5009. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.
Subsection (c) of section 10511 of the Revenue Act of 1987
is amended by striking ``October 1, 2003'' and inserting
``October 1, 2007''.
The PRESIDING OFFICER. Under the previous order, the amendment is now
set aside.
Does the Senator from Nebraska wish to offer his amendment?
Amendment No. 2340
(Purpose: To ensure compliance with Federal budget requirements)
Mr. KERREY. Mr. President, I send an amendment to the desk.
The PRESIDING OFFICER. The clerk will report.
The assistant legislative clerk read as follows:
The Senator from Nebraska (Mr. Kerrey) proposes an
amendment numbered 2340.
Mr. KERREY. Mr. President, I ask unanimous consent that reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
(The text of the amendment is printed in today's Record under
``Amendments submitted.'')
Mr. ROTH addressed the Chair.
The PRESIDING OFFICER. The Senator from Delaware.
The Senator from Delaware has 30 minutes under his control.
Amendment No. 2339
Mr. ROTH. Mr. President, I yield myself 5 minutes.
Mr. President, under the Senate's budget rules, the first year, first
five years, and second five years of revenue losses in a tax bill must
be offset with either mandatory savings or revenue increases.
When the Finance Committee marked up the underlying bill, the first
five years of revenue loss were offset. The second five years of
revenue loss were not fully offset. The IRS Restructuring bill was
short in excess of $9 billion in the last five years. During the
markup, I indicated that I would work with the Budget Committee to
attempt to find offsets so that the bill would be fully paid for over
the last five years.
Finding offsets was not an easy task. Every major revenue raiser I
considered brought forth opposition from different members. After
several weeks of reviewing options, I have developed a package, in
consultation with the leadership.
Mr. President, this pay-for package contains three new revenue
raisers and a change to a revenue raiser in the underlying bill.
The first revenue raiser comes from the Administration's budget. This
proposal would tighten the definition of operating losses that are
eligible for a special ten year carry back. Congress intended this
treatment to be limited to a narrow category of activities. This
proposal simply clarifies the types of losses eligible for this special
treatment. This proposal is noncontroversial.
The second new revenue raiser relates to the rollover rules for Roth
IRAs. Under current law, individuals or married couples with adjusted
gross income over $100,000 cannot rollover a traditional IRA into a
Roth IRA. For purposes of the $100,000 test, minimum distributions
which are required when an IRA beneficiary reaches 70\1/2\ are counted
as income.
This second new raiser would modify current law by excluding minimum
distributions from the $100,000 test. The effect of this proposal is to
allow more taxpayers, at age 70\1/2\ and above, to rollover from a
traditional IRA to a Roth IRA. This proposal will enlarge the group of
taxpayers who can enjoy the benefits of the Roth IRA.
The third new raiser would extend the current law user fees charge by
the IRS for private letter rulings. This extension would be effective
for four years.
Let me note that the IRS restructuring bill uses the balance on the
pay-go scorecard of $406 million in the last five years as an offset.
We have been informed by the Budget Committee staff that the use of the
pay-go balance is appropriate in this instance.
Finally, this amendment modifies an effective date of a revenue
raiser in the Finance Committee bill. The proposal modified is the
proposal to limit the carry back period of the foreign tax credit.
Under this amendment, the effective date of the foreign tax credit
raiser has been moved out one year to tax years beginning after 1998.
Now, Mr. President, some on the other side may criticize the most
significant new revenue raiser in this package. The target of their
criticism is the proposal to allow more older taxpayers to convert to
Roth IRAs.
As I see it, those criticizing the rollover provision have the
objective of limiting retirement savings choices for taxpayers who
reach the end of their working years. For taxpayers who reach 70\1/2\,
the opponents of the rollover provision are saying those taxpayers
should fall under a more restrictive rule than those taxpayers under
70\1/2\.
If you are over 70\1/2\ and you are a middle income person who has a
healthy IRA or pension plan, the opponents of the rollover provision
are arguing you should not have the choice of a Roth IRA.
Alan Greenspan says America's most important economic problem is its
low savings rate. It is a problem that we must address. The rollover
provision in this amendment is a small step toward resolving our number
1 economic problem.
[[Page S4381]]
Mr. President, I ask unanimous consent that a technical description
of this amendment, and a revised revenue table for the IRS
restructuring bill, prepared by the Joint Committee on Taxation, be
printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Description of Roth Financing Amendment to the Internal Revenue Service
Restructuring and Reform Act of 1998 as Reported by the Senate
Committee on Finance
a. foreign tax credit carryback and carryover periods (sec. 5002 of the
bill)
Under the bill, the provision is effective with respect to
credits arising in taxable years ending after the date of
enactment. Under the modification, the provision would be
effective with respect to credits arising in taxable years
beginning after December 31, 1998.
b. restrict special net operating loss carryback rules for specified
liability losses
Present law
Under present law, that portion of a net operating loss
that qualifies as a ``specified liability loss'' may be
carried back 10 years rather than being limited to the
general two-year carryback period. A specified liability loss
includes amounts allowable as a deduction with respect to
product liability, and also certain liabilities that arise
under Federal or State law or out of any tort of the
taxpayer. In the case of a liability arising out of a Federal
or State law, the act (or failure to act) giving rise to the
liability must occur at least 3 years before the beginning of
the taxable year. In the case of a liability arising out of a
tort, the liability must arise out of a series of actions (or
failures to act) over an extended period of time a
substantial portion of which occurred at least 3 years before
the beginning of the taxable year. A specified liability loss
cannot exceed the amount of the net operating loss, and is
only available to taxpayers that used an accrual method
throughout the period that the acts (or failures to act)
giving rise to the liability occurred.
Description of proposal
Under the proposal, specified liability losses would be
defined and limited to include (in addition to product
liability losses) only amounts allowable as a deduction that
are attributable to a liability that arises under Federal or
State law for reclamation of land, decommissioning of a
nuclear power plant (or any unit thereof), dismantlement of
an offshore oil drilling platform, remediation of
environmental contamination, or payments arising under a
workers' compensation statute, if the act (or failure to act)
giving rise to such liability occurs at least 3 years before
the beginning of the taxable year. No inference regarding the
interpretation of the specified liability loss carryback
rules under current law would be intended by this proposal.
Effective date
The proposal would be effective for net operating losses
arising in taxable years beginning after the date of
enactment.
C. Modification of Minimum Distribution Requirements to Determine AGI
for Roth IRA Conversions
Present law
Under present law, uniform minimum distribution rules
generally apply to all types of tax-favored retirement
vehicles, including qualified retirement plans and annuities,
individual retirement arrangements (``IRAs'') other than Roth
IRAs, and tax-sheltered annuities (sec 403(b)).
Under present law, distributions are required to begin no
later than the participant's required beginning date (sec.
401(a)(9)). The required beginning date means the April 1 of
the calendar year following the later of (1) the calendar
year in which the employee attains age 70\1/2\, or (2) the
calendar year in which the employee retires. In the case of
an employee who is a 5-percent owner (as defined in section
416), the required beginning date is April 1 of the calendar
year following the calendar year in which the employee
attains age 70\1/2\. The Internal Revenue Service has issued
extensive Regulations for purposes of calculating minimum
distributions. In general, minimum distributions are
includible in gross income in the year of distribution. An
excise tax equal to 50 percent of the required distribution
applies to the extent a required distribution is not made.
Under present law, all or any part of amounts held in a
deductible or nondeductible IRA may be converted into a Roth
IRA. Only taxpayers with adjusted gross income (``AGI'') of
$100,000 or less are eligible to convert an IRA into a Roth
IRA. In the case of a married taxpayer, AGI is the combined
AGI of the couple. Married taxpayers filing a separate return
are not eligible to make a conversion.
Description of proposal
The proposal would modify the definition of AGI to exclude
required minimum distributions from the taxpayer's AGI solely
for purposes of determining eligibility to convert from an
IRA to a Roth IRA. As under present law, the required minimum
distribution would not be eligible for conversion and would
be includible in gross income.
Effective date
The proposal would be effective for taxable years beginning
after December 31, 2004.
D. Extension of IRS User Fees
Present law
The IRS provides written responses to questions of
individuals, corporations, and organizations relating to
their tax status or the effects of particular transactions
for tax purposes in the form of ruling letters, determination
letters, opinion letters, and other similar rulings or
determinations. The IRS is directed by statute to establish a
user fee program with respect to such rulings and
determinations. Pursuant to this statutory authorization, the
IRS establishes a schedule of user fees. The statutory
authorization for the IRS use fee program is in effect for
requests made before October 1, 2003 (P.L. 104-117).
Description of proposal
The proposal would extend the IRS user fee program for
requests made before October 1, 2007.
Effective date
The proposal would be effective on the date of enactment.
ESTIMATED REVENUE EFFECTS OF H.R. 2676, THE ``INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998,'' AS REPORTED BY THE SENATE COMMITTEE ON FINANCE AND MODIFIED BY THE ROTH FINANCING
AMENDMENT
[Fiscal Years 1998-2007, in millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Provision Effective 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2002 2003-2007
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Title I. Executive Branch Governance.. .............................. No Revenue Effect
Title II. Electronic Filing........... .............................. No Revenue Effect
Title III. Taxpayer Bill of Rights 3:
A. Burden of Proof................ eca DOE (\1\) -221 -232 -243 -256 -269 -282 -295 -311 -326 -953 -1,483
B. Proceedings by Taxpayers:
1. Expansion of authority to 180da DOE ........ -14 -15 -16 -17 -20 -21 -22 -23 -25 -62 -111
award costs and certain fees
at prevailing rate and CFR
rule 68 provision with net
worth limitation (includes
outlay effects).
2. Civil damages with respect DOE -2 -15 -25 -50 -30 -25 -25 -25 -25 -25 -122 -125
to unauthorized collection
actions (includes outlay
effects).
3. Increase in size of cases pca DOE No Revenue Effect
permitted on small case
calendar to $50,000.
4. Expand Tax Court pca DOE -11 -15 -13 -7 -7 -7 -7 -8 -8 -8 -53 -38
jurisdiction to include
responsible person penalties.
5. Actions for refund with rfa DOE Negligible Revenue Effect
respect to certain estates
which have elected the
installment method of payment.
6. Provide Tax Court pfa DOE (\1\) -5 -2 -2 -2 -2 -2 -2 -2 -2 -11 -10
jurisdiction to review
adverse IRS determination of
a bond issuer's tax-exempt
status.
C. Relief for Innocent Spouses and
Persons with Disabilities:
1. Innocent spouse relief-- iaa & ulb DOE -58 -350 -288 -273 -346 -480 -608 -773 -910 -1,071 -1,315 -3,842
innocent spouses would be
able to elect to be liable
only for tax attributable to
their income (assumes no
interaction with any other
proposal; includes anti-abuse
rule; not innocent if have
actual knowledge of
understatement of tax).
2. Reports on collection bi 1999 No Revenue Effect
activity against spouses.
3. Suspension of statute of (\2\) -10 -70 -35 -15 -16 -17 -18 -19 -20 -21 -146 -95
limitations on filing refund
claims during periods of
disability.
4. Require the IRS to send -nma DOE No Revenue Effect
separate notification to both
spouses by certified mail.
D. Provisions Relating to Interest
and Penalties:
1. Elimination of interest cqba DOE -(\1\) -9 -28 -42 -54 -57 -60 -63 -66 -69 -134 -315
rate differential on
overlapping periods of
interest on income tax
overpayments and
underpayments.
2. Increase refund interest cqba DOE -5 -51 -54 -56 -59 -62 -65 -69 -72 -76 -225 -344
rate to Applicable Federal
Rate (``AFR'') + 3 for
individual taxpayers
(includes outlay effects) \3\.
3. Elimination of penalty on iapma DOE -29 -272 -287 -302 -317 -338 -354 -372 -390 -410 -1,207 -1,864
individual's failure to pay
during installment agreements
(for individuals and timely
filed returns only).
4. Mitigations of failure to dma 180da DOE ........ -47 -64 -64 -65 -66 -66 -67 -68 -68 -240 -335
deposit penalty cascading
(all taxpayers).
[[Page S4382]]
5. Suspend accrual of interest tyea DOE ........ ........ -358 -428 -482 -514 -609 -615 -622 -628 -1,268 -2,988
and penalties if IRS fails to
contact taxpayer within 12
months after a timely-filed
return (except for fraud and
criminal penalties).
6. Notices of interest and na 180da DOE No Revenue Effect
penalties must show
computation.
7. Require management to pa 180da DOE Negligible Revenue Effect
approve non-computer
generated penalties
(excluding failure to file,
pay, or estimated tax
payment).
E. Protections for Taxpayers
Subject to Audit or Collection:
1. Due process for IRS caia 6ma DOE ........ -45 -1 -1 -1 -1 -1 -1 -1 -1 -48 -5
collection actions.
2. Extend the attorney client DOE (\4\) (\4\) (\4\) (\4\) (\4\) (\4\) (\4\) (\4\) (\4\) (\4\) (\5\) (\5\)
privilege to accountants and
other tax practitioners for
tax advice of accountant and
other tax practitioners.
3. Expand the Taxpayer DOE (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\4\) (\4\)
Advocate's authority to issue
taxpayer assistance orders.
4. Limitation on financial DOE No Revenue Effect
status audit techniques.
5. IRS summons of computer sia DOE & pfsib DOE ........ -26 -32 -39 -45 -53 -61 -66 -72 -74 -142 -326
source code.
6. Prohibition on extension of (\6\) -6 -44 -38 -31 -25 -25 -25 -25 -25 -25 -144 -125
statute of limitations for
collection beyond 10 years
with estate tax exception.
7. Notice of deficiency to nma 12/31/98 Negligible Revenue Effect
specify deadlines for filing
Tax Court petition.
8. Refund or credit of DOE Negligible Revenue Effect
overpayments before final
determination.
9. Prohibition on improper DOE No Revenue Effect
threat of audit activity for
tip reporting.
10. Codify existing IRS DOE No Revenue Effect
procedures relating to appeal
of examinations and
collections and increase
independence of appeals
function.
11. Appeals videoconferencing DOE No Revenue Effect
alternative for rural areas.
12. Require IRS to notify 180da DOE ........ (\4\) (\4\) (\4\ (\4\) (\4\) (\4\) (\4\) (\4\) (\4\) (\5\) (\5\)
taxpayer before contacting
third parties regarding IRS
examination or collection
activities with respect to
the taxpayer (does not apply
for criminal cases).
F. Disclosures to Taxpayers:
1. Explanation of joint and 180da DOE No Revenue Effect
several liability.
2. Explanation of taxpayers' 180da DOE ........ -13 (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\5\) (\4\)
rights in interviews with IRS.
3. Disclosure of criteria for 180da DOE No Revenue Effect
examination selection.
4. Explanations of appeals and 180da DOE No Revenue Effect
collection process.
5. Require IRS to explain 180da DOE No Revenue Effect
reason for denial for refund.
6. Statement to taxpayers with 180da DOE No Revenue Effect
installment agreements.
G. Low-Income Taxpayer Clinics
H. Other Taxpayer Rights
Provisions:
1. Cataloging complaints of DOE No Revenue Effect
IRS employee misconduct.
2. Archive of records of IRS.. DOE No Revenue Effect
3. Payment of taxes to the DOE No Revenue Effect
U.S. Treasury\3\.
4. Clarification of authority DOE No Revenue Effect
of Secretary relating to the
making of elections.
I. Studies:
1. Study of penalty and 9ma DOE No Revenue Effect
interest administration and
implementation.
2. Study of confidentiality of 1ya DOE No Revenue Effect
tax return information.
J. Limits on Seizure Authority:
1. IRS to implement approval caca DOE No Revenue Effect
process for liens, levies, or
seizures.
2. Prohibit the IRS from Soa DOE No Revenue Effect
selling taxpayer's property
for less than the minimum bid.
3. Require the IRS to provide soa DOE Negligible Revenue Effect
an accounting and receipt to
the taxpayer (including the
amount credited to the
taxpayer's account) for
property seized and sold.
4. Require the IRS to study DOE & 2 years No Revenue Effect
and implement a uniform asset
disposal mechanism for sales
of seized property to prevent
revenue officers from
conducting sales.
5. Increase the amount exempt cata DOE (\1\) -5 -5 -5 -5 -6 -6 -6 -6 -6 -21 -30
from levy to $10,000 for
personal property and $5,000
for books and tools of trade,
indexed for inflation.
6. Require the IRS to lia DOE Negligible Revenue Effect
immediately release a levy
upon agreement that the
amount is not collectible.
7. Codify IRS administrative DOE No Revenue Effect
procedures for seizure of
taxpayer's property.
8. Suspend collection by levy tyba 12/31/98 Negligible Revenue Effect
during refund suit.
9. Require District Counsel taa DOE Negligible Revenue Effect
review of jeopardy and
termination assessments and
jeopardy levies.
10. Codify certain fair debt DOE No Revenue Effect
collection procedures.
11. Ensure availability of DOE No Revenue Effect
installment agreements.
12. Increase superpriority DOE Negligible Revenue Effect
dollar limits.
13. Permit personal delivery DOE No Revenue Effect
of section 6672(b) notices.
14. Allow taxpayers to quash ssa DOE Negligible Revenue Effect
all third-party summonses.
15. Permit service of ssa DOE No Revenue Effect
summonses by mail or in
person.
16. Provide new remedy for DOE Negligible Revenue Effect
third parties who claim that
the IRS has filed an
erroneous lien.
17. Waive the 10% early la DOE -1 -3 -4 -4 -4 -4 -5 -5 -5 -5 -17 -24
withdrawal penalty when IRA
or qualified plan is levied.
18. Prohibit seizure of DOE Negligible Revenue Effect
residences in small
deficiency cases.
19. Require the IRS to exhaust aa DOE No Revenue Effect
all payment options before
seizing a business or
principal residence.
K. Offers-in-Compromise:
1. Rights of taxpayers DOE (\1\) (\4\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\5\) (\4\)
entering into offers-in-
compromise.
2. Prohibit IRS rejection of osa DOE No Revenue Effect
low-income taxpayer's offer-
in-compromise based on amount
of offer.
3. Prohibit IRS rejection of osa DOE No Revenue Effect
an offer-in-compromise solely
based on a dispute as to
liability because the
taxpayer's file cannot be
located by the IRS.
4. Prohibit the IRS from DOE No Revenue Effect
requiring a financial
statement for offer-in-
compromise based solely on
doubt as to liability.
5. Suspend collection by levy tao/a 60da DOE Negligible Revenue Effect
while offer-in-compromise is
pending.
6. Rejected offers-in- oara DOE No Revenue Effect
compromise and requests for
installment agreements to be
reviewed.
7. Appeals review of rejected osa DOE No Revenue Effect
offers-in-compromise.
L. Additional Items:
1. Prohibit using tax DOE No Revenue Effect
enforcement results to
evaluate IRS employees.
2. IRS notices must contain 60da DOE No Revenue Effect
name and telephone number of
IRS employee to contact.
3. Require approval of use of DOE No Revenue Effect
pseudonyms by IRS employees.
4. National Office conferences DOE No Revenue Effect
without field personnel.
5. Require the IRS to end the DOE No Revenue Effect
use of the illegal tax
protestor label.
6. Modify section 6103 to DOE No Revenue Effect
allow the tax-writing
committees to obtain data
from IRS employees regarding
employee and taxpayer abuse.
7. Publish telephone numbers 1/1/99 No Revenue Effect
for local IRS offices.
8. Alternative to Social DOE No Revenue Effect
Security numbers for tax
return preparers.
9. Expand Alternative Dispute DOE No Revenue Effect
Resolution; binding
arbitration pilot program.
10. Treasury can not implement DOE -8 -36 -10 -6 -3 -3 -2 -1 -1 -1 -63 -8
98-11 regulations for 6
months, with no inference
about transition rules.
11. Require IRS to notify all tyba 12/31/98 (\7\) (\7\) (\7\) (\7\) (\7\) (\7\) (\7\) (\7\) (\7\) -1 -1
partners of any resignation
of the tax matters partner
that is required by the IRS,
and of the identity of any
successor tax matters partner
who was appointed to fill the
vacancy created by such
resignation.
-------------------------------------------------------------------------------------------------------------------------
[[Page S4383]]
Subtotal of Taxpayer .............................. -137 -1,251 -1,499 -1,592 -1,742 -1,957 -2,225 -2,442 -2,635 -2,849 -6,223 -12,110
Protections.
=========================================================================================================================
Title IV. Congressional Accountability .............................. No Revenue Effect
for the IRS.
Title V. Revenue Offsets:
A. Repeal Schmidt Baking with tyea DOE 603 1,141 1,160 141 148 156 163 172 180 189 3,193 860
Respect to Vacation and Severance
Pay.
B. Allow Taxpayers to use foreign ftcai tyba 12/31/98 ........ 84 546 487 454 424 394 271 267 263 1,571 1,619
Tax Credits to Reduce Income for
1 Year Back and Carryforward 7
years.
C. Clarify and Expand Math Error tyea DOE ........ 12 25 26 27 28 29 39 31 32 90 150
Procedures.
D. Freeze Grandfathered Status of tyea 3/26/98 (\8\) 1 3 6 10 14 19 26 35 45 20 139
Stapled or Paired-Share REITs.
E. Make Certain Trade Receivables tyea DOE 33 317 500 333 117 70 73 77 81 85 1,300 386
Ineligible for Mark-to-Market
Treatment With Spread.
F. Add Vaccines Against Rotavirus vpa DOD ........ 1 2 3 4 5 6 6 6 7 10 30
Gastroenteritis to the List of
Taxable Vaccines ($0.75 per dose).
G. Authorize the Federal rda DOE 2 2 3 3 3 3 3 4 4 4 13 18
Government to Offset a Federal
Income Tax Refund to Satisfy a
Past Due, Legally Owing State
Income Tax Debt.
H. Restrict Special Net Operating NOLgi tyba DOE ........ ........ 15 32 42 43 41 40 41 42 89 207
Loss Carryback Rules for
Specified Liability Losses.
I. Disregard Minimum tyba 12/31/04 ........ ........ ........ ........ ........ ........ ........ 2,362 2,854 2,812 ......... 8,028
Distributions in Determining AGI
for IRA Conversions to a Roth IRA.
J. Extend Fee for IRS Letter 10/1/03 ........ ........ ........ ........ ........ ........ 64 67 71 75 ......... 277
Rulings.
-------------------------------------------------------------------------------------------------------------------------
Subtotal of Revenue Offsets. .............................. 638 1,558 2,254 1,031 805 743 792 3,055 3,570 3,554 6,286 11,714
=========================================================================================================================
Title VI. Tax Technical Corrections... .............................. No Revenue Effect
Title VII. Pay-Go Surplus\3\.......... .............................. ........ ........ ........ ........ ........ 29 61 93 97 126 ......... 406
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Net total................... .............................. 501 307 755 -561 -937 -1,185 -1,372 706 1,032 831 63 10
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\1\ Los of less than $1 million.
\2\ Effective for periods of disability before, on or after the date of enactment but would not apply to any claim for refund or credit which (without regard to the proposed provision)
\3\ Estimate provided by the congressional Budget Office
\4\ Loss of less than $5 million.
\5\ Loss of less than $25 million.
\6\ Effective for requests to extend the statute of limitations made after the date of enactment and to all extensions of the statute of limitations on collections that are open 180 days after
the date of enactment.
\7\ Loss of less than $500,000.
\8\ Gain of less than $500,000.
Legend for ``Effective'' column: aa=actions after; bi=beginning in; caca=collection actions commenced after; caia=collection actions initiated after; cata=collection actions taken after;
cqba=calendar quarters beginning after; dma=deposits made after; DOE=date of enactment; eca=examinations commencing after; ftcal=foreign tax credits arising in; iapma=installment agreement
payments made after; la=levies after; laa=liability arising after; lia=levies imposed after; na=notices after; NOLgi=net operating losses generated in; nma=notices mailed after; oara=offers
and requests after; osa=offers-in-compromise submitted after; pa=penalties after; pca=processings commencing after; pfa=petitions filed after; pfsib=protection for summonses issued before;
tia=penalties imposed after; rda=refunds due after; rfa=refunds filed after; sia=summonses issued after; soa=seizures occurring after; Soa=sales occurring after; ssa=summonses served after;
taa=taxes assessed after; tao/a=faxes assess on or after; tyba=taxable years beginning after; tyea=taxable years ending after; ulb=unpaid liability before; vpa=vaccines purchased after;
1ya=1 year after; 6ma=6 months after; 9ma=9 months after; 60da=60 days after; and 180da=180 days after.
Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.
amendment no. 2340
Mr. ROTH. Mr. President, I would now like to turn to the amendment
offered by the Senator from Nebraska, Mr. Kerrey.
Senator Kerrey is offering an alternative pay-for package. I must
oppose Senator Kerrey's package.
The Kerrey amendment contains revenue raisers similar to the Roth
amendment. There are a few additional items that I had considered in
crafting my pay-for amendment.
There, is, however, one very controversial revenue raiser in the
Kerrey amendment. I think it is important that my colleagues focus
their attention on it.
Rather than modifying the rollover rules for Roth IRAs, which would
allow more taxpayers to enjoy the benefits of the Roth IRA, the Kerrey
amendment would reinstate the expired Superfund taxes.
It is an undisputable fact that the present Superfund program needs
immediate, substantial reform. I am a longstanding supporter of the
Superfund program. It is critical that Superfund sites be cleaned up.
It is a shame that the program has floundered over the past several
years. Every Senator should feel the responsibility to get the
Superfund program back up and running at full speed.
The Superfund trust fund received its revenues from excise taxes on
domestic crude oil and imported petroleum products, certain chemicals
and imported derivative products, and a corporate environmental tax.
These taxes expired a couple of years ago. If the taxes are extended,
they will provide the necessary resources for Superfund cleanup
activities.
It is important to maintain the ``connection'' between the Superfund
taxes and the Superfund program. It is the view of our Senior
Republican colleagues on the Environment and Public Works Committee
that this connection is important for both the politics and policy of
Superfund.
Our distinguished colleagues from the Committee on Environmental and
Public Works, in particular, Senator Smith and Senator Chafee, have
worked long and hard on Superfund reform legislation.
They produced a bill, passed it out of committee, and have asked me
to extend the expired Superfund taxes to cover the authorization
period. Senators Smith and Chafee should be commended for moving
Superfund forward, not undercut here on the Senate floor.
I intend to support Senators Smith and Chafee's efforts. As they have
communicated to me, unless the Superfund taxes are enacted directly in
connection with a Superfund reform bill, any hope for the long-needed
changes in this environmental program would be dashed.
In deference to Senators Smith and Chafee, the Finance Committee did
not include an extension of the Superfund taxes in either the IRS
Reform bill that passed our committee unanimously or in the Roth
amendment. I agree with Senators Smith and Chafee that the appropriate
vehicle for extension of the Superfund taxes is their Superfund bill.
As chairman, let me be clear--I pledge to work with Senators Smith
and Chafee on Superfund with respect to the issues within Finance
Committee jurisdiction.
It is my hope that will move forward with a viable Superfund reform
proposal. The recent progress made by the Environment and Public Works
Committee is encouraging.
If you are for Superfund reform, as I am, you need to support
Senators Smith and Chafee. For this reason, I respectfully urge my
colleagues to oppose the Kerrey amendment.
I reserve the remainder of my time.
The PRESIDING OFFICER. Who seeks recognition?
Mr. KERREY addressed the Chair.
The PRESIDING OFFICER. The Senator from Nebraska.
Mr. KERREY. Mr. President, first of all, the choice that the Senate
will be making today really is, the first choice we have to make is do
we want to put another $9 billion of spending in this bill. That is
what the Finance Committee did. And as a consequence we are now trying
to find a pay-for of some kind. I believe it is a perfectly good bill
without that $9 billion worth of additional expenditure, but that is
the threshold question. Do you want to spend an additional $9 billion?
And if you do, the question is, how do you get the money? Where do you
get the money to pay for it?
What we have done in our amendment is included two provisions that
[[Page S4384]]
were included by the chairman of the Budget Committee. The Chairman of
the Budget Committee, Senator Domenici, has advocated these two
provisions as reasonable provisions, and we have included them as a
pay-for. The alternative must be described here in a little more
detail.
It is essentially an accounting gimmick that will be used by people
over the age of 70\1/2\ that will basically enable them to pass to
their heirs, tax free, assets that they currently own. That is what it
is. Members need to know who will be affected by this.
I ask unanimous consent a letter from the Joint Committee on Taxation
be printed in the Record.
There being no objection, the memorandum was ordered to be printed in
the Record, as follows:
Joint Committee on Taxation,
Washington, DC, May 5, 1998.
To: Mark Patterson.
From: Lindy L. Paull.
Subject: Estimated revenue effects of proposal included in
Roth financing amendment to modify rules relating to Roth
IRA conversions.
Included in the proposed Roth Financing Amendment to the
IRS Restructuring bill currently pending on the Senate floor
is a proposal to modify the definition of adjusted gross
income (``AGI'') for purposes of determining the income
limitation of conversions of IRA balances to Roth IRAs,
effective for taxable years beginning after December 31,
2004. The following describes the analysis of the staff of
the Joint Committee on Taxation in preparing estimated
revenue effects of this proposal.
Description of proposal
Under present law, uniform minimum distribution rules
generally apply to all types of tax-favored retirement
vehicles, including qualified retirement plans and annuities,
IRAs other than Roth IRAs, and tax-sheltered annuities (sec.
403(b)).
Distributions are required to begin no later than the
participant's required beginning date (sec. 401(a)(9)). The
required beginning date means April 1 of the calendar year
following the later of (1) the calendar year in which the
employee attains age 70\1/2\, or (2) the calendar year in
which the employee retires. In the case of an employee who is
a 5-percent owner (as defined in section 416), the required
beginning date is April 1 of the calendar year following the
calendar year the employee attains age 70\1/2\. In general,
minimum distributions are includible in gross income in the
year of distribution.
Under present law, all or any part of amounts in a
deductible or nondeductible IRA may be converted into a Roth
IRA. Only taxpayers with AGI of $100,000 or less are eligible
to convert an IRA into a Roth IRA. In the case of a married
taxpayer, AGI is the combined AGI of the couple. Married
taxpayers filing a separate return are not eligible to make a
conversion.
If a taxpayer is required to take a minimum required
distribution from an IRA, the amount of the required
distribution is includible in gross income, and cannot be
rolled over into a Roth IRA.
The proposal would modify the definition of AGI to exclude
the required minimum distribution from the taxpayer's AGI
solely for purposes of determining eligibility to convert
from an IRA to a Roth IRA. As under present law, the required
minimum distribution would not be eligible for conversion and
would be includible in gross income.
revenue estimation assumptions
The proposal targets a fairly narrow, well-defined
taxpaying population who have attained or will attain age
70\1/2\ during the budget period. For purposes of the revenue
estimate, it is assumed that the proposal would be utilized
by a subset of this population. Two classes of taxpayers who
become eligible for the conversion to a Roth IRA as a result
of the proposal have been identified.
(1) Taxpayers who are currently over age 70\1/2\, are
taking a minimum required distribution, and who have AGI in
excess of $100,000. When the proposal becomes effective, some
taxpayers whose AGI would fall below $100,000 if the minimum
required distributions were disregarded would convert to a
Roth IRA. In addition, some taxpayers whose AGI would not
fall below $100,000 under the proposal but who have income
that could be shifted easily from one tax year to another
would convert to a Roth IRA. It is assumed for estimating
purposes that some of these taxpayers would utilize this
income shifting technique under present law to take advantage
of the conversion to a Roth IRA; however, taxpayers whose
minimum required distributions are substantial would be less
able to utilize this technique under present law.
(2) Taxpayers whose AGI exceeds $100,000 and who will
attain age 70\1/2\ during the budget window. These taxpayers
are currently not eligible to convert to a Roth IRA; some of
these taxpayers have income which could be shifted easily
from one tax year to another and might be expected to do such
income shifting in order to make a conversion to a Roth IRA
under present law. Other taxpayers would not be able to shift
income easily and would not be able to utilize the conversion
to a Roth IRA under present law.
Approximately 500,000 taxpayers would be eligible for the
conversion under the proposal during the budget years 2005
through 2007. Of those eligible, we estimate that
approximately 170,000 taxpayers would convert to a Roth IRA.
Mr. KERREY. The Joint Committee on Taxation said, as we all know, it
only affects Americans with retirement income over $100,000 a year.
That is who is affected. So ask yourself how many people in your State
have incomes over $100,000 a year, because that is who it is going to
affect. The Joint Committee on Taxation is saying 170,000 of those
individuals--that is what they are saying, 170,000 of those
individuals--will convert to a Roth IRA. What does that mean? That
means they are going to pay $50,000 each to convert. In order to get $8
million, you have to have an average of $50,000 of taxes paid by each
of these 170,000 people to convert.
You ask yourself, why are they doing it? Love America? Love their
country? Get teary-eyed when they watch the flag go by? No, sir. What
they are doing is saying they would rather pay that extra $50,000
because they know their heirs will not pay any tax on this asset when
it is transferred. That is what happens. It is a substantial reduction
in tax revenue in the 10- to 15-year period at the very moment that
this Senate and this Congress is going to be facing a tremendous
problem of growing entitlements. They are going to force us into a
situation where we will have to be reducing the cost of entitlement
programs. While we are reducing the cost of entitlement programs, the
heirs of very wealthy Americans are going to be receiving income on
which they are paying no tax. That is what this is all about. This is
not about Americans who are under the gun. Remember, of all of the
nearly 40 million Social Security beneficiaries, almost 70 percent of
them have 50 percent of their income being Social Security only; that
is $745 a month.
This is about people over the age of 70\1/2\ with retirement incomes
over $100,000 taking an IRA, converting it to a Roth IRA, paying, on an
average, $47,000 per person for taxes so their heirs don't have to pay
any taxes at the very moment that this Senate is going to be facing
cutting back on benefits to the middle-income Americans. That is the
choice that this proposal presents to us.
We are saying, first of all, on this side we would prefer that we not
add to the cost of the bill. We have. Second, if we are saying we are
going to add to the cost of the bill, let's find something that is more
appropriate than providing a tax break to people right now who,
frankly, not only are they not asking for a tax break, I think it is
very difficult to justify that they need one. Our offset includes a
provision that was recommended by the chairman of the Budget Committee.
In addition, our proposal, our amendment, includes some requests.
I ask unanimous consent a letter sent to the chairman of the Finance
Committee from Commissioner Rossotti be printed in the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
Department of the Treasury,
Internal Revenue Service,
Washington, DC, March 31, 1998.
Hon. William V. Roth, Jr.,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: I am writing to provide the Senate
Finance Committee information about provisions under
consideration as part of the IRS restructuring bill which, in
order to implement, will require changes in IRS computer
information systems.
As is noted in one of the provisions of the restructuring
bill, it is essential that the work needed to make the IRS
computer systems comply with the Century Date Change be given
priority. If these changes are not made and tested
successfully, computer systems on which the IRS directly
depends for accepting and processing tax returns and tax
payments will cease to function after December 31, 1999. In
order to accomplish this change, a massive effort is underway
now and will continue through January 2000. This project, one
of the largest information systems challenges in the country
today, is estimated to cost approximately $850 million
through FY 1999 and requires updating and testing of about
75,000 computer applications programs, 1400 minicomputers,
over 100,000 desktop computers, over 80 mainframe computers
and data communications networks comprising more than 50,000
individual product components. In addition, the data entry
system that processes most of the tax returns must be
replaced.
Most of the work to repair or replace these individual
components must be done prior to the tax season that begins
in January 1999,
[[Page S4385]]
and thus is at its peak during calendar 1998. During this
peak period, the IRS must also make the changes necessary to
implement the provisions of the Taxpayer Relief Act of 1997
which are effective in tax year 1998. These changes are still
being defined in detail but are currently estimated to
require about 800 discrete computer systems changes.
The most critical systems to which these changes must be
made are systems that were originally developed in the
1960's, 1970's and 1980's, and many are written in old
computer languages. A limited number of technical staff have
sufficient familiarity with these programs to make changes to
them. Furthermore, the IRS suffered attrition of 8% of this
staff during FY 97, which attrition has continued at the same
or higher rate until recently. In part, this attrition
reflected the very tight market for technical professionals
as well as a perceived lack of future opportunities at the
IRS.
This extraordinary situation has required the IRS to commit
every available technical and technical management resource
to these critical priorities and to defer most other requests
for systems changes at least during calendar year 1998.
For these reasons, it will not be feasible to make any
significant additional changes to the IRS systems prior to
the 1999 filing season, pushing the start of all additional
work to about the second quarter of calendar 1999.
Furthermore during 1999, a major amount of additional work
will be required to perform the testing to ensure that all
the repaired or replaced components work as expected prior to
January 1, 2000. Given the magnitude of the changes, it is
likely that additional work will be required to repair
defects and problems that will be uncovered during the
testing in the second half of 1999. Thus, while some capacity
to make systems changes is projected to exist in 1999, there
is considerable uncertainty about how much capacity will in
fact be available even during calendar 1999.
With this context in mind, we have attempted to identify
the provisions in the restructuring bill that require
significant changes to computer systems and estimate how much
staff time would be needed to implement these changes. Based
on this very preliminary analysis, we have prepared a list of
recommended effective dates if these provisions are adopted.
In all cases, we would strive to implement the provisions
sooner if possible. In addition, two provisions entail both
significant systems and policy issues. For these items, which
are discussed first, we suggest an alternative approach.
Alternative approach
1. Require that all IRS notices and correspondence contain
a name and telephone number of an IRS employee who the
taxpayer may call. Also, to the extent practicable and where
it is advantageous to the taxpayer, the IRS should assign one
employee to handle a matter with respect to a taxpayer until
that matter is resolved.
Concern: We agree with the objectives of this proposal, but
are concerned because it would entail a total redesign of
customer service systems and would actually move the IRS away
from the best practices found in the private sector. We do
support the proposal that the IRS should assign one employee
to handle a matter with respect to the taxpayer where it is
both practicable and where it is advantageous to the
taxpayer.
The proposal would affect the Masterfile, Integrated Data
Retrieval System (IDRS), and any system supported by IDRS
(including AIMS and ACS). In addition, the proposal is likely
to decrease the customer service we are trying to improve
through our expansion of access by telephone to 7 days a
week, 24 hours a day. The assignment of a particular employee
for a taxpayer contact could actually increase the level
of taxpayer frustration as the named employee may be on
another phone call, working a diffrent shift, or handling
some other taxpayer matter when taxpayers call. In
addition, consistent with private sector practices, we are
currently installing a national call router designed to
ensure that when a taxpayer calls with a question, the
call can be routed to the next available customer service
representative for the fastest response possible.
Proposal: Require that the IRS adopt best practices for
customer service with regard to notices and correspondence,
as exemplified by the private sector. Require that the IRS
report to Congress on an annual basis on these private sector
best practices, the comparable state of IRS activities, and
the specific steps the IRS is taking to close any gap between
its level and quality of service and that of the private
sector. Furthermore, the IRS could be required to put
employee names on individual correspondence; it could require
all employees to provide taxpayers with their names and
employee ID numbers; and, finally, it could record, in the
computer system, the ID number of the employee who takes any
action on a taxpayer account.
2. The proposal would suspend the accrual of penalties and
interest after one year, if the IRS has not sent the taxpayer
a notice of deficiency within the year following the date
which is the later of the original date of the return or the
date on which the individual taxpayer timely filed the
return.
Concern: We agree with the objective of the proposal to
encourage the IRS to proceed expeditiously in any contact
with taxpayers, however, our systems are currently unable to
accommodate some of the data requirements with the speed
necessary to make this proposal workable. In addition, we are
concerned that the proposal could have the perverse incentive
of encouraging taxpayers to actually drag out their audit
proceedings rather than work with the IRS to bring them to a
speedy conclusion. Our administrative appeals process, which
is designed to resolve cases without the taxpayer and the
government incurring the cost and burden of a trial, could
also become a vehicle for taxpayers to delay issuance of a
deficiency notice.
Proposal: Require the IRS to set as a goal the issuance of
a notice of deficiency within one year of a timely filed
return. Mandate that the IRS provide a report to the Congress
on an annual basis that specifies: progress the IRS has made
toward meeting this goal, measures the IRS has implemented to
meet this goal, additional measures it proposes toward the
same end, and any impediments or problems that hinder the
IRS' ability to meet the goal. In addition, the proposal
could reemphasize the requirement that the IRS abate interest
during periods when there is a lapse in contact with the
taxpayer because the IRS employee handling the case is unable
to proceed in a timely manner. The IRS could be required to
provide information on the number of cases in which there is
interest abatement each year in the report.
Effective dates
We propose the following effective dates for specific
provisions. These dates are driven by the capacity of our
information technology systems, not the impact of the policy.
Some of these provisions would be fairly easy to implement,
but in total--and in conjunction with all the other demands
on our information technology resources--it is simply not
feasible to implement them until the dates proposed. If the
situation changes, we will strive to implement the provisions
sooner.
The effective date for many of these changes is January 31,
2000. Given that all of these changes must be made compatible
with the Century Date Change, we believe we will need the
month of January 2000 to ensure all the Century Date Changes
are successful before implementing the provisions listed
below.
Allow the taxpayers to designate deposits for each payroll
period rather than using the first-in-first-out (FIFO) method
that results in cascading penalties. Effective immediately
for taxpayers making the designation at time of deposit.
Effective July 31, 2000 for taxpayers making the designation
after deposit.
Overhaul the innocent spouse relief requirements and
replace with proportionate liability, etc. Effective date:
July 31, 2000. The IRS has no way of administering
proportionate liability with our current systems. This
provision would require significant complex changes to our
systems and is likely to be cumbersome and error-prone for
both taxpayers and the IRS.
Require each notice of penalty to include a computation of
penalty. Effective date: Notices issued more than 180 days
after date of enactment.
Develop procedures for alternative to written signature for
electronic filing. The IRS is already preparing a pilot
project for filing season 1999. Subsequent roll out of
alternatives to written signatures for electronic filing will
depend on the success of the pilot.
Develop procedures for a return-free tax system for
appropriate individuals. This provision should be interpreted
as a study of the requirements of a return-free tax system
and the target segment of taxpayers. Actual implementation
will be based on the findings and conclusions of the study.
Increase the interest rate on overpayments for non-
corporate taxpayers from the federal short-term interest +2%
to +3%. Effective date: July 31, 1999.
Do not impose the failure to pay penalty while the taxpayer
is in an installment agreement. Effective date: January 31,
2000.
Require the IRS to provide notice of the taxpayer's rights
(if the IRS requests an extension of the statute of
limitations). Require Treasury IG to track. Effective date:
January 31, 2000.
Require IRS to provide on each deficiency notice the date
the IRS determines is the last day for the taxpayer to file a
tax court opinion. A petition filed by the specified date
would be deemed timely filed. Effective date: January 31,
2000.
Require the Treasury IG to certify that the IRS notifies
taxpayers of amount collected from a former spouse. Effective
date: January 31, 2000.
Require the IRS to provide notice to the taxpayer 30 days
(90 days in the case of life insurance) before the IRS liens,
levies, or seizes a taxpayer's property. Effective date: 30
days after date of enactment for seizures; January 31, 2000
for liens and levies.
Require the IRS to immediately release a levy upon
agreement that the amount is ``currently not collectible.''
Effective date: January 31, 2000.
Waive the 10% addition to tax for early withdrawal from an
IRA or other qualified plan if the IRS levies. Effective
date: January 31, 2000.
The taxpayer would have 30 days to request a hearing with
IRS Appeals. No collection activity (other than jeopardy
situations) would be allowed until after the hearing. The
taxpayer could raise any issue as to why collection should
not be continued. Effective date: January 31, 2000.
IRS to implement approval process for liens, levies, and
seizures. Effective date: implement procedures manually 60
days after
[[Page S4386]]
date of enactment; implement system for IG tracking and
reporting January 31, 2000.
The following items were proposed in the Administration's
FY 1999 Budget. In conjunction with the other proposals in
this bill, they will also require significant systems
changes:
Eliminate the interest rate differential on overlapping
periods of interest on income tax overpayments and
underpayments.
Prohibit the IRS from collecting a tax liability by levy
if: (1) an offer-in-compromise is being processed; (2) within
30 days following rejection of an offer; and (3) during
appeal of a rejection of an offer.
Suspend collection of a levy during refund suit.
Allow equitable tolling of the statute of limitations on
filing a refund claim for the period of time a taxpayer is
unable to manage his affairs due to a physical or mental
disability that is expected to result in death or last more
than 12 months. Tolling would not apply if someone was
authorized to act on these taxpayers' behalf on financial
affairs.
Ensure availability of installment agreements if the
liability is $10,000 or less.
Finally, we would attempt to immediately implement the
cataloging of taxpayer complaints of employee misconduct and
would stop any further designation of ``illegal tax
protesters.'' However, there may be some systems issues with
regard to these proposals that could delay certain changes
until some time in early 1999.
I look forward to working with you, the Finance Committee,
and the Congress as we strive to restructure the Internal
Revenue Service.
Sincerely,
Charles O. Rossotti.
Mr. KERREY. Our amendment includes something that I urge my
colleagues to consider. My hope is Senator Moynihan will offer this as
a free-standing amendment later. Mr. Rossotti, quite appropriately,
says we have about 600 days before the 31st of December 1999. No one is
more eloquent than the Senator from Utah, Senator Bennett, talking
about the problems that the year 2000 is going to create as a
consequence of having to rewrite all of our computer codes. The
computers will think it is the year 1900 and everything is going to end
up getting shut down, a huge problem for the IRS. Mr. Rossotti is very
much worried. Right now the IRS is a bit behind. He sent us a letter
asking us to delay some of these provisions.
We have not been able to get these scored yet from Joint Tax. I
regret that. It takes a little longer out of Joint Tax than we would
like. We will get that scored before we are through with this debate
and we will be able to reduce some of the offsets in other areas. But I
am urging Members have an opportunity to put themselves on the side of
honoring the request of Mr. Rossotti, who is saying we are not going to
be able to meet that year 2000 problem if a whole series of additional
things are imposed upon us that we have to do.
Understand, we pass the law but the IRS has to implement it. We
change the law, whether it is a Tax Code or some other area of the tax
law, and the IRS is the one that has to organize human beings to get
the job done.
We have an offset in here that has been endorsed by the chairman of
the Budget Committee. We have an offset that does not have us saying to
people with retirement incomes over $100,000 a year here is a way for
you to shelter that income for your heirs. And we have a provision in
here that enables Senators to say we have taken a step to make certain
that at least the IRS is not, in the year 2000, going to cause all
kinds of additional hardships to the American taxpayers as a
consequence of not having their computer system and their software Y2K
compliant.
The PRESIDING OFFICER. Who yields time?
Mr. ROTH. I yield 5 minutes to the distinguished Senator from New
Hampshire.
The PRESIDING OFFICER. The Senator from New Hampshire.
Mr. SMITH of New Hampshire. Mr. President, I thank the distinguished
chairman of the Finance Committee, Senator Roth, No. 1, for recognizing
me, but more importantly for supporting the provision that we should
not use these environmental income taxes, and oil and chemical excise
taxes, for anything but Superfund. I know it was a difficult decision.
I support the Senator fully on the IRS reform which he has done such a
tremendous job on, and on which he has exerted such great leadership. I
commend him for understanding, also, there is another issue here with
Superfund.
This, essentially, with the greatest respect to my colleague from
Nebraska, will just totally destroy the Superfund reform that we have
worked on for some 3\1/2\ years. In order to make the things happen
that we need to make happen in the Superfund Program, these taxes would
have to be reinstituted and used strictly and exclusively for the
Superfund Program. So I vehemently oppose the Kerrey amendment.
I am certain the majority of this body, and I think the majority of
the American people agree that IRS and Superfund have a similarity.
They are both badly broken. They both need to be fixed. But they don't
have to go against each other to do that. These are two separate and
distinct issues.
I support the IRS reform the distinguished chairman is pursuing and I
also support reforming the Superfund Program. It is inappropriate to
utilize Superfund taxes to pay for the cost of IRS. Superfund taxes
should be used to fix Superfund.
For those who have been anxiously waiting for the reform of the
program, help is on the way, I hope, if the Senate will be supportive.
Working with the distinguished chairman of the Environment and Public
Works Committee who is on the floor, Senator Chafee, and through his
leadership we were able to pass a bill out of committee. I am hopeful
the majority of our colleagues will allow that bill to be brought to
the floor and fully debated. Within the next few days the committee's
report will be complete. There are differences on the bill. But I think
clearly no one should be of the opinion that we should use Superfund
taxes; that is, the environmental income tax and the oil and chemical
excise tax, for anything other than to reform that program.
I don't want to get into a full debate now on the problems associated
with Superfund. I will have that opportunity when we get the bill to
the floor. But I just want to say, when Congress established this
program in 1980, the consensus was it would take a few billion dollars
to clean up what we thought were around 400 sites. In order to fund
this program, revenues were collected through these taxes. We
reauthorized the program in 1986, extending the taxing authority. What
has happened is we spent $20 billion of taxpayers' money and we have
only cleaned up about 160 sites; that is 160 sites were removed from
the NPL.
These folks who pay the environmental income taxes, who pay the oil
and chemical excise taxes, rightfully say this program isn't working.
We are paying all this tax money and it is going to lawyers and it is
being wasted and we are not cleaning up sites. Our Superfund bill
clearly expedites cleanup, gets the money away from lawyers and towards
cleanup. To take that money away from this program and provide it for
some other use is simply unconscionable. Although maybe well intended,
it is a serious mistake in terms of the bipartisan consensus that we
have to fix a broken program.
So I am hopeful--I wish the Senator would reconsider his amendment
and I hope this will be defeated.
Mr. KERREY addressed the Chair.
The PRESIDING OFFICER. The Senator from Nebraska.
Mr. KERREY. First of all, as to ``unconscionable,'' we are just
following the lead of the chairman of the Budget Committee who
apparently is unconscionable as well. He had the same proposal in his
budget.
Second, let me say this is not to fund the operation of the IRS. This
basically funds a tax cut. That is what we are talking about. We have
new innocent spouse provisions in this bill and a burden of proof shift
that will result in a reduction of taxes of some American taxpayers.
That is what this pay-for is set up to do.
Let me say these taxes are not imposed until the year 2002. This
gives the Environment and Public Works Committee nearly 3 additional
years. They had 3\1/2\ years now already since this bill expired. My
presumption is 3 years is plenty. I can find an additional offset,
perhaps, and push it back to 2003 if you want an additional year to get
this bill authorized.
This takes care of a second 5-year problem. Again, I say to
colleagues, we are having to deal with this because the Finance
Committee decided to spend $9 billion more, and that $9 billion is
being spent to reduce some people's taxes who are going to pay higher
[[Page S4387]]
taxes as a result of the innocent spouse provision and the burden-of-
proof issue.
We are reducing taxes in one area and we have to find an offset. It
seems to me, Mr. President, that Senator Domenici's recommendation is
correct. By delaying this until 2002, we take away the argument the
distinguished Senator from New Hampshire had about destroying the
Superfund Program. This gives the Environment and Public Works
Committee 3\1/2\ years to finish their job.
Mr. CHAFEE addressed the Chair.
The PRESIDING OFFICER. Who yields time?
Mr. ROTH. Mr. President, I yield 10 minutes to the distinguished
Senator from Rhode Island.
The PRESIDING OFFICER. The Senator from Rhode Island.
Mr. CHAFEE. Mr. President, I thank the distinguished chairman of our
Finance Committee for yielding me some time on this matter.
I rise to oppose the amendment offered by the Senator from Nebraska.
This amendment offers the Senate an alternative to the Finance
Committee's plan to pay for the tax relief provided in the IRS reform
bill, but the reality is that the Kerrey amendment would prevent
meaningful Superfund reform. The amendment, I believe strongly, should
be rejected.
I oppose this amendment, obviously, but let me tell you what I do
support. I support reimposition of the Superfund taxes. I also support
reasonable Superfund reform. We will need to reimpose the three
Superfund taxes--namely, the corporate environmental income tax, the
excise taxes on crude oil and the excise tax on chemical feedstock--to
provide the revenue to pay for a fairer Superfund Program.
Why do I keep talking about Superfund? Mr. President, the Committee
on Environment and Public Works reported a Superfund bill to the floor
6 weeks ago. Just yesterday, the committee received CBO's estimate on
the bill. As we expected, we will need to reimpose the Superfund taxes
in order to pay for the Superfund reforms and the Superfund
reauthorization. In other words, if we gobble up this money now in
connection with the IRS reforms, the money won't be there for the
Superfund bill which we are moving along now and which has used in the
past these very funds; in other words, these are Superfund taxes.
The Kerrey amendment, if adopted, would prevent meaningful reform of
the Superfund Program. I could discuss at length the numerous problems
that plague Superfund. There is no question it has a lot of
difficulties. I am prepared to explain the solutions we propose in our
comprehensive Superfund bill that is on the floor now, but it is not
necessary to do that today.
While the Environment and Public Works Committee reported our
Superfund bill on an 11-to-7 vote--there are 18 members of our
committee, 10 Republicans and 8 Democrats--the bill was reported out in
really a nearly partisan vote by 11 to 7 with only one Democratic
Senator in support. However, there is bipartisan consensus that the
Superfund has to be reformed.
There wasn't, obviously, agreement with the way the Republicans on
the committee wanted to proceed, but, nonetheless, there is agreement
that the Superfund legislation needs to be reformed. Indeed, I see the
ranking member of the committee now, and he devoted many hours of his
time to this effort for reform.
He also knows it will be necessary to offset the spending in any
Superfund reform by reimposing these Superfund taxes. This was the case
when Senator Baucus chaired the committee and reported a Superfund bill
in 1994, and it still remains the case today. If we are going to have
Superfund reform, we are going to need these moneys that now are
apparently being seized or attempting to be seized by Senator Kerrey to
use for this other purpose; namely, the IRS changes.
The Kerrey amendment would preclude any meaningful reform of the
Superfund Program. In other words, how are we going to pay for the
thing? We wouldn't be able to if this Kerrey amendment is adopted.
The real issue before us is whether the Senate wants to abandon
Superfund reform. If we do, then go ahead and vote for the Kerrey
amendment. If you don't, if you want Superfund to take place and do
something about the brownfields redevelopment, for example, we have to
have these moneys. There aren't other revenues around that we can use.
The Kerrey amendment would preempt reform. The amendment would
frustrate any Superfund reform efforts. I believe it is bad public
policy to take these taxes and use them to pay for tax relief in the
absence of Superfund reform.
Mr. President, I strongly hope this amendment will be rejected and
that we can all agree we are saving these Superfund taxes. They will
have to be reimposed at sometime when we get a reauthorization of the
Superfund legislation, but let's save them for that purpose, the
purpose they have been used for in the past and the purpose I believe
they should be used for in the future.
I thank the Chair, and I urge my colleagues to support the Roth
amendment and to reject the Kerrey amendment.
Mr. BAUCUS addressed the Chair.
The PRESIDING OFFICER (Mr. Enzi). Who yields time?
Mr. KERREY. I yield such time as necessary to the Senator from
Montana.
The PRESIDING OFFICER. The Chair recognizes the Senator from Montana.
Mr. BAUCUS. Mr. President, I thank my friend from Nebraska.
I strongly support the Kerrey amendment for several reasons. First,
the funding mechanism provided for in the manager's amendment to the
underlying bill, while creative and it meets the technical requirements
of the budget rules, it is also very misleading. The rollover
provisions in the managers' amendment do raise $8 billion in the first
5 years that the provision will be in effect, but that same provision
loses $7 billion in the second 5 years--a clear revenue loss.
Here we are in the underlying amendment saying, ``OK, early on, we'll
raise the revenue,'' but we don't tell the rest of the world,
particularly the Congress and Senators who are voting on this, that we
are going to lose $7 billion in the next 5 years.
Part of our efforts in the Congress, I hope, have been truth in
budgeting not just in the first 5 years, but also beyond, in the next 5
years. Too often, this Congress has, unfortunately, hoodwinked people--
the President has been part of it, both administrations, in the last 10
to 15 years--by saying, ``OK, we will meet the budget requirements in
the first 5 years, but we won't tell everybody what we are doing in the
next 5 years,'' and often in the next 5 years, if not disastrous, it is
inimical to the American people because it tends to increase deficits
rather than decrease. That is a fact. To the credit of this
administration, it has tried to be truthful not only in the first 5
years, but also the next 5 years, and so has the Congress.
Here we are with an underlying amendment which goes totally against
that effort on the part of good, solid statesmanlike Senators to be
truthful not only in the first 5 years, but the next 5 years.
This amendment increases the deficit because it costs $7 billion more
in the next 5 years. That is not right. We shouldn't be doing that.
That is what this amendment does. This is a gimmick. It is purely and
simply a gimmick, and that is why it is a bad idea.
The Kerrey amendment, on the other hand, raises revenue in several
ways. One is by postponing some of the effective dates of the
provisions. Why is that important? Not only because it raises revenue,
that is only of minor importance, but the major reason is because we
all know, Mr. President, this country faces a massive problem in the
next year or two with the fancy term Y2K. It is computer conversion to
the next millennium.
We know that most computers in our country, whether it is in the IRS,
whether it is in the companies, have a system where they have two
digits for the date, two digits for the month, and two digits for the
year. What is today? Today is May 6, 1998. So it would be 05-06-98.
That is how the computers record today's date. All computers do that.
So we get to December 1999--12-30-99, 12-31-99, and next is 01-01-00.
Now, we like to think that is January 1, 2000, but most computers today
will record that as January 1, 1900, because two zeros are treated as
1900, not 2000. Massive problems.
[[Page S4388]]
It is going to cost the IRS, to convert these computers just to meet
this conversion problem, $1 billion--$1 billion just to convert. That
is to say nothing of all the other costs to comply with new changes in
the law.
So the Kerrey amendment is very, very logical. It is safe. Maybe a
little on the conservative side. It says, let us delay the effective
dates of some of these new provisions. Why? Because we do not want to
further complicate the conversion problem.
This IRS restructuring bill is going to further complicate the
conversion problem--further complicate it--not lessen, but further
complicate it. So Senator Kerrey says, well, let us not do the gimmick,
let us delay the effective date a little bit, and let us also delay the
effective date to take care of the Y2K problem, the conversion problem.
The underlying amendment, the manager's amendment--I have the highest
regard for my friend from Delaware, the chairman of the committee--does
not delay, therefore, further causes a problem for the IRS to convert
and is much more expensive. It also comes up with a way to get revenue,
which is a gimmick.
Some on the floor have said that extending the Superfund tax will
prevent the enactment of Superfund. That is not true, just basically is
not true. What is the advantage of using the extension of the Superfund
tax? I will give you several.
One, it is not a gimmick. It is straight. It is right there. People
know what it is. It is not a gimmick. Second, it is a tax that
everybody knows about, is comfortable with. Sure, it expired a couple
years ago, but everybody knows who pays the tax, what the tax is; and
it would be extended I think to the year 2000, which means that the
revenue is there.
Let us say Congress does enact Superfund. And I sure hope it does. I
say, Mr. President, we have been working on Superfund for a long time.
Let us say we enact Superfund. I hope we do. That does not mean it
cannot be enacted because previously we extended the Superfund tax. Not
at all. The Superfund tax we talk about here is not offset against the
Superfund. It is not offset against--it is there. It is revenue and
held in a pot to pay for the bill.
We can still enact Superfund. And, frankly, the underlying tax bill
still pays part of Superfund. The Superfund bill will still go to the
Finance Committee. The Finance Committee is pretty creative in figuring
out ways to find the additional revenue, which will not be very much,
basically to pay for the orphan share, the effect of the later date.
There is no rocket science in the choice of the standards we have
before us.
On the one hand it is the underlying amendment, which is a gimmick,
which is deceiving the taxpayers, which will require this body to come
up with $7 billion more revenue than otherwise is the case because we
are widening the budget deficit, not decreasing it in the second 5
years.
Also, on that amendment--let me say it again. First is the underlying
amendment. It further complicates the conversion problem. It is a
gimmick. That is one choice. The other choice is to enact a revenue
measure which is not a gimmick and which will not further complicate
the conversion problem. That is the case.
Mr. President, I think the choice is pretty simple. I think it is
pretty straightforward. I think, accordingly, we should put politics
aside. I know the majority party is going to vote for the amendment
because that is what they are told to do. That is the drill. You vote
for that one. But if you step back and think a little bit about what is
really going on here, I hope both parties can find a way to come
together, find a way not to further complicate the conversion problem
and to pass a revenue-raising measure that is not a gimmick.
Believe me, Mr. President, the Kerrey amendment is certainly the
beginnings of that. Maybe with further modifications we can come
together to finally get this thing passed.
Mr. KERREY addressed the Chair.
The PRESIDING OFFICER. The Chair recognizes the Senator from
Nebraska.
Mr. KERREY. I thank you, Mr. President.
First, I want to make it clear again what we are doing here. We are
trying to come up with an offset for $9 billion worth of additional
cost that the Senate bill has that the House bill does not. It is $9
billion worth of additional loss of revenue, $9 billion of loss of
revenue that occurs as a consequence of changes that we are making in
the tax law. Somebody will pay less taxes. That is essentially what
this amounts to.
Mr. President, we tried to ascertain who was going to benefit from
these changes. I think it is very important as we look at our tax law
that we ask ourselves--since the vast majority of our taxes come from
middle-income Americans and there is a significant concern on their
part as to whether or not they are paying their fair share, we tried to
get some distributional analysis on this thing to find out who is going
to benefit from the innocent spouse provisions, the burden of proof
shifts, and the Tax Court. Not many Americans go to Tax Court. There is
a provision in here as well that has to do with interest being
accumulated.
Unfortunately, Joint Tax was not able to give us a distributional
analysis. So we are flying a little bit blind and not able to describe
who is going to benefit from these provisions. The underlying issue for
us, though, is we now have to find $9 billion.
We have a proposal. Chairman Roth has a proposal. I alert colleagues,
by the way, what I think will likely happen. My guess is the majority
will all vote for the Roth amendment and that will pass. And if it does
pass, I will not insist on a rollcall vote on the alternative
amendment. There are other alternatives that we can come up with.
The baseline question is going to be for us, after the Roth amendment
is accepted: How comfortable do you feel with the provisions in it? So,
you will have rejected the alternative amendment, fine. Let us reject
the alternative amendment. But remember this: This law now is going to
contain a provision in there that is going to do something for certain
taxpayers. Approximately 170,000 taxpayers will be affected by this
provision in the law.
How will they be affected? That is the question we have to ask
ourselves. The answer is, they are going to be entitled to pay more
taxes early on, approximately--the estimate is $47,000 per taxpayer.
They will pay about $8 billion total. And then they will not pay any
taxes in the outyears. When they convert, they will not pay any taxes.
We are trying to ascertain what the outyear costs are going to be for
this program, Mr. President.
I ask unanimous consent that a response from Joint Tax to this
question be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Congress of the United States,
Joint Committee on Taxation,
Washington, DC, May 5, 1998.
To: Mark Patterson.
From: Lindy L. Paull.
Subject: Revenue Request.
This is in response to your telephone request of May 5,
1998, for a revenue estimate of a proposal which would expand
the eligibility for conversions to Roth individual retirement
arrangements (``IRAs'')
Under present law, uniform minimum distribution rules
generally apply to all types of tax-favored retirement
vehicles, including qualified retirement plans and annuities,
IRAs other than Roth IRAs, and tax-sheltered annuities (sec
403(b)).
Distributions are required to begin no later than the
participant's required beginning date (sec. 401(a)(9)). The
required beginning date means April 1 of the calendar year
following the later of (1) the calendar year in which the
employee attains age 70\1/2\, or (2) the calendar year in
which the employee retires. In the case of an employee who is
a 5-percent owner (as defined in section 416), the required
beginning date is April 1 of the calendar year following the
calendar year the employee attains age 70\1/2\. the Internal
Revenue Service has issued extensive regulations for purposes
of calculating minimum distributions. In general, minimum
distributions are includible in gross income in the year of
distribution.
Under present law, all or any part of amounts in a
deductible or nondeductible IRA may be coverted into a Roth
IRA. Only taxpayers with adjusted gross income (``AGI'') of
$100,000 or less are eligible to convert an IRA into a Roth
IRA. In the case of a married taxpayer, AGI is the combined
AGI of the couple. Married taxpayers filing a separate return
are not eligible to make a conversion.
If a taxpayer is required to take a minimum required
distribution from an IRA for a year, the amount of the
required distribution
[[Page S4389]]
is includible in gross income, and cannot be rolled over into
a Roth IRA.
The proposal would modify the definition of AGI to exclude
the required minimum distribution from the taxpayer's AGI for
the year of the conversion for purposes of determining
eligibility to convert from an IRA to a Roth IRA. The
required minimum distribution would not be eligible for
conversion.
The proposal would be effective for years beginning after
December 31, 1997. We estimate that the proposal would change
Federal fiscal year budget receipts as follows:
Fiscal Years: Billions
1998............................................................(*)
1999...........................................................$2.6
2000............................................................3.1
2001............................................................3.1
2002...........................................................-0.9
2003...........................................................-1.0
2004...........................................................-1.2
2005...........................................................-1.4
2006...........................................................-1.5
2007...........................................................-1.7
1998-2002.......................................................7.8
1998-2007.......................................................1.1
(*) Gain of less than $50 million.
Note: Details do not add to totals due to rounding.
Congress of the United States,
Joint Committee on Taxation,
Washington, DC, May 5, 1998.
To: Nick Giordano and Maury Passman.
From: Lindy L. Paull.
Subject: Request for Distributional Effects.
This is in response to your request dated April 23, 1998,
for the distributional effects of provisions contained in
H.R. 2676, the ``Internal Revenue Service Restructuring and
Reform Act of 1998'' relating to: (1) the burden of proof;
(2) innocent spouse relief; and (3) the suspension of accrual
of interest and penalties if the Internal Revenue Service
(``IRS'') fails to contact the taxpayer within 12 months
after a timely filed return.
We can not provide analyses of the distributional effects
of these types of proposals. In general, the information used
to prepare estimates for these types of proposals does not
come from statistical samples of taxpayer return information,
but from various operational data bases within the IRS
collectively referred to as administrative data.
Administrative data does not contain the type of taxpayer
income information necessary to prepare a distributional
analysis. Moreover, often the data are in an aggregate form
so that individual taxpayers can not be identified. As a
result, there would be an enormous amount of uncertainty
involved in characterizing the income distribution of
taxpayers contained in this type of data. Should you wish to
discuss this request any further, please feel free to contact
me.
Mr. KERREY. Mr. President, what happens is that in the first 5 years
that this provision is in effect, Joint Tax is estimating there will be
$2.6 billion of additional revenue coming in year 1; $3.1 billion in
year 2; $3.1 billion in year 3. Americans with incomes over $100,000,
who are 70.5 years of age or older, $100,000 of retirement income or
more, they will be converting existing accounts into Roth IRA accounts,
and paying, on average, $47,000 for the privilege of doing that. In the
year 2002, we will lose $1 billion; in 2003, we will lose $1 billion;
in 2004, it goes to $1.2 billion we lose; in 2005, we lose $1.4
billion; in 2006, we lose $1.5 billion; and in 2007, we lose $1.7
billion. The trend line is up.
I remind my colleagues, in the year 2010, we will see the beginnings
of the retirement of 77 million Americans called baby boomers. If you
look at the cost, the outyear cost of our mandatory programs, you can
see clearly what is going to happen.
In order to fund a tax cut for Americans who have $100,000 a year of
retirement income and up, because their heirs or whoever is converting
and not going to pay any taxes on this income, in order to fund a
growing tax cut for these individuals, we are going to be cutting
programs for middle-income Americans. It is an inescapable thing that
we will be facing.
So, again, I want my colleagues to understand, issue No. 1 is, do you
want to spend another $9 billion to reduce the taxes of Americans who
have been affected by innocent spouses who go to Tax Court or who have
other problems that are identified in this bill? If the answer is yes,
then you have to find an offset. And what we have is the chairman's
proposal to reduce the taxes of upper-income Americans, or more likely
their heirs, at some point out in the future, and that point is the
very point when our mandatory programs are going to be squeezing all of
our discretionary programs even worse than they are today.
My expectation is the majority will come down and vote for the
amendment that the Senator from Delaware has offered, the chairman of
the Finance Committee. As I said, I will not insist on a rollcall vote
on ours.
Colleagues, I hope both Republican and Democrats will look at this
pay-for. It will not be too late for us to change it. We can still
change it on this floor. We can change it in conference. I don't think
when you examine the details of this pay-for that you will be very
comfortable going home to Nebraska or other States, first of all,
finding somebody who has over $100,000 worth of retirement income and
saying, ``Congratulations, your heirs won't pay any taxes on whatever
asset you convert to a Roth IRA.''
Mr. DORGAN. Will the Senator yield?
Mr. KERREY. I am happy to yield to the Senator.
Mr. DORGAN. I venture to say most Members of the Senate are not very
familiar with this issue because the bill was brought to the floor and
a mechanism to pay-for--it is brought to the floor this morning; I
guess it was disclosed yesterday.
As I looked at it, it seems to me it is exactly as the Senator from
Nebraska described. But even more than that, it is a device by which
you bring some money here and say this is really paid for but. In fact,
the cost in the outyears is very substantial.
It is just a timing issue, kind of a clever timing issue, but in my
judgment not a very thoughtful way to do this bill.
Mr. KERREY. The Senator from North Dakota is exactly right.
I hope colleagues will look at this letter from the Joint Tax
Committee. This is the tip of the iceberg. The tax only scores 10 years
out. They are saying, yes, Americans with over $100,000 in retirement
income converting to a Roth IRA pay $47,000 in taxes each, and that
will add to $2.6 billion by year 1, 2, 3, but after that it starts to
cost more and more money as the individuals convert and don't pay any
tax on their income. That is basically what will happen--and it grows.
I say to the Senator from North Dakota, not only are you exactly
right, but in the fourth year it costs $900 million and in the 10th
year it is $1.7 billion. It is going up. This is less taxes that upper-
income Americans will pay on these retirement accounts. As I said, it
is apt to be the heirs.
Who will pick up the slack? We know who will pick up the slack. If
this amendment is accepted, which I suspect it will, I hope colleagues
will look at the details of it. If you want to spend another $9 million
in the second 5 years to pay for all the things that we added in the
Senate Finance Committee, most of which are good and reasonable, if you
want to add those provisions, the question is how will you pay for it.
My hope is that we will find an alternative to this.
Mr. DORGAN. If the Senator will yield, I think I understood the
Senator to say you were not able to get any burden tables or
distribution tables to determine who gets the benefit of this proposal.
That is troublesome because when ideas are brought to the floor as late
as this, you are unable to get information about who this is going to
benefit and how.
Mr. KERREY. The Senator is right.
Title 3 of the bill is called the taxpayer rights provision. I worked
very hard on those provisions. We extended lots of new taxpayer rights.
In the bill that Senator Grassley and I introduced in the Finance
Committee--and I voted for it--we added some additional rights.
The problem is we don't know who will benefit from those tax
reductions. We know three principal provisions cost us money. One is
the shifting of burden of proof in Tax Court. For citizens, they need
to ask themselves, do they go to Tax Court? If they don't go to Tax
Court and don't have the experience on a regular basis in Tax Court,
they will not bill.
The second provision is called innocent spouse relief. They have to
ask, will that affect me? Seventy percent of Nebraskans do not itemize
their deductions. They will not be impacted by the second one.
The third one, the suspension of the accrual of interest and
penalties if the IRS fails to contact the taxpayer within 12 months
after a timely filed return. Again, ask yourself who will be affected
by this? We were unable, I regret, to get from the Joint Tax Committee
an answer to that. We don't know who will benefit from those three
additional provisions, but that is what is costing us the money. That
is why we have to find some kind of an offset.
[[Page S4390]]
As I said, I understand the die is likely to be cast and we will
probably have 55 votes for the Roth amendment and 45 votes against. I
will not ask for a rollcall vote on our alternative, but I appeal both
to Republicans and Democrats on the floor to examine what it is we are
about to do and ask ourselves, do we want to open up a hole in revenue
in the outyears as a consequence of these conversions that will benefit
a relatively small number of Americans who have retirement income in
excess of $100,000 a year.
Mr. President, I yield the floor.
The PRESIDING OFFICER. The Chair recognizes the Senator from
Delaware.
Amendment No. 2339
Mr. ROTH. Mr. President, as I mentioned earlier, Alan Greenspan says
that America's most important economic problem is its low savings rate.
With that, I agree. As a practical matter, I have done my very best the
last several years to try to build the kind of incentives into the tax
picture that would promote savings on the part of the American people.
The rollover provision in this amendment is a small step toward
resolving our No. 1 economic problem.
Just let me point out what we are saying. What we are proposing is
letting older people keep the money that they have saved. We are not
asking them to do anything that others are not able to do. As a
practical matter, the way the system now works, it discriminates
against the older people. The problem is that if you are under the age
of 70\1/2\, there is no requirement that you make withdrawals from your
IRA. It is only when you reach 70\1/2\ that you are required to do so
under the deductible IRA. So there is a built-in discrimination against
the senior citizens. I think that is wrong.
Again, let me emphasize what we are talking about. What we are
proposing is to treat these older Americans, those that are over 70\1/
2\, to have the same kind of treatment as those that are younger than
70\1/2\. As I said, if you are under 70\1/2\ there is no requirement of
withdrawals, and of course the basic problem is that if you have income
in excess of $100,000 you are not entitled to this benefit.
Let me correct one further point that has been made. My distinguished
friend and colleague, Senator Kerrey, has said that the purpose of the
IRA rollover provision is to allow heirs to escape payment of estate
taxes. That is just not the case. If the IRA is part of the estate,
then the individual who passes on is subject to the estate tax. If he
or she tries to give it during the lifetime to someone else, and it is
a permanent irrevocable gift, then it is subject to the gift tax. So
there is no escaping of estate taxes by this provision.
Let me just say, as we all know, the Roth IRA has become a very
popular savings vehicle. A taxpayer, as I said, who has a regular IRA
may convert their regular IRA into a Roth IRA as long as the taxpayer
and the taxpayer's spouse have adjusted income of $100,000 or less.
Again, let me repeat, older Americans are now required to receive
minimum distribution from their regular IRA on an annual basis
beginning in the year following the year they attain the age of 70\1/
2\. Those required distributions must be counted, under current law, as
part of the older taxpayer-adjusted gross income, which in some
instances will cause these older Americans to become ineligible to roll
over their IRAs.
My amendment gives these older taxpayers the opportunity to roll over
their IRAs into Roth IRAs by not counting these required minimum
distributions toward $100,000 adjusted growth income.
It is only fair, in my judgment, that these older taxpayers are given
the same ability to roll over their IRAs and not be penalized because
they must take distribution from their regular IRA solely because of
their age.
Let's be clear here, the revenue cost by this provision comes from
taxpayers who will pay tax on their regular IRA when they convert to
the Roth IRA. These conversions are entirely voluntary on the part of
the taxpayers.
Mr. President, I ask the Members of this distinguished body to
support the Roth amendment because I think it brings equity into the
picture and only treats the senior citizens the same as the younger.
Mr. KERREY addressed the Chair.
The PRESIDING OFFICER. The Senator from Nebraska is recognized.
Mr. KERREY. Mr. President, as I said, the die is cast on this thing.
This amendment is going to be accepted. The question is, Will we have
any reexamination moment? We will reexamine what we are about to do?
Again, this affects people with incomes over $100,000 in retirement
income. To get $100,000 in retirement income, I am probably going to
have to have a million or more dollars in liquid assets that are
earning this income. I would probably have tax-exempt bonds that I own
as well. This is a very select group of people. We are not penalizing
them; we are treating them like everybody else. I am capable of feeling
sympathy for low- and moderate-income seniors who are struggling to pay
for health care bills, and about making certain that Americans have the
opportunity to save. But we are not helping Americans who are
struggling to save with this. These are Americans who have accumulated
a substantial amount of wealth.
If we want to help struggling Americans, we ought to cut the payroll
tax, as Senator Moynihan is proposing, giving Americans an $800 billion
cut in taxes; that would go immediately into savings. That is exciting
to me. And 98.5 percent of Americans die with estates under $600,000.
We are talking about 1.5 percent of the American people who have
estates over $600,000. You have to have an estate over a million
dollars in order to generate $100,000 worth of income.
Please don't tell me that tax lawyers and tax advisers can't figure
out a way to transfer this to your heirs. If that assertion is made by
a colleague, let's bring a tax adviser in before one of our committees
and ask them. It darn sure can, and they darn sure will.
This provides a benefit for a very small amount of Americans, and,
frankly, it is very difficult to make the case that they need a
benefit. They are not treating them in a fashion that is equal; they
are treating them unequally with other Americans who are in the
workforce and might be looking to retirement accounts as well.
Mr. President, this pay-for ought to be rejected by this body; it is
going to be accepted nonetheless. I hope we have some ``morning after''
doubts about this, after examining whom it is going to benefit and the
dilemma it will pose to us down the road. I don't know how many in this
body expect to be here 6, 7, 8 years from now, but if you are here, one
of the questions you are going to have to answer is: Why did you give
away $2 billion a year back in 1998 to less than 1 percent of the
American public, who are not struggling, who are not foraging in the
alley for food, and they are not trying to figure out how to make ends
meet? They will use this change in the law to transfer an asset to
heirs, and their heirs won't pay any taxes as a consequence.
Mr. President, as I say, I know when it is time, if not to accept
defeat, to acknowledge it. I expect 55 Republican votes for this
amendment. I do not intend to ask for a rollcall vote on the
substitute, but I hope my colleagues, as they begin to examine what
this amendment does, will ask that we come back and revisit the pay-for
for the second 5 years.
I yield back whatever time I have.
Amendment No. 2340, As modified
Mr. KERREY. Mr. President, as I indicated earlier, I have to ask for
one modification. It is a date on page 2, line 2. In the earlier
unanimous consent request, I indicated that I might need to modify our
amendment.
I send the modified amendment to the desk, as described.
The PRESIDING OFFICER. The amendment is so modified.
The amendment (No. 2340), as modified, is as follows:
Beginning on page 277, line 4, strike all through page 279,
line 25.
On page 280, line 1, strike ``3105'' and insert ``3104''.
On page 282, line 11, strike ``3106'' and insert ``3105''.
On page 286, line 1, strike ``3107'' and insert ``3106''.
On page 309, lines 7 and 8, strike ``the date of the
enactment of this Act'' and insert ``September 1, 1998''.
On page 399, line 24, strike ``the date of the enactment of
this Act'' and insert ``December 31, 2001''.
On page 400, lines 4 and 5, strike ``the date of the
enactment of this Act'' and insert ``December 31, 2001''.
[[Page S4391]]
On page 415, between lines 16 and 17, insert:
SEC. 5007. CLARIFICATION OF DEFINITION OF SPECIFIED LIABILITY
LOSS.
(a) In General.--Subparagraph (B) of section 172(f)(1)
(defining specified liability loss) is amended to read as
follows:
``(B) Any amount (not described in subparagraph (A))
allowable as a deduction under this chapter which is
attributable to a liability--
``(i) under a Federal or State law requiring the
reclamation of land, decommissioning of a nuclear power plant
(or any unit thereof), dismantlement of an offshore drilling
platform, remediation of environmental contamination, or
payment of workmen's compensation, and
``(ii) with respect to which the act (or failure to act)
giving rise to such liability occurs at least 3 years before
the beginning of the taxable year.''
(b) Effective Date.--The amendment made by this section
shall apply to net operating losses arising in taxable years
beginning after the date of the enactment of this Act.
SEC. 5008. PROPERTY SUBJECT TO A LIABILITY TREATED IN SAME
MANNER AS ASSUMPTION OF LIABILITY.
(a) Repeal of Property Subject to a Liability Test.--
(1) Section 357.--Section 357(a) (relating to assumption of
liability) is amended by striking ``, or acquires from the
taxpayer property subject to a liability'' in paragraph (2).
(2) Section 358.--Section 358(d)(1) (relating to assumption
of liability) is amended by striking ``or acquired from the
taxpayer property subject to a liability''.
(3) Section 368.--
(A) Section 368(a)(1)(C) is amended by striking ``, or the
fact that property acquired is subject to a liability,''.
(B) The last sentence of section 368(a)(2)(B) is amended by
striking ``, and the amount of any liability to which any
property acquired from the acquiring corporation is
subject,''.
(b) Clarification of Assumption of Liability.--Section
357(c) is amended by adding at the end the following new
paragraph:
``(4) Determination of amount of liability assumed.--For
purposes of this section, section 358(d), section
368(a)(1)(C), and section 368(a)(2)(B)--
``(A) a liability shall be treated as having been assumed
to the extent, as determined on the basis of facts and
circumstances, the transferor is relieved of such liability
or any portion thereof (including through an indemnity
agreement or other similar arrangement), and
``(B) in the case of the transfer of any property subject
to a nonrecourse liability, unless the facts and
circumstances indicate otherwise, the transferee shall be
treated as assuming with respect to such property a ratable
portion of such liability determined on the basis of the
relative fair market values (determined without regard to
section 7701(g)) of all assets subject to such liability.''
(c) Application to Provisions Other Than Subchapter C.--
(1) Section 584.--Section 584(h)(3) is amended--
(A) by striking ``, and the fact that any property
transferred by the common trust fund is subject to a
liability,'' in subparagraph (A),
(B) by striking clause (ii) of subparagraph (B) and
inserting:
``(ii) Assumed liabilities.--For purposes of clause (i),
the term `assumed liabilities' means any liability of the
common trust fund assumed by any regulated investment company
in connection with the transfer referred to in paragraph
(1)(A).
``(C) Assumption.--For purposes of this paragraph, in
determining the amount of any liability assumed, the rules of
section 357(c)(4) shall apply.''
(2) Section 1031.--The last sentence of section 1031(d) is
amended--
(A) by striking ``assumed a liability of the taxpayer or
acquired from the taxpayer property subject to a liability''
and inserting ``assumed (as determined under section
357(c)(4)) a liability of the taxpayer'', and
(B) by striking ``or acquisition (in the amount of the
liability)''.
(d) Conforming Amendments.--
(1) Section 351(h)(1) is amended by striking ``, or
acquires property subject to a liability,''.
(2) Section 357 is amended by striking ``or acquisition''
each place it appears in subsection (a) or (b).
(3) Section 357(b)(1) is amended by striking ``or
acquired''.
(4) Section 357(c)(1) is amended by striking ``, plus the
amount of the liabilities to which the property is
subject,''.
(5) Section 357(c)(3) is amended by striking ``or to which
the property transferred is subject''.
(6) Section 358(d)(1) is amended by striking ``or
acquisition (in the amount of the liability)''.
(e) Effective Date.--The amendments made by this section
shall apply to transfers after the date of the enactment of
this Act.
SEC. 5009. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.
Subsection (c) of section 10511 of the Revenue Act of 1987
is amended by striking ``October 1, 2003'' and inserting
``October 1, 2007''.
SEC. 5010. EXTENSION OF HAZARDOUS SUBSTANCE SUPERFUND TAXES.
(a) Extension of Taxes.--
(1) Environmental tax.--Section 59A(e) is amended to read
as follows:
``(e) Application of Tax.--The tax imposed by this section
shall apply to taxable years beginning after December 31,
1986, and before January 1, 1996, and to taxable years
beginning after December 31, 2001, and before January 1,
2008.''
(2) Excise taxes.--Section 4611(e) is amended to read as
follows:
``(e) Application of Hazardous Substance Superfund
Financing Rate.--The Hazardous Substance Superfund financing
rate under this section shall apply after December 31, 1986,
and before January 1, 1996, and after December 31, 2001, and
before October 1, 2008.''
(b) Effective Dates.--
(1) Income tax.--The amendment made by subsection (a)(1)
shall apply to taxable years beginning after December 31,
2001.
(2) Excise tax.--The amendment made by subsection (a)(2)
shall take effect on January 1, 2002.
SEC. 5011. MODIFICATION OF DEPRECIATION METHOD FOR TAX-EXEMPT
USE PROPERTY.
(a) In General.--Subparagraph (A) of section 168(g)(3)
(relating to tax-exempt use property subject to lease) is
amended to read as follows:
``(A) Tax-exempt use property.--In the case of any tax-
exempt use property, the recovery period used for purposes of
paragraph (2) shall be equal to 150 percent of the class life
of the property determined without regard to this
subparagraph.''
(b) Effective Date.--The amendment made by this section
shall apply to property--
(1) placed in service after December 31, 1998, and
(2) placed in service on or before such date which--
(A) becomes tax-exempt use property after such date, or
(B) becomes subject to a lease after such date which was
not in effect on such date.
In the case of property to which paragraph (2) applies, the
amendment shall only apply with respect to periods on and
after the date the property becomes tax-exempt use property
or subject to such a lease.
SEC. 5012. EXTENSION OF REPORTING FOR CERTAIN VETERANS
PAYMENTS.
The last sentence of section 6103(l)(7) (relating to
disclosure of return information to Federal, State, and local
agencies administering certain programs) is amended by
striking ``September 30, 2003'' and inserting ``September 30,
2008''.
On page 260, line 14, strike ``shall develop'' and insert
``shall, not later than January 1, 2000, develop''.
On page 305, lines 3 and 4, strike ``the date of the
enactment of this Act'' and insert ``June 30, 2000''.
On page 305, lines 10 and 11, strike ``the date of the
enactment of this Act'' and insert ``June 30, 2000''.
On page 308, line 13, strike ``the date of the enactment of
this Act'' and insert ``June 30, 1999''.
On page 309, lines 7 and 8, strike ``the date of the
enactment of this Act'' and insert ``December 31, 1999''.
On page 310, strike line 19, and insert ``December 31,
1999''.
On page 312, lines 15 and 16, strike ``the date of the
enactment of this Act'' and insert ``December 31, 1999''.
On page 314, lines 3 and 4, strike ``the 180th day after
the date of the enactment of this Act'' and insert ``December
31, 2000''.
On page 315, line 11, strike ``June 30, 2000'' and insert
``December 31, 2000''.
On page 324, strike lines 9 through 12, and insert:
(e) Effective Date.--The amendments made by this section
shall apply to collection actions initiated after December
31, 1999.
On page 343, after line 24, insert:
(c) Effective Date.--This section shall apply to collection
actions initiated after December 31, 1999.
On page 345, lines 6 and 7, strike ``the date of the
enactment of this Act'' and insert ``December 31, 1999''.
On page 348, line 6, strike ``December 31, 1998'' and
insert ``December 31, 1999''.
On page 351, lines 13 and 14, strike ``the date of the
enactment of this Act'' and insert ``December 31, 1999''.
On page 357, lines 6 and 7, strike ``the date of the
enactment of this Act'' and insert ``December 31, 1999''.
On page 357, lines 9 and 10, strike ``the date of the
enactment of this Act'' and insert ``December 31, 1999''.
On page 357, strike lines 16 and 17, and insert:
(B) December 31, 1999.
On page 362, lines 12 and 13, strike ``the 60th day after
the date of the enactment of this Act'' and insert ``December
31, 1999''.
On page 370, lines 17 and 18, strike ``the date of the
enactment of this Act'' and insert ``January 1, 1999''.
On page 371, line 11, insert: ``This subsection shall apply
only with respect to taxes arising after June 30, 2000, and
any liability for tax arising on or before such date but
remaining unpaid as of such date.'' after the end period.
On page 374, lines 4 and 5, strike ``180 days after the
date of the enactment of this Act'' and insert ``July 1,
2000''.
On page 379, line 15, insert ``, on and after July 1,
1999,'' after ``shall''.
On page 382, line 2, strike ``60 days after the date of the
enactment of this Act'' and insert ``on January 1, 2000''.
[[Page S4392]]
On page 383, line 14, insert ``, except that the removal of
any designation under subsection (a)(2)(A) shall not be
required to begin before January 1, 1999'' after ``Act''.
On page 385, lines 7 and 8, strike ``the date of the
enactment of this Act'' and insert ``January 1, 2000''.
amendment No. 2339
The PRESIDING OFFICER. The Senator from Delaware has 4 minutes
remaining.
Mr. ROTH. Is the Senator ready to yield the balance of his time?
Mr. KERREY. Yes, sir.
Mr. ROTH. Mr. President, I yield the balance of my time.
The PRESIDING OFFICER. All time is yielded back.
Mr. KERREY. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. Under the previous order, the question is on
agreeing to the Roth amendment No. 2339.
The yeas and nays have been ordered. The clerk will call the roll.
The legislative clerk called the roll.
Mr. NICKLES. I announce that the Senator from North Carolina (Mr.
Helms) is necessarily absent.
Mr. FORD. I announce that the Senator from Hawaii (Mr. Akaka) is
absent due to a death in the family.
The PRESIDING OFFICER (Mr. Frist). Are there any other Senators in
the Chamber desiring to vote?
The result was announced--yeas 56, nays 42, as follows:
[Rollcall Vote No. 120 Leg.]
YEAS--56
Abraham
Allard
Ashcroft
Bennett
Biden
Bond
Brownback
Burns
Campbell
Chafee
Coats
Cochran
Collins
Coverdell
Craig
D'Amato
DeWine
Domenici
Enzi
Faircloth
Frist
Gorton
Gramm
Grams
Grassley
Gregg
Hagel
Hatch
Hutchinson
Hutchison
Inhofe
Jeffords
Kempthorne
Kyl
Lott
Lugar
Mack
McCain
McConnell
Moseley-Braun
Murkowski
Nickles
Roberts
Roth
Santorum
Sessions
Shelby
Smith (NH)
Smith (OR)
Snowe
Specter
Stevens
Thomas
Thompson
Thurmond
Warner
NAYS--42
Baucus
Bingaman
Boxer
Breaux
Bryan
Bumpers
Byrd
Cleland
Conrad
Daschle
Dodd
Dorgan
Durbin
Feingold
Feinstein
Ford
Glenn
Graham
Harkin
Hollings
Inouye
Johnson
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Lieberman
Mikulski
Moynihan
Murray
Reed
Reid
Robb
Rockefeller
Sarbanes
Torricelli
Wellstone
Wyden
NOT VOTING--2
Akaka
Helms
The amendment (No. 2339) was agreed to.
Mr. ROTH. Mr. President, I move to reconsider the vote.
Mr. KERREY. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Vote on Amendment No. 2340
The PRESIDING OFFICER. Under the previous order, the question occurs
on amendment No. 2340.
The amendment (No. 2340) was rejected.
Mr. ROTH. Mr. President, I move to reconsider the vote.
Mr. KERREY. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. BYRD addressed the Chair.
The PRESIDING OFFICER. May we please have order. The Senator from
West Virginia is recognized.
Mr. BYRD. Mr. President, this request has been cleared with the
leaders on both sides.
I ask unanimous consent that the distinguished Senator from Texas,
Mrs. Hutchison, and I may proceed for not to exceed 35 minutes as in
morning business for the purpose of introducing a bill and speaking
thereon.
The PRESIDING OFFICER. Without objection, it is so ordered. The
Senator from West Virginia is recognized.
(The remarks of Mr. Byrd and Mrs. Hutchison pertaining to the
introduction of S. 2036 are located in today's Record under
``Statements on Introduced Bills and Joint Resolutions.'')
Mr. BYRD. Mr. President, I understand that Senator Kohl wishes a few
minutes on another matter.
Whatever remaining time remains under our request, I ask that the
Senator from Wisconsin, Mr. Kohl, have the remaining time.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Wisconsin is recognized.
Mr. KOHL. Thank you, Senator Byrd.
Mr. President, I rise today in strong support of the IRS Reform bill.
There is no doubt that this bill will count among the most important
pieces of legislation that we will pass in the 105th Congress. A great
deal of thanks and appreciation is due to Senators Roth and Moynihan
for their work sheperding this bill through the Finance Committee, and
most especially to my friend from Nebraska, Senator Bob Kerrey, whose
efforts on the Restructuring Commission and tireless advocacy brought
us here today.
We have all been struck by the stories of abuse of taxpayers by
overzealous or self-serving IRS employees. And all of us have received
calls of concern and outrage from constituents who feel they have been
treated unfairly by an agency that wields a tremendous amount of power
in the daily lives of Americans.
We have also learned of retaliation against honest IRS employees who
worked hard and wanted to do the right thing by speaking out against
abuses. This legislation will go a long way towards addressing these
problems.
It will also go a long way toward making the agency more effective in
its policy mission and more responsive to budget constraints. We have
all witnessed the $4 billion debacle of the IRS computer modernization
effort and want to ensure resources are allocated responsibly in the
future.
As ranking member of the Treasury Appropriations Subcommittee, I have
had the opportunity to meet the Commissioner of the IRS, Mr. Rossotti,
and am encouraged by his strong background in management and
information technology. The legislation before us will provide the
Commissioner with tools to put together a high-quality team to run the
agency, and award those who do their jobs well.
This bill also includes new sources of outside oversight of the
agency, such as the Oversight Board and the new Treasury IG's Office
for Tax Administration. Coming from the business world, I know the
importance of accountability and constant self-examination. Management
and employees should always be looking for ways to do their jobs more
effectively and be open to constructive criticism.
But for too long, the IRS has operated as if it were a class by
itself, somehow above the standards of efficiency and customer service
that any American business must follow to survive.
We have witnessed the effects of this problem in my home state of
Wisconsin. For the past two and a half years, we have worked to address
allegations of misconduct and discrimination at the Milwaukee-Waukesha
IRS Offices. These allegations were discussed at length at the
Committee hearings last week, and were so serious that some IRS
employees felt the need to sneak into my office in Milwaukee to report
on abuses.
Employees feared retaliation and alleged again and again that
management was allowing, if not promoting, a hostile work environment.
Such a deplorable situation of fear and intimidation is unacceptable,
must be stopped, and must be prevented from happening in the future.
This bill sets up a confidential means through which honest employees
can report allegations of abuses. In addition, I am offering an
amendment with my colleague, Senator Feingold, to ensure that oversight
of the Milwaukee office is a top priority of the new IG. This
legislation will prevent abuses in the future, but we must also be
vigilant in dealing with serious problems that have yet to be resolved
in the present.
Mr. President, while taking time to mention only a few of the many
important provisions of this bill, I want to urge my colleagues to
support this legislation.
We have a historic opportunity to right future wrongs and be party to
the creation of a more consumer-friendly, efficient and responsible
IRS. Let us seize that opportunity with enthusiasm and without further
delay.
[[Page S4393]]
Mr. BYRD. Mr. President, I yield back the balance of the time.
Mr. BOND addressed the Chair.
The PRESIDING OFFICER. The Senator from Missouri is recognized.
Mr. BOND. Mr. President, I will rise to introduce an amendment, but I
will defer to my colleague from Delaware if he wishes to ask for a time
agreement.
Mr. ROTH. Mr. President, I say to the distinguished Senator that I do
want to ask for an agreement on the 40 minutes, but I have to wait for
Senator Kerrey to return. I will raise that when he comes.
Mr. BOND. Mr. President, I rise in support of the Internal Revenue
Service Restructuring and Reform Act that we are now considering. Over
the past several months Senator Roth and his Finance Committee have
done an exemplary job of reviewing the legislation sent to us by the
House and identifying ways to improve and strengthen that bill. And
it's been well worth the wait. I also commend my colleague from
Delaware and his committee for including a number of the proposals that
I introduced as part of my Putting the Taxpayer First Act, earlier this
year. They represent suggestions that I received from Missourians and
small business owners across the country, who have called, written, and
stopped me on the street to stress the need for IRS reform and greater
taxpayer rights.
While I believe we have made substantial progress toward that goal,
one aspect of this bill continues to trouble me--the creation of the
so-called oversight board. As currently proposed, a majority of this
board will consist of six individuals who must split their time between
watching over the IRS and running their private-sector businesses--each
of which can be more than a full-time job. And even if these
individuals can dedicate sufficient time, their ability to make real
changes for the benefit of taxpayers amounts to little more than advice
to the Commissioner, which he may or may not decide to take.
Despite these issues, the creation of a part-time board has been
portrayed by many as the linchpin of solving the problems at the IRS.
But when has such a part-time advisory board ever turned around a
governmental agency as vast as the IRS and with such a poor record of
service to millions of Americans? I have searched for a comparable
success story within our government, and came up dry. And while some
point to Canada's Revenue Office as an example, Canada's part-time
board is still on the drawing board. Consequently, I think we are
placing too much reliance on the untested and unproven concept of a
part-time board to bring fundamental change to the IRS.
If we are going to create a board to steer the IRS back on course,
let's do more than add some window dressing to this troubled agency.
America's taxpayers deserve a well-managed agency committed to service.
The amendment I offer today establishes the framework to accomplish
that goal.
Mr. President, my amendment creates an independent, full-time Board
of Governors for the IRS, which will exercise top-level administrative
management over the agency. The Board of Governors will have full
responsibility, authority, and accountability for the IRS' enforcement
activities, such as examinations and collections, which are often at
the heart of taxpayer complaints about the IRS. In addition, the Board
will oversee the Office of the Taxpayer Advocate and the new
independent appeals function required by the bill.
Under my amendment, the Board of Governors will consist of five
members appointed by the President and confirmed by the Senate, each
with a staggered five-year term. Four of the members will be drawn from
the private sector. Overall these members will bring private-sector
experience critical to the management of an agency like the IRS. Of
equal importance, they will bring the perspective of the diverse group
of taxpayers the IRS must serve, including individuals and small and
large businesses. The fifth member of the Board will be the
Commissioner of Internal Revenue, who will also serve as the Chairman
of the Board of Governors.
The board I envision through this amendment corrects the major
weaknesses of the bill's part-time advisory board. First, my full-time
Board of Governors is a permanent solution to the management
difficulties that have plagued the IRS for years. It seems like little
more than a token gesture to create an oversight board for the IRS and
have it expire after 10 years, as set out in the bill. If a board is
expected to turn the IRS around, wouldn't it make sense to continue the
reason for that success story?
Second, my full-time Board of Governors will have real authority to
make a difference. The Board's direction is to ``oversee the Internal
Revenue Service in the administration, management, conduct, direction,
and supervision of the execution and application of the internal
revenue laws or related statutes and tax conventions to which the
United States is a party.'' The only exception to this broad authority
is that the Board will have only a consultative role in developing tax
policy.
In contrast, the part-time advisory board recommended by the Finance
Committee starts with broad authority but is quickly whittled down
essentially to an advisory role. For instance, the part-time board
would have no responsibility or authority with respect to tax policy.
In my view, good tax policy must take into account more than just
revenue and collections; it must consider the burdens that the law
imposes on the taxpayers and the corresponding burdens involved in
administering and enforcing those laws. A full-time Board of Governors
managing the IRS will be uniquely qualified to provide critical
perspective and feedback to the Treasury Department in crafting future
tax proposals.
Similarly, the bill's part-time board would have no responsibility or
authority over specific IRS law enforcement activities or personnel
actions.
These restrictions fly in the face of the testimony that the Finance
Committee received just last week, not to mention to committee's
hearings last fall. Each of us was shocked by the taxpayers and IRS
employees who came forward with accounts of poor service and abuse, and
many of these cases involved IRS examination or collection activities.
Moreover, these horror stories merely echo the countless letters and
calls that each of us receives from taxpayers embroiled in disputes
with the IRS in our home states.
Can any of us suggest, with a straight face, that creating a part-
time advisory board will ``fix'' the IRS when that board cannot know
about or address specific enforcement or personnel problems? While I am
not suggesting that the IRS board should address every taxpayer
grievance, the board should be able to take action with respect to
specific types of examination and collection problems and those that
involve IRS personnel.
Some will argue that the expansion of the taxpayer-confidentiality
rules addresses this issue. I must disagree. The information that the
part-time board will receive under this provision is dependent on the
discretion of the Commissioner and the Treasury Inspector General. For
too long, ``section 6103'' has been a convenient shield for the IRS to
hide behind, and it will be too easy for that practice to continue
leaving the board in the dark about the types of problems described all
too clearly in the Finance Committee's hearings. In addition, limited
access to taxpayer information won't help the board address personnel
problems in the agency, which is critical if we are to restore
credibility to the term ``service'' in its name.
My amendment resolves this problem. As full-time employees, the four
members of the Board of Governors drawn from the private sector will
have access to the same information available to the Commissioner.
Moreover, the Board under my amendment will have authority to address
personnel issues. As a result, their hands will not be tied when it
comes to restoring taxpayer service and respect in all IRS enforcement
activities.
The bill's part-time advisory board also starts out with authority to
review and approve reorganization plans for the IRS. Yet tucked away at
the end of the effective date section is a provision barring the part-
time board from approving the current plan to reorganize the IRS along
customer lines. This contradiction simply defies reason.
I am a strong advocate of reorganizing the IRS into divisions that
serve
[[Page S4394]]
particular taxpayers with similar needs, like individual taxpayers and
small business owners, and I included such a plan in my Putting the
Taxpayer First Act that I introduced. IRS Commissioner Rossotti has
also embraced this approach. With so much support, why should we
restrict even a part-time advisory board from approving such a
fundamental restructuring of the IRS but require its review and
approval for all future plans? The full-time Board of Governors under
my amendment would be required to evaluate and sign-off on all plans to
reorganize the agency--it only makes sense!
Mr. President, besides giving the IRS board real authority to run the
agency and make critical changes, my amendment also ensures that the
members of the Board of Governors are sufficiently committed to the
task. Having been governor of my state of Missouri, I have some
appreciation of the time and energy it takes to run a large
organization. But I can't begin to imagine how I could have hoped to
make a difference if I spent only a few days a year commuting to our
capital, Jefferson City, to govern the state, and spent the rest of my
time running a successful business or even a not so successful law
practice. That is the trap we will create with a part-time advisory
board for the IRS.
The IRS has over 100,000 employees spread across the country and
around the world. The agency has a budget of over $7 billion, and it
collects more than $1 trillion each year from millions of taxpayers. It
is an imposing task for even a full-time Board of Governors to reform
an institution of this size-- common-sense suggests it is an impossible
task for a part-time advisory board.
What's more, the proponents of the bill contend that its part-time
board will improve accountability within the IRS. But take, for
example, a part-time board member who is an executive in a major
corporation headquartered on the west coast. He flies to Washington
several times a year as part of his IRS oversight responsibilities. How
can he be accountable for the daily actions of this enormous
organization when he is little more than a hostage to its bureaucracy
on his occasional visit to Washington? If we are going to make changes
to the IRS' management structure, we should give them a real chance for
success and give the taxpayers confidence that reform can be achieved.
Mr. President, while not everyone will agree with my proposal, let's
take a moment to look at some arguments I've heard so far. Some have
commented that we won't get the best people to serve on the IRS board
if they have to leave their private-sector jobs for a tour of
government service. As an example that just the opposite is true, I
point to our current IRS Commissioner. In my assessment, Commissioner
Rossotti has outstanding credentials and has been very successful as a
business owner in the private sector. In addition, I think most of my
colleagues would agree that he has done an exceptional job during his
short tenure at the helm of the IRS.
This criticism also rings rather hollow when we look at the
individuals who have served on similar full-time boards and commissions
throughout the government, like the Federal Reserve, the Federal Trade
Commission, and the Securities and Exchange Commission, to name a few.
I've never heard it suggested that we scrape the bottom of the barrel
to find people qualified to serve in these full-time positions. Just
the opposite is true. As Commissioner Rossotti, Treasury Secretary
Rubin, and many others have demonstrated, there are business leaders in
this country who are willing to take leave from their private-sector
lives to serve the public.
Others have argued that the IRS Commissioner doesn't need a full-time
board to run the agency, especially since the bill gives the
Commissioner broader authority to bring in senior management talent. If
that's true, why do we need a board at all? Why not have just Alan
Greenspan run the Federal Reserve or Arthur Levitt oversee the
securities markets? Surely the same arguments would apply to those
boards and those commissions.
I believe there is value in having a core group of individuals who
bring important talents and experience to complement the Commissioner's
management of an agency like the IRS. Just as with other boards and
commissions throughout the government, these individuals can share the
top-level management burdens and allow the Commissioner to focus on the
most pressing issues completely and quickly.
A third issue raised by my opponents is that a full-time board with
real authority will make the IRS too independent. So what exactly is
the problem? Sadly, there have been allegations in recent years that
the IRS is being used for politically-motivated audits. Whether true or
not, such assertions severely undercut any efforts to instill
confidence in our tax-administration system. While I applaud the
provision in the bill that prohibits Executive Branch influence over
taxpayer audits, we can further ensure that result by establishing a
board with representatives of both political parties, as my amendment
requires. In the end, there should be nothing partisan about helping
taxpayers to comply with the tax laws in the least burdensome manner
possible.
Mr. President, my amendment offers a straight forward, common-sense
solution for the management of this troubled agency and it cures the
inherent weaknesses of the part-time advisory board called for in the
bill. With a vast number of agencies across this city, including the
city itself, managed under full-time boards and commissions, we have
ample evidence that this structure can work for the IRS. In my opinion,
if we want more than window dressing on the current management
structure, a full-time, full authority, full accountability Board of
Governors is the answer.
A part-time advisory board will not make a difference in how the
agency is run. If we need a board, we need a full-time board. We don't
need a part-time advisory board. Otherwise, if we do not want to have a
full-time board, let's leave the agency's management alone, because
when has a part-time advisory board ever turned an agency around? I
suggest never.
Amendment No. 2341
(Purpose: To strike the Internal Revenue Service Oversight Board and
establish a full-time Board of Governors for the Internal Revenue
Service)
Mr. BOND. Mr. President, I send my amendment to the desk.
The PRESIDING OFFICER. The clerk will report.
The assistant legislative clerk read as follows:
The Senator from Missouri (Mr. Bond) proposes an amendment
numbered 2341.
Mr. BOND. Mr. President, I ask unanimous consent that reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
(The text of the amendment is printed in today's Record under
``Amendments Submitted.'')
Mr. ROTH. Mr. President, as I indicated before the distinguished
Senator from Missouri spoke, we had a tentative agreement of 40 minutes
for this amendment, with 20 minutes to a side. I ask that we
unanimously agree to that with the time that the distinguished Senator
used to discuss the amendment being deducted from the 20 minutes. I
understand that is roughly 13 minutes. Is that satisfactory?
Mr. BOND. I ask for 10 minutes, because there are others on this side
who may wish to speak.
Mr. KERREY. Mr. President, I wonder if the Senator from Delaware
would agree--Senator Reid has an amendment he wants to bring right
after this--that we stack these votes, and have a UC to have both of
these votes stacked.
Mr. ROTH. That would be fine.
The PRESIDING OFFICER (Mr. Burns). Is there objection?
Mr. KERREY. We would have to get a time agreement.
Mr. ROTH. Let's agree on the Bond amendment first; the agreement
being 40 minutes divided between the two sides, and that Senator Bond
would have the remaining 10 minutes.
Mr. BOND. That is correct. Mr. President, 20 minutes for the side in
opposition, and 10 minutes.
Mr. ROTH. And no second-degree amendments.
The PRESIDING OFFICER. Could I ask the Senator to restate the
unanimous consent request.
Mr. ROTH. Mr. President, what we are proposing for unanimous consent
is 40 minutes for consideration of the amendment to be divided between
the
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two sides, that it be agreed that the distinguished Senator has 10
minutes remaining on his side of the 20 minutes.
The PRESIDING OFFICER. Is there objection? Without objection, it is
so ordered.
Mr. ROTH. And I would also add there would be no second-degree
amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. KERREY. Could we modify it so we go to Senator Reid's amendment
next and have rollcall votes not before 1:15?
Mr. ROTH. Let's wait on the rollcall votes. We can go ahead with the
Reid amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. BOND. President, I ask for the yeas and nays on this amendment.
The PRESIDING OFFICER. Is there a sufficient second? There appears to
be a sufficient second.
The yeas and nays were ordered.
Mr. BOND. Mr. President, I ask unanimous consent that there be a
minute on each side for the proponents and opponents to state their
case on the amendment since the vote is going to be stacked later.
Mr. ROTH. That is fine.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. ROTH. I yield 10 minutes to the distinguished Senator from Iowa.
The PRESIDING OFFICER. The Senator from Iowa is recognized for 10
minutes.
Mr. GRASSLEY. Mr. President, I, unfortunately, oppose the amendment
by the Senator from Missouri. I say ``unfortunately'' because the
Senator from Missouri has good motives in offering his amendment. They
come from the fact that he has been an outspoken advocate for small
business in the Senate. He has made a career of promoting an
environment very good to small business, and obviously we all know that
sometimes the Internal Revenue Service is one Government agency that
tends to be anti-small business. We had a lot of information coming out
of our hearings that IRS agents are told to go after the small people--
forget about the bigger, wealthier people--because smaller people do
not have the resources to fight.
That is particularly true of small business where you have
accumulated some wealth in a small business but you do not necessarily
have a lot of income. And so you do not have the resources to fight the
IRS. So I do not find fault with the motives behind what Senator Bond
is trying to do.
I definitely believe this bill we have before us, including the
provisions for an advisory board, has been well thought out. The
National Commission on the Restructuring of the IRS created the concept
of this Board. We assessed the various pros and cons of separating the
IRS from the supervision of the Secretary of the Treasury and making it
more independent. We decided that it needed more independence. Next, we
had to decide how the independent operation should be governed. To
answer this, we came up with the Oversight Board.
So I thank Senator Bond for his advocacy for small business and his
concern about this important legislation. But at the same time I think
I must rise in opposition to this amendment. The Commission came up
with this idea of having an oversight board for the IRS after months
and months of discussion and consideration. It was a recommendation
that we on the Commission put in our report because we thought it would
keep the IRS on track and improving in the right direction. The Senator
from Nebraska and I made this board one of the centerpieces of our
legislation, S. 1096, which, of course, was the first comprehensive IRS
reform legislation introduced in the Senate.
The National Commission on Restructuring of the IRS--Senator Kerrey
and I, two members of the House of Representatives, and 13 other people
served on this Commission. Ten of the members were nongovernmental,
private sector people who knew about the problems that the private
sector was having with the IRS. We fully considered adopting a full-
time oversight board at one time, but we came to the conclusion that it
was not an advisable thing to do. We decided that this part-time board
would be more effective, and I will give you the reasons for that.
First of all, the purpose of the board is to be advisory, not to
manage the IRS. It is meant to function like a corporation's board of
directors. It is not intended to get involved in the day-to-day
operations of the IRS because the IRS already has a leader--the
commissioner. And by the way, this is the first nonlawyer and more
specifically nontax lawyer who has been head of the IRS. Mr. Rossotti,
or somebody with his background from private sector management, brings
to the management of the IRS a person who is consumer oriented,
customer oriented. His own private sector corporation had to satisfy
his consuming public for the services that he sold or he would not have
been in business. He would not have developed a successful business. So
to have a nontax attorney for the first time running the IRS is very,
very good because it brings somebody in there who knows that
organization ought to serve the taxpayers and not be a master of the
taxpayers. He has already led the organization in some important
changes and I have great confidence that he will continue to make
productive changes. He will do a better job because of this
legislation.
In addition, it seems to me that a full-time board would not attract
the people who we want to attract to this board. A full-time board too
often in this town attracts inside-the-beltway, Washington career
people. That is not the type of person we want on the board.
What the IRS needs is guidance from people who come from the real
world of work, people outside the beltway, people who are real
Americans. It needs experts in business, management and customer
service. It needs people who are willing to take the time in the name
of public service to help guide the IRS, through this recovery period
it is now in. The IRS does not need people who consider the full-time
job of being on the IRS board a good career move. The fact is the
people we want to serve on this board will not give up their full-time
jobs to do it.
This bill is not intended to create more bureaucracy. We have too
much bureaucracy already. This is generally true throughout Government.
But we found it is definitely the case in the IRS. A full-time board
would just be one more layer in an organization with way too many
layers of bureaucracy already. For these reasons, I ask my colleagues
to join me in opposing this amendment. If we want the IRS to be
customer friendly, like a corporation must be, we must give it a
corporate-like board.
I thank the Chair. I yield back the remainder of my time to be
reserved.
The PRESIDING OFFICER. Who yields time?
Mr. ROTH. I yield 5 minutes to the distinguished Senator from
Nebraska.
The PRESIDING OFFICER. The Senator from Nebraska is recognized.
Mr. KERREY. Mr. President, let me first do as the Senator from Iowa
did, Senator Grassley, and compliment the intent of the distinguished
Senator from Missouri. I started out exactly where the Senator from
Missouri is, considering that a full-time board would be best. What I
have concluded is that over time, examining what this board is going to
be doing--and let nobody doubt, by the way, this board has substantial
powers. This is not an advisory board. There are a number of things
that we specifically say they cannot do, in order to avoid conflict of
interest with procurement and with personnel and with confidentiality,
but this board oversees the IRS in its administration, its management,
its conduct, its direction, and its supervision of the execution and
application of the IRS law.
It has substantial powers in making recommendations to the President
as to who the Commissioner ought to be and has the power to recommend
the Commissioner ought to be terminated. I urge colleagues to look at
section 1102 of the proposed legislation.
I share the conclusion Senator Grassley has just iterated in his
opposition to this amendment; that is, that a full-time board would
actually restrict our capacity to go out and get the people with the
kind of talent that we need to be on this board in the first place.
There are an awful lot of Americans who have expertise in management,
have expertise in computers, have expertise in the operation of a large
organization. They especially
[[Page S4396]]
have expertise in restructuring, which is going to be a very, very
important piece of work that Mr. Rossotti will have the authority to
do, restructuring and changing the nature an organization.
We need people with all those kinds of expertise. And if you require
the individual to serve full time, my conclusion, strongly felt, is you
will exclude large numbers of citizens who would say: If it is part
time, I'm prepared to sit on this Board as a consequence of my desire
to improve the way this IRS is operated. My desire to improve it is
strong enough to serve part time, but I can't possibly do it full time.
We are going to reduce the list if we make it full time, of citizens
who could serve this in this way.
In addition, I point out this board sunsets in 2002; thus, Congress
would have the opportunity to revisit and make a determination as to
whether or not, as a result of the experience that we have had, this
board needs to be full time.
So I urge those who were concerned about this board being part time,
on the one hand to consider we are going to restrict our ability to get
the kind of expertise that is needed on this board, and, second, we
will have an opportunity, after 5 years, to revisit this issue. If the
experience of this board is that they are recommending to us that full
time would be better than part time, we will have ample opportunity to
make that judgment.
I urge my colleagues, with great respect to the Senator from Missouri
and his intent, to vote against this amendment.
The PRESIDING OFFICER. Who yields time?
Mr. BOND. Mr. President, I yield myself such time as I may require. I
thank my colleagues from both Iowa and Nebraska for their very
thoughtful comments. As I said earlier, I appreciate so much the
excellent work the Finance Committee has done on restructuring of the
IRS. Truly, it is a very important issue.
Primarily, I hear them raising the point that we can't get people to
serve if we have a full-time board. We are making it a small board. We
need four individuals who want to serve.
Some say you can have part-time people who can come in and get the
big picture authority. The problem is, we need them to work on specific
law enforcement activities and personnel actions. We are not talking
about somebody giving them the big picture; we are talking about
somebody taking management responsibility. If individuals would serve,
is their question. They say we can't get good individuals to serve.
We have the Commissioner of the IRS. He came from the private sector.
He was willing to move in. Private-sector individuals have served, and
have served with great distinction, in related areas, where they do an
excellent job. Why should we think it is harder to get people to serve
on the IRS board than it would be to serve on the FTC board or on the
SEC? These are issues that I think are very closely related. If we
can't get good people to serve on that board, I would be very much
surprised. We would not see a part-time advisory board dealing with
actual cases of taxpayer abuse. They would have to do so only when the
Commissioner or the Treasury Inspector General said they could.
Let's just take an example--the alarming revelation last week that
former Secretary Howard Baker and former Congressman James Quillen were
the targets of a vendetta by a rogue IRS agent. Even more troubling,
more troubling is that the agent's activities were covered up by
numerous officials in the IRS district office.
This case clearly demonstrates a pattern of bad behavior in one
office, but it may be indicative of structural or procedural defects
throughout the agency. Are we really going to tie the hands of the IRS
board and only permit it to review such problems as the Commissioner or
the Treasury IG permit it? I say not. If we are going to do the job, we
ought to do it right. Without this authority, the board will only find
out about the problems like the rest of us--when the press points them
out or when we have to go through a congressional hearing.
The problems of the IRS are well known. Now we need to make sure we
fix them, not just tinker around the edges. The Bond amendment replaces
the IRS management structure of a Commissioner plus a part-time limited
authority board with an independent full-time board of governors,
including the Commissioner. It is not an accident, as I have said
earlier, that the SEC, the FTC, the Federal Reserve, are all run by
boards or commissions. These agencies carry out sensitive regulatory
and enforcement duties, and they must be insulated from political
motives. Insulation from political motives is one of the objectives we
must achieve in this IRS restructuring. The American taxpayer deserves
the same level of protection as the people who are governed by and are
subject to the rules and regulations of the SEC and the FTC and the
FCC.
Who has not heard of the allegations that the IRS has targeted out-
of-favor groups or those who seem to have nothing in common but their
opposition to various White House policies? No American should have the
enforcement powers of the IRS unleashed on them because they don't
agree with the White House on an issue. I think that is simply why my
amendment is so necessary. Under the current bill, the only way the
part-time board would have known about the abuses we learned about last
week is the same way the rest of us did when we watched Senator Roth's
hearing on television. That is how limited the authority of the part-
time board is.
We need real reform of how the IRS does its business. I believe
putting a full-time, independent board in place to run the agency is
the best way to do that. I say to those people who really want reform,
if you really believe a board is essential to restructuring the IRS,
then I say let's get out and run with the big dogs; let's get a full
time, independent board. Otherwise, get back up on the porch, because a
part-time advisory board is not going to even have a large bark; it
will have a minor meow.
If we are going to put some teeth into it, we need to have the teeth
that a full-time, independent board governing the IRS can give to
managing the agency, to make sure it does not abuse taxpayers.
Mr. President, I reserve the remainder of my time and yield the
floor.
Mr. SHELBY. Mr. President, I rise in support of Senator Bond's
amendment to establish a full-time IRS Board of Governors. I firmly
believe that oversight of an agency with the equivalent of 100,000
full-time employees, a requested fiscal year 1999 budget of almost $8.2
billion, and a history of wasting $4 billion in an attempt to modernize
the tax collection system, is, without question, a full time job.
Furthermore, rigorous oversight will be critical to ensuring that the
reforms that Congress has in store for the agency will be carried out
effectively and expeditiously. I think the prudent strategy is to keep
the agency on very short leash given the shocking stories that have
come to light from the recent Finance Committee hearings. I have my own
ideas as to how to liberate the taxpayer from the IRS--namely the
implementation of my flat-tax proposal. But short of comprehensive tax
simplification, I strongly support Senator Bond's efforts.
Mr. President, the IRS is a very troubled agency that demands the
highest level of scrutiny. I strongly urge my colleagues to support
this amendment. I feel we owe it to the American taxpayer.
Mr. ROTH addressed the Chair.
The PRESIDING OFFICER. The Senator from Delaware.
Mr. ROTH. Mr. President, how much time do I have?
The PRESIDING OFFICER. The Senator from Delaware has 10 minutes.
Mr. ROTH. Mr. President, I yield myself such time as I may use.
Mr. President, I, too, join my colleagues in paying my respects to
the distinguished Senator from Missouri. He brings a wealth of
background and experience, so his comments are always welcomed and
listened to with great care. While I completely agree that the IRS
oversight board must be adequately structured, I respectfully urge my
colleagues to oppose this amendment which would make the IRS oversight
board a full-time board.
In my judgment, the board should be a part-time board. The purpose of
the board is to provide ``big picture'' oversight over the IRS, provide
specific expertise to IRS management to ensure
[[Page S4397]]
accountability at the IRS, as well as to ensure that taxpayers are
being treated and served properly.
The purpose of the board is not to micromanage the IRS. Commissioner
Rossotti is a management expert, unlike his predecessors who were
experts in tax law. As I have said many times on the floor, I think we
are very fortunate in having an individual of his qualifications, his
expertise, not only in management but high tech as well. I believe we
should support the manager and provide a board that will help him turn
the troubled agency around.
It is my judgment a full-time board would destroy the delicate
balance we tried to include in this legislation. The Commissioner, not
the board, should manage the IRS.
A full-time board would bog down in details, diffuse accountability,
and I fear very much probably not include the type of individuals, the
experts, the background, and vision that are necessary on the board.
Also, I have to say that I would doubt that Commissioner Rossotti might
remain with the IRS if the board were full time.
The very basic question is what would be the point? While I agree
with my colleague's objectives, I do not believe that a full-time board
would enhance the prospect of turning this agency around. In fact,
making the board full time could very well undermine the purpose of
this legislation.
As my distinguished colleague, the Senator from Nebraska, has pointed
out, the board is sunsetted. There will be an opportunity in the future
to see how this board is functioning, whether it is working in the
manner that we hope and believe it will.
I urge my colleagues, Mr. President, to vote against the full-time
board. I reserve the remainder of my time.
Mr. BOND addressed the Chair.
The PRESIDING OFFICER. The Senator from Missouri.
Mr. BOND. Mr. President, I, again, commend my colleague from Delaware
for his outstanding leadership. I will only say that Commissioner
Rossotti is going to leave sometime. I think it is important for us to
make a structure which gives us the possibility of real reform in the
IRS. An advisory board, in my experience in dealing with advisory
boards, cannot and will not make a difference in the day-to-day
management, the selection of IRS audits and the running of the agency
which is the issue on the minds of American taxpayers. We need to do
the job right, and I believe we need to make the change now.
Mr. President, if the distinguished manager of the bill has no
further people wishing to speak--the ones who wanted to speak in
support of the amendment are otherwise occupied--I am prepared to yield
back the remainder of my time. We have 1 minute on each side prior to
the vote. If the manager is finished with his speakers, I will join him
in yielding back whatever time remains.
Mr. ROTH. Yes, Mr. President, I am pleased at this time to yield back
the remainder of our time.
Mr. BOND. I yield back the remainder of time on our side. I thank the
distinguished Senator from Delaware.
The PRESIDING OFFICER. All time has been yielded back.
Mr. ROTH. Mr. President, I ask unanimous consent that following the
expiration or yielding back of time on the pending Bond amendment, it
be temporarily set aside and a vote occur on, or in relation to, the
Bond amendment at 1:15 p.m. today.
The PRESIDING OFFICER. Is there objection? Without objection, it is
so ordered.
Mr. ROTH. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. REID. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Privilege of the Floor
Mr. REID. I also ask unanimous consent that a congressional fellow,
Alan Easterling, be allowed privileges of the floor during this issue
that is now before the Senate.
The PRESIDING OFFICER. Without objection, it is so ordered.
Amendment No. 2342
(Purpose: To amend the Internal Revenue Code of 1986 to eliminate
payments for detection of underpayments and fraud)
Mr. REID. Mr. President, I send an amendment to the desk.
The PRESIDING OFFICER. The clerk will report.
The legislative clerk read as follows:
The Senator from Nevada [Mr. Reid] proposes an amendment
numbered 2342.
Mr. REID. Mr. President, I ask unanimous consent that reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
At the end of subtitle H of title III, add the following:
SEC. . ELIMINATION OF PAYMENTS FOR DETECTION OF
UNDERPAYMENTS AND FRAUD.
(a) In General.--Subchapter B of chapter 78 is amended by
striking section 7623.
(b) Conforming Amendment.--The table of sections for
subchapter B of chapter 78 is amended by striking the item
relating to section 7623.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of enactment of this Act.
Mr. REID. Mr. President, as Members of this body know, I have worked
long and hard with other Members of this body to change how the IRS
functions. The first speech I gave on the Senate floor after being
elected in 1986, was on the Taxpayer Bill of Rights. As I presented my
remarks that day, presiding was Senator David Pryor of Arkansas. At the
time, he was chairman of the Subcommittee on Finance that dealt with
the Internal Revenue Service. Also, that same day in the Chamber was
Charles Grassley of Iowa, a longtime proponent of changes within the
Internal Revenue Service.
I received a note from Senator Pryor after I finished my remarks that
a page delivered to me, indicating he wanted to work with me on the
legislation that I talked about. That same day, I received word from
Senator Grassley he wanted to work with me.
This was bipartisan legislation. The bill that I wrote, the Taxpayer
Bill of Rights--because of these two Senators; the Senator from
Arkansas, the Senator from Iowa; a Democrat and a Republican--we were
able to move this bill through the Senate. It passed in 1988 and became
law. It was really a significant change. The Taxpayer Bill of Rights
changed the way the taxpayers dealt with the tax collectors. It put the
taxpayer on a more equal footing with the tax collector. It was the
beginning of some major changes in the way we deal with the Internal
Revenue Service.
The Taxpayer Bill of Rights No. 2, in 1996, was also a change. But we
are here now because of H.R. 2676, the IRS Restructuring and Reform Act
of 1997. I say to the chairman of the full committee, the senior
Senator from Delaware, I appreciate his working hard on this issue. I
think the hearings have been informative to the American public and
indicate that we need to do more. The Taxpayer Bill of Rights No. 1 and
No. 2 were important, but we need to go further.
I was one of those initial sponsors of this legislation in the
Senate. Senator Kerrey of Nebraska, Senator Grassley of Iowa, and I
held a press conference where we talked about this legislation. At that
time we didn't have a lot of support. But the support has built, and
now we have support from the administration, and it is once again
bipartisan legislation.
I look forward to the opportunity to speak in favor of the speedy
passage of this much needed and long overdue reform.
What I want to talk about today in my amendment is one of the things
that leads to the bad press, the bad feelings that the American public
has about the IRS. What I want to prohibit the IRS from doing in the
future is continuing with a program that I refer to as the ``Reward for
Rats Program.'' This is a program where the IRS, in effect, has a
contingent fee, much like a lawyer gets in a personal injury case. They
say, ``If you have somebody who will snitch on a neighbor, an ex-wife,
or business partner, and this will lead to our collecting money, then
we will give you part of that money.''
I believe anyone who owes money to the Internal Revenue Service
should pay it. But I think it should be collected in a way that is in
keeping with the American system, not go into people's personal lives,
where you have a wife--former wife or former husband
[[Page S4398]]
who just completed a long divorce, and the IRS contacts one of them and
says, ``Hey, if you can give us a little information on your ex-spouse,
then we will give you part of the money we collect.''
I think this is wrong, and I think we should stop it. There is
nothing specifically in the statute which allows this. The problem is,
there is nothing that disallows it. That is what this amendment would
do. It is a practice which, if it isn't corrected, will be permitted
under this legislation now before the body.
Last week, the Senate Finance Committee, under the leadership of the
senior Senator from Delaware, conducted hearings in the cases of
abusive practices by employees of the IRS. Witnesses before that
committee provided testimony which describes an organization prepared,
I am sorry to say, to use virtually any means to collect this Nation's
taxes.
Again, I think the taxes should be collected but it should be in a
fair way. An organization apparently prepared to take advantage of
individual greed or desire for revenge to identify, rightly or wrongly,
citizens who have failed to pay their taxes is something we need to do
away with.
Last week, we learned of a restaurant owner whose life was ruined on
the basis of no more than a tip from a vengeful informant. As recently
reported in the press, we learned of a tax accountant who snitched on a
client, motivated only by the expectation of payment for betraying a
confidential relationship. In both cases that I have just provided, the
information was false.
Such informants, most of the time, are not acting in some sense of
civic duty. They don't act from a selfless interest in the Nation's
well-being. They act against friends, relatives, employers, and
associates because the IRS pays them to do so.
Under section 7623 of the Internal Revenue Code of 1986, they are
authorized to pay sums, as required, to informants in order to bring to
trial violators of Internal Revenue laws. In plain English, the IRS
pays snitches to act against associates, employers, relatives, and
others--whether motivated by greed or revenge--in order to collect
taxes. I find this activity unseemly, distasteful, and just wrong.
Under the current IRS program, these informants are paid up to 15
percent of the money recovered as a result of their tips, but no less
than $100. In a recent change to the so-called Snitch Program, the
Service increased the maximum allowable reward to $2 million--a
powerful incentive to anyone interested in becoming rich at the expense
of a neighbor, former business associates or business associate, former
wife, former husband.
As if the desire for revenge alone hasn't been responsible enough for
ruined lives, the Service has a $2 million jackpot to sweeten the
payoff. For the nosy neighbor, the alienated spouse, or the wronged
partner, the odds of seeing that payday may appear better than anything
the State can offer. This program is unethical, it is contrary to
taxpayer privacy, and inconsistent with the spirit of the Taxpayer Bill
of Rights.
Let's assume that someone comes to an accountant with a tax problem--
under the present law, there is no confidentiality; we are trying to
change that, of course--comes to an accountant with a tax problem,
thinking, of course, you have to get this thing worked out with your
accountant; and the accountant walks out after the meeting and calls
the IRS and says, ``I have somebody you can get a real good chunk of
money from, but of course I get 15 percent of it.''
I think that is wrong. It is contrary to taxpayer privacy and
inconsistent with the spirit of the Taxpayer Bill of Rights which was
passed previously.
The IRS would have you believe that these programs--this snitch
program is warranted because of the millions of dollars it is able to
collect through the snitches. This simply demonstrates that the IRS is
relying upon others to do its work. It shouldn't be up to friends,
families, coworkers, and neighbors to ensure taxes are being paid; it
is up to the IRS. We should not be paying private citizens to perform
the job the IRS employees are expected to carry out.
I think this program should come to an end. To that purpose, I
propose this amendment, which will eliminate the payments for detection
of underpayment and fraud. The amendment to eliminate the reward of
greed and invasive action against honest taxpayers should pass.
I propose that in the process of reforming and restructuring the
Internal Revenue Service, we join together to eliminate the ``Reward
for Rats Program.'' It is time that this snitch program be eliminated
and that we restore greater civic order to the manner in which the IRS
conducts itself.
The amendment is considered important because it reforms the IRS, it
fundamentally overhauls the manner in which they conduct business, and
it serves the customers and also allows a more orderly way of
collecting money. This amendment addresses an unethical and destructive
program employed by the IRS in the collection of revenues. In that the
amendment eliminates the program, it must be considered consistent with
the spirit of this bill.
I ask unanimous consent to have printed in the Record a story from
the Los Angeles Times dated April 15, 1998, entitled ``Rewards-for-
Snitches Program Comes Under Fire,'' which illustrates what the problem
is we are trying to correct.
There being no objection, the article was ordered to be printed in
the Record, as follows:
[From the Los Angeles Times, Apr. 15, 1998]
IRS ``Rewards-for-Snitches'' Program Comes Under Fire
(By Ralph Vartabedian)
Washington.--Americans voluntarily hand over most of the
$1.3 trillion owed to the Internal Revenue Service each year,
but a tiny fraction of tax collections depends on an obscure
and increasingly controversial IRS program of using paid
informants.
Motivated by a combination of greed and revenge, informants
are typically business associates, employees, acquaintances,
neighbors or ex-spouses of tax cheats. Many experts say the
program is one of the most unseemly parts of the U.S. tax
system.
However, IRS officials say they exercise great care in
handling the informants, weeding spurious allegations, and
that the rewards play an important role in the nation's tax
enforcement system.
The IRS pays the informants up to 15% of the taxes it
recovers from their tips--up to a maximum of $2 million--
though the vast majority of informants end up empty-handed.
After a series of recent congressional disclosures about
widespread taxpayer abuses, watchdog groups are growing
concerned about the ethics of the agency's informant reward
program.
``We should refocus our efforts on good citizenry, not
bribing people to answer questions,'' said John Berthoud,
president of the nonpartisan National Taxpayers Union, who
called on the IRS to end the program in an interview with The
Times.
The program has been sharply criticized by individuals who
say they were victimized by bogus allegations, and even by
informants, such as Mary Case of Sherman Oaks, who say the
IRS has stiffed them on their rewards.
The Senate Finance Committee, which has been
broadly investigating IRS abuses over the last year, is
expected to unveil new evidence later this month that
taxpayers have been devastated by aggressive IRS
investigations based on phony information from snitches.
one tax accountant snitched on his client
Tax attorneys and accountants generally decry the informant
reward system, asserting that the government is on thin ice
in offering money to taxpayers to turn each other in. They
argue that a cornerstone of the U.S. tax system is the
protection of taxpayer privacy and that the IRS is wrong to
encourage people to breach confidential business or family
relationships. In one case, a St. Louis tax accountant
informed on his own client.
``It smacks of communism, turn in your parents if you catch
them cheating,'' said San Francisco tax attorney Frederick
Daily, author of the book ``Stand up to the IRS.''
Bruce Hockman, a top Los Angeles tax attorney whose
clientele includes the rich and famous, refuses to help
clients snitch to the IRS. ``I have had people come in and
ask me to take them downtown to IRS district headquarters,''
Hockman said. ``I say no way. The Nazis did it, turn people
in. It is unseemly.''
Of course, Congress authorized the IRS to create the
informant reward program in the first place. Former IRS
historian Shelley Davis says her research indicates that
informant rewards date back to the Civil War ear.
Tipsters are one of the important parts of the IRS toolbox
for enforcing tax compliance, says Thomas J. Smith, assistant
IRS commissioner for examination and chief of the agency's
informant reward program.
93% of snitches' tips end up in trash can
IRS figures for 1996, the last year for which data are
available, show that 9,430 Americans sought rewards. Of
those, the IRS acted on just 650--meaning that 93% of the
tips
[[Page S4399]]
ended up in the IRS garbage can. The IRS paid out about $3.5
million in rewards and recovered $103 million in taxes.
``If you look at the last three years, we have had 2,000
cases closed, resulting in taxes of $797 million,'' Smith
said. ``So, in terms of dollars, most people would judge that
as reasonably significant. It does supply a very useful
source of information for us.''
The IRS has a national informant hotline (1-800-829-0433),
though many informants walk in or call in to the IRS' 33
district offices or 10 regional service centers, Smith said.
With little fanfare and with no explanation, the IRS last
year decided to substantially boost the maximum allowable
award to $2 million from $100,000. It also set a minimum
reward of $100, eliminating a lot of penny ante payments.
In 1996, the agency's largest award was a jackpot-size
$1.06 million. (The agency does not disclose who gets the
awards or what cases they involve.) The agency's smallest was
just $18--less than the typical reward advertised in
newspapers for lost dogs.
Under the new guidelines, rewards range from 1% to 15% of
the tax recovered, depending on the assistance provided by
the informer. But all awards are at the ``discretion'' of IRS
officials, who make their decisions behind closed doors. Of
course, the rewards are taxable income.
The IRS takes a low-key approach, not seeking to send the
message that the federal government is actively recruiting
paid stool pigeons. The agency does not make Form 211, which
informants must fill out to claim a reward, widely available.
It isn't even kept in the IRS national headquarters lobby,
where the agency has almost every form on display.
Asked if the IRS encourages Americans to inform on others,
Smith said he could offer no advice and suggested that
individuals do what they feel is right. But former IRS
officials are more blunt.
garbage information comes streaming in
``Informants rewards are pretty distasteful to everybody
except the person who gets one,'' said Phillip Brand, a tax
expert at KPMG Peat Marwich LLP and former IRS chief of
compliance. ``People have a different feeling about informing
when they do it as good citizens.''
Another problem with paying for information is that the IRS
gets a lot of garbage information. Brand recalled a tipster
once sought a reward for the disclosure that a secretary of
State was dealing drugs to Queen Elizabeth II and not
reporting the sales on his taxes.
But week allegations are less humorous when the IRS pursues
them against innocent taxpayers. That apparently happened to
John Colaprette of Virginia Beach, Va., whose home and two
restaurants were raided in 1994 by armed IRS agents after his
bookkeeper, Deborah A. Shofner, made phony allegations.
The bookkeeper was later arrested and charged with stealing
from a Colaprette restaurant, the Jewish Mother. She was
sentenced to 6 years and 11 months in Virginia.
``This case was investigated for just one and a half days
before they obtained a search warrant, which was then
executed 12 hours later,'' said Colaprette, who is expected
to testify this month before the Senate Finance
Committee's hearings on IRS abuses.
Although the committee is saying little about its planned
hearings, it is expected to focus on the IRS' criminal
investigation division, which handles most of the paid
informants and conducts a wide range of undercover
operations.
Since the raid on the Jewish Mother, the IRS has never
assessed any back taxes or made any changes to his tax
returns, Colaprette said. He has a $20-million suit against
the IRS.
``Why do we have an agency that nobody controls?''
Colaprette asked.
It isn't unusual for the IRS to deal with informants who
violate confidential relationships. Like Colaprette's
bookkeeper, when St. Louis tax accountant James Checksfield
informed on his own client in 1989, he was discredited. The
government dropped its tax evasion case against the client
and the accountant lost his license.
Smith, the IRS chief of exams, said he could not discuss
any specific cases because of privacy laws. But he said the
IRS carefully screens allegations and is mindful of the
potential for bogus information.
``It is a concern that we take very seriously,'' Smith
said. ``We absolutely try to be very careful about looking at
returns with the greatest probability of error.'' Smith added
that 89% of the returns examined as a result of a tip end up
with changes.
While it isn't surprising that the targets of allegations
feel abused, informants also are often frustrated over how
the agency treats their claims.
If Case Isn't Closed, No Reward Is Paid
Case, the Sherman Oaks woman, tipped the IRS in 1985 to
Stanley D. Hexom, a San Jose real estate broker later accused
of swindling millions of dollars from elderly California
investors in fraudulent real estate deals. She has never
received a reward from the IRS, but neither has the agency
closed her case.
As Hexom's bookkeeper, Case provided IRS agents boxes of
evidence, including copies of doctored tax returns and
locations of bank accounts, as well as testifying to a
federal grand jury.
Under IRS guidelines, an informant who provides such
specific information is supposed to get 15% of the back
taxes. But a big caveat is that the IRS has to actually
collect the back taxes. So, if the agency comes up empty-
handed, so does the informant.
There is no doubt that the IRS went after Hexom, who was
convicted on two counts of bank fraud and one count of
preparing a false tax return. IRS agents tried to collect
from Hexom's wife, though she may have escaped assessment by
claiming she was an innocent spouse, said Richard Blos,
Hexom's attorney in San Jose.
Hexom was released from prison in 1993 and is currently
living in the Phoenix area. He could not be reached for
comment.
Smith acknowledged that the agency is often criticized for
taking too long time to pay rewards, but he added that 13
years is an abnormally long time for an informant to be kept
waiting.
Other informants say the agency's criminal investigation
division takes all the credit for big money cases and
undermines the role played by informants.
Joseph Pinnavaia, an Oceanside gemstone expert, helped the
IRS crack a tax fraud ring in the early 1980's, in which
worthless stones were being donated to museums for big tax
write-offs.
Pinnavaia died last November, but not before completing a
manuscript, entitled, ``The Most Corrupt Agency in the
Federal Government: The Internal Revenue Service,'' which
detailed how the agency mishandled his case.
With Pinnavaia's help, the IRS went after a doctor in
Florida who had donated an allegedly worthless blue topaz gem
to the Smithsonian Institution. By 1979, the IRS was
receiving 10,000 tax returns a year with deductions for
gemstones, it was later discovered.
Though Pinnavaia was awarded $11,000 for his help in the
case, he asserted that the IRS cheated him by claiming it
already knew about the larger nationwide fraud ring. The
manuscript, a copy of which was provided to The Times,
includes a variety of internal IRS documents, in which
criminal division agents downplayed his role in the case.
``He felt the $11,000 didn't even cover his expenses,''
said Mathew D. Pinnavaia, his son. ``They tried to deny he
played any role.''
The PRESIDING OFFICER. The Senator from Nebraska.
Mr. KERREY. First of all, let me say to the Senator from Nevada, long
before I got on this issue of taxpayer rights, the Senator was there,
working on Taxpayer Bill of Rights 1 and Taxpayer Bill of Rights 2.
This legislation in title III is a continuation of your work. And I
appreciate very much your early support of this bill that enabled us to
fashion this legislation in a bipartisan way, which I think allows us
to make certain that we can extend the rights and power and authority
to the taxpayer and stop abuses that we see within the IRS's capacity
to collect money that this Congress authorizes is to be collected.
I appreciate, specifically, the problem you are identifying with your
amendment. It is a problem that, thanks to Chairman Roth, we heard
before our committee. We saw the problems that can occur when you offer
somebody, essentially, a reward to inform; you can get abuse from that.
As the Senator knows, as I have heard him talk about this as well, the
dilemma is, how far do you go? We have this mechanism being used
throughout law enforcement and there are many times when it works and
when it is not abuse.
I am wondering if the Senator would allow to us modify his amendment
so it can require the commissioner to do a thorough analysis of this
problem. Commissioner Rossotti has had this brought to his attention.
It would require him to do a thorough analysis of this problem and then
come back to us and say, how can we change the law so as to make
certain that you are able to use this system when appropriate, but we
can get rid of some of the abuses that are quite obviously not the
intent of this Congress.
Mr. REID. Mr. President, I say to my friend from Nebraska that I
appreciate the kind comments about my work on the Internal Revenue
Service tax issues generally in the past. I also want to say that but
for the Senator from Nebraska, we would not be on the floor today. The
people of Nebraska should understand, as I am sure they do, the
tenaciousness of the senior Senator from Nebraska. The work that he has
done on this issue--when the history books are written about tax reform
in this country, one of the chapters has to be dedicated to him. I
personally appreciate, on behalf of my constituents from the State of
Nevada, the work that you have done on this issue. I also think the
work done on the underlying legislation, giving the commissioner of the
Internal Revenue Service the power to do some things for a change will
allow the commissioner to take a good look at this program and make
some
[[Page S4400]]
suggestions, which in the past fell on deaf ears because he had no
power and authority to do anything. So I think we have a good
commissioner. I am willing to have my amendment modified. I think it is
a step in the right direction. There may be some things that I don't
understand having only gotten----
Mr. ROTH. Mr. President, if the Senator yield. I find it very
difficult to hear what the distinguished Senator is saying.
Mr. REID. Mr. President, I am happy to talk a little louder. I say to
my friend from Delaware that this has always been one of my habits. I
can remember when I first started trying case, there was a judge named
Marshall--and Las Vegas only had 3 or 4 judges at the time--and he was
hard of hearing. I would get up and talk to the jury and he could not
hear what I was saying, so he would get upset at me. He thought I was
saying things I didn't want him to hear. That wasn't the case then and
it's not the case now. I will try to be more direct to the Senator from
Delaware.
What I was saying is that I think this underlying legislation gives
the commissioner of the IRS power he didn't have before, which is good.
One of the problems we have had in the past is that the commissioner of
the IRS has had no power to make changes in the way the Service
operates. This legislation certainly gives him power to do that.
So, as I said to my friend from Nebraska, and I say again, I am
willing for my amendment to be modified to have the commissioner report
back to us within a reasonable time as to whether or not this program
should be terminated in its entirety, or whether it should be modified.
There may be instances when there may be a need for some type of a
contingent fee. I am not aware of any, but there may be. I have enough
confidence in the underlying legislation, which will be in effect in a
few weeks, we hope, and in the commissioner of the IRS that I am
willing to allow my amendment to be modified.
Mr. ROTH. Mr. President, I say to the distinguished Senator from
Nevada that that is a very positive step, a very sound way of
addressing the problem. It has been the practice in Government, as he
well knows, that contingent fees are sometimes made available, not only
in the IRS, but I believe in other areas of activity as well. As we all
witnessed last week, this practice was used in an extremely abusive
manner--a manner that should be dealt with. So I can understand the
Senator's concern and interest in this matter.
I appreciate it and would find it acceptable, as far as I am
concerned, if he would modify this to make a study, and within a
limited time come back. I think we do have a new commissioner that is
very effective and is bringing about change. This would help give him
direction, and we think this is a matter of critical importance.
Mr. REID. If the Senator from Delaware will yield. I say to the
manager of the bill, I think also that we focused attention, through
the hearings that you have held, newspaper articles written, and
through this amendment, on this practice that I am sure the
commissioner will have enough information to come back to us as to
whether or not this practice should be continued, modified in some way
or, as I said, eliminated. So I would be happy to modify this amendment
so that the commissioner could report back to us within a reasonable
period of time.
Mr. ROTH. Mr. President, I think I will make a point of order that a
quorum is not present and try to reach agreement on the specific
language.
I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mrs. MURRAY. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mrs. MURRAY. Mr. President, I rise today in strong support of H.R.
2676, the Internal Revenue Service Restructuring and Reform Act. We
have waited too long for the opportunity to debate this issue and move
this legislation. Senate action is coming six months after the House
overwhelmingly passed this legislation and almost a year after the
Kerrey/Portman Commission issued their recommendations for improving
and reforming the IRS.
It is no wonder the American taxpayer is frustrated and angry. What
kind of penalty or interest would the IRS levy against a taxpayer who
was six months late in filing their taxes?
Mr. President, the IRS is an agency out of control. I hear this from
people all across my state. They want the IRS reformed. And they want
it done now.
What has this six month delay meant to taxpayers? Since November 5,
1997 the date the House voted on H.R. 2676, more than 17 million
taxpayers have received a collection notice from the IRS; more than 34
million Americans have contacted the IRS to request assistance or
information--of these calls, more than 16 million did not go through
and close to 2 million Americans did not get correct answers.
This is unacceptable. Had we acted back in November, the impact on
these families would have been dramatically different. We did not need
more hearings, we needed action.
Since November 1997 I have heard from close to 1,200 taxpayers from
my state who have written in support of systemwide reforms at the IRS.
They have told me of their experiences and frustrations--and I have to
say, some are quite disturbing.
Mr. President, I want to read some excerpts from a few of these
letters--which have come from every corner of my state. They really
highlight the abuses taking place by the IRS.
This comes from a constituent in Moses Lake, Washington. She says:
We are people who obey the law. If there were things on our
tax return which were in error or were questionable, we have
no problem with being called to account for it. Nor do we
take issue with paying more taxes if we legitimately owed
more. However, the way we were treated by a representative of
the IRS should never be allowed in any country, let alone
ours, which is supposed to be based on presumption of
innocence.
Another letter comes from a constituent in Seattle:
In 1993, my husband and I bought a franchise and opened our
business as sole proprietors. (If we had incorporated, our
suffering would be over now). My husband, Craig, had plenty
of knowledge and experience in carpentry and built a strong,
thriving closet remodeling business. He did not, however,
have business tax and accounting training, and he made
mistakes in the paying of taxes and filling our paperwork to
the IRS. As soon as he recognized his mistake, he alerted the
IRS and began to try to make amends.
It seemed he had awakened a vicious sleeping dog.
He goes on to say:
Along with everything else, the IRS randomly cleaned out
our bank accounts, as well as those of our children.
It seems the IRS has an incentive program for their
employees which persuades them to take quick, harsh action,
trying to ``get what they can'' and ask questions of the
``customer'' later.
Finally, from a constituent in Kirkland, WA:
For the past seven years both my husband and I have lived
our lives under the tormenting cloud of the IRS.
We had a lien put on our home and the letters began to come
of companies wanting to help us with our troubles with the
IRS. This was so devastating as we were just starting what we
thought would be a beautiful life together. One day I came
home to 12 different notices from the IRS I needed to sign
for at the Post Office. That is a great way to spend
taxpayers' money, don't you think?
These heavy-handed tactics by the IRS are not acceptable.
But this is not the first time I have heard from constituents about
problems with the IRS. I knew reform was long overdue. It was not until
the release of the Kerrey/Portman Commission report that I realized
that it was not just a few bureaucrats abusing their position, but
rather an agency out of control. An agency with management practices
that encouraged abuse of taxpayers; managers who rewarded the most
aggressive and unbending employees; and an agency that viewed taxpayers
as the enemy.
Why is it so critical to enact IRS reform? We can all name many
reasons why reform is necessary and important, but I think we all have
to remember that taxpayers are only trying to meet their
responsibilities in a democratic society. They are not turning to the
IRS to apply for benefits or for assistance. They are attempting to
honor their financial obligation and commitment to a democratic and
progressive society. They are not asking for anything in return but to
be treated fairly.
[[Page S4401]]
Unfortunately, this is not the experience of most taxpayers. This
frustration with the IRS jeopardizes compliance with the tax code and
undermines the faith taxpayers have in our system.
Currently, honest taxpayers and businesses pay an average of $1,600
per person for those who do not meet their financial obligations. An
estimated $120 billion a year goes uncollected. We do not need to add
to this by encouraging more taxpayers to give up.
The great thing about this legislation is that it keeps the
taxpayer's interest in mind. It simply levels the playing field between
the taxpayer, both large and small, and the IRS. What's more effective
than forcing the IRS to work in a more fair and even-handed manner?
I am particularly pleased this legislation provides relief for
``innocent spouses'' who find themselves liable for taxes, interest, or
penalties because of actions by their spouse. This has become a severe
problem for many women and children. Following a divorce many women are
left to fight the IRS to save their homes and their children's future.
Spouses who engaged in illegal activities or misrepresented their
income to the IRS simply flee and leave. The IRS then attempts to
collect from the innocent spouse--who is often easier to locate--as she
has custody of the children. It is a little difficult to hide when you
have children.
The IRS then aggressively pursues these innocent spouses for a debt
that they never knew about. If only we could be as aggressive in
tracking down the billions of dollars in uncollected child support.
I urge the Senate to do the right thing today and pass this
legislation. No more delays and no more excuses. The American taxpayer
deserves better.
Thank you, Mr. President. I yield the floor.
Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER (Mr. Gregg). 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. Without objection, it is so ordered.
Amendment No. 2343
(Purpose: To provide electronic access to Internal Revenue Service
information on the Internet)
Mr. KERREY. Mr. President, I send an amendment to the desk, an
amendment offered by Senator Leahy and Senator Ashcroft. It has been
cleared on both sides. I ask that this amendment be agreed to.
The PRESIDING OFFICER. The clerk will report the amendment.
The bill clerk read as follows:
The Senator from Nebraska [Mr. Kerrey], for Mr. Leahy, for
himself and Mr. Ashcroft, proposes an amendment numbered
2343.
Mr. KERREY. Mr. President, I ask unanimous consent that reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
On page 262, after line 14, add the following new
paragraph:
``In the case of taxable periods beginning after December
31, 1998, the Secretary of the Treasury or the Secretary's
delegate shall establish procedures for all Tax Forms,
Instructions, and Publications created in the most recent 5-
year period to be made available electronically on the
Internet in a searchable database not later than the date
such records are available to the public in printed form. In
addition, in the case of taxable periods beginning after
December 31, 1998, the Secretary of the Treasury or the
Secretary's delegate shall, to the extent practicable,
established procedures for other taxpayer guidance to be made
available electronically on the Internet in a searchable
database not later than the date such guidance is available
to the public in printed form.''
Mr. LEAHY. Mr. President, I commend Chairman Roth and Senator
Moynihan for their outstanding work on legislation to reform the
Internal Revenue Service (IRS). It is time for the IRS to deliver
better service to the American people. Our nation's taxpayers deserve
no less.
Today, Senator Ashcroft and I are offering an amendment to H.R. 2676
based on the Taxpayers Internet Assistance Act of 1998, S. 1901. Our
bipartisan legislation requires the IRS to provide taxpayers with
speedy access to tax forms, publications and other published guidance
via the Internet.
Mr. President, I want to praise the Senate Finance Committee,
Chairman Roth, Senator Moynihan, Senator Kerrey and Senator Grassley
for their leadership in moving the IRS reform legislation to the full
Senate. I strongly support the bill approved by the Finance Committee.
As the Senate prepares to debate IRS reforms, we must use technology
to make the IRS more effective for all taxpayers. What better way to do
that then to require the IRS to maintain online access to the latest
tax information. Every citizen in the United States, no matter if he or
she lives in a small town or big city, should be able to receive
electronically the latest published tax guidance or download the most
up-to-date tax form.
The IRS web page at >http://irs.ustreas.gov< provides timely service
to taxpayers by increasing electronic access to some tax forms and
publications. I commend the IRS for its use of Internet technology to
improve its services. More information and services should be offered
online and not just as a passing fad. Our legislation is needed to
build on this electronic start and lock into the law for today and
tomorrow comprehensive online taxpayer services.
For Tax Forms, Instructions and Publications, our legislation
provides for online posting of documents created during the most recent
five years, the same period of time that the IRS now keeps these
documents on CD-ROM for Congressional offices. With these common sense
requirements, the IRS will be able to enhance its web page with
comprehensive tax guidance in a matter of days at little cost to
taxpayers under our bipartisan bill. In fact, the Congressional Budget
Office has scored our legislation as adding no new direct spending.
Thomas Jefferson observed that, ``Information is the currency of
democracy.'' Let's harness the power of the information age to make the
IRS a truly democratic institution, open to all our citizens all the
time. We strongly believe that the IRS must prepare itself for the next
millennium now.
I thank Senator Ashcroft for his support and urge my colleagues to
support our amendment.
The PRESIDING OFFICER. Without objection, the amendment is agreed to.
The amendment (No. 2343) was agreed to.
Mr. KERREY. 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. REID. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Amendment No. 2342, as modified
Mr. REID. Is the Reid amendment still the pending business?
The PRESIDING OFFICER. The Reid amendment is the pending business.
Mr. REID. I send a modification to the desk.
The PRESIDING OFFICER. The amendment will be modified.
The amendment (No. 2342), as modified, is as follows:
At the end of subtitle H of title III, add the following:
SEC. . STUDY OF PAYMENTS MADE FOR DETECTION OF UNDERPAYMENT
AND FRAUD.
Not later than 1 year after the date of enactment of this
Act, the Secretary of the Treasury shall conduct a study and
report to Congress on the use of section 7623 of the Internal
Revenue Code of 1986 including--
(1) an analysis of the present use of such section and the
results of such use, and
(2) any legislative or administrative recommendations
regarding the provisions of such section and its application.
Mr. KERREY. Mr. President, this amendment addresses a very important
problem that we saw in the oversight hearings that the chairman
conducted, and that is sometimes the payment made to induce an
individual to provide evidence against a taxpayer who is violating the
law becomes an incentive to provide evidence that is faulty and the
taxpayers end up being abused as a consequence. Normally, a request for
a study would not necessarily go very far. In this case, Commissioner
Rossotti has already launched an investigation by the Criminal
Investigation Division, using Mr. Webster,
[[Page S4402]]
former FBI Director, as the lead who has indicated he wants to get to
the bottom of this problem as well. So I believe this modification is a
good modification. I am prepared to accept it on this side.
Mr. ROTH. Mr. President, we have reviewed the proposed change in this
amendment. As I understand it, it requires a study to be made on
informant payment, that the study must be completed within a year. As I
said earlier, we found there are some serious problems in this area,
and the modified amendment is satisfactory to this side.
The PRESIDING OFFICER. Without objection, the amendment is agreed to.
The amendment (No. 2342), as modified, was agreed to.
Amendment No. 2341
The PRESIDING OFFICER. The question recurs on the Bond amendment with
2 minutes equally divided.
Mr. BOND addressed the Chair.
The PRESIDING OFFICER. The Senator from Missouri.
Mr. BOND. Mr. President, we all know the problems of the IRS. They
are well known. This is a troubled agency. It needs to be turned
around. This is a good bill, but I think we need to do one thing to
make it better. When has a part-time board ever turned around a
troubled agency? A part-time board will not do the job. We need a full-
time board if they want to change the culture of the agency. A full-
time board such as the FTC, the SEC, even the Federal Reserve, can draw
the people from all walks of life across the country to make sure the
culture of the IRS is changed.
If you want to do something about the IRS, you have to put into the
field a big dog that can back up his bark. Otherwise you have a little
puppy on the porch that is meowing with the cats. It is not going to
change the IRS to put a toothless puppy in as an advisory board. I
believe a full-time board can give us the strength we need for vital
reform. I ask for support of my amendment.
Mr. KERREY addressed the Chair.
The PRESIDING OFFICER. The Senator from Nebraska.
Mr. KERREY. I was concerned as to where that animal analogy was going
to go. Again, I appreciate very much what the Senator from Missouri is
trying to do. I think the intent is shared both by myself and the
chairman of the committee. We believe very strongly that this amendment
would actually reduce the President's ability to find qualified people
to come and bring their considerable expertise to assist the
Commissioner who will be granted new authority to manage the Internal
Revenue Service to restructure and improve customer service, improve
the use of technology, and increase the satisfaction that customers of
the IRS get.
So although it is well intended--I actually started out where the
Senator from Missouri is--I believe it will make it more difficult for
us to get the kind of people the Commissioner needs to serve on this
board.
The PRESIDING OFFICER. The question is on agreeing to the Bond
amendment. The yeas and nays have been ordered. The clerk will call the
roll.
The bill clerk called the roll.
Mr. FORD. I announce that the Senator from Hawaii (Mr. Akaka) is
absent due to a death in the family.
The PRESIDING OFFICER. Are there any other Senators in the Chamber
who desire to vote?
The result was announced--yeas 25, nays 74, as follows:
{Rollcall Vote No. 121 Leg.}
YEAS--25
Abraham
Ashcroft
Bond
Burns
Campbell
Coverdell
Craig
D'Amato
DeWine
Faircloth
Frist
Gramm
Hollings
Hutchinson
Inhofe
Kempthorne
Kyl
McCain
McConnell
Nickles
Shelby
Smith (NH)
Stevens
Thomas
Thurmond
NAYS--74
Allard
Baucus
Bennett
Biden
Bingaman
Boxer
Breaux
Brownback
Bryan
Bumpers
Byrd
Chafee
Cleland
Coats
Cochran
Collins
Conrad
Daschle
Dodd
Domenici
Dorgan
Durbin
Enzi
Feingold
Feinstein
Ford
Glenn
Gorton
Graham
Grams
Grassley
Gregg
Hagel
Harkin
Hatch
Helms
Hutchison
Inouye
Jeffords
Johnson
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Lieberman
Lott
Lugar
Mack
Mikulski
Moseley-Braun
Moynihan
Murkowski
Murray
Reed
Reid
Robb
Roberts
Rockefeller
Roth
Santorum
Sarbanes
Sessions
Smith (OR)
Snowe
Specter
Thompson
Torricelli
Warner
Wellstone
Wyden
NOT VOTING--1
Akaka
The amendment (No. 2341) was rejected.
Mr. ROTH. I move to reconsider the vote.
Mr. KERREY. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. GREGG addressed the Chair.
The PRESIDING OFFICER (Mr. Burns). The Senator from New Hampshire.
Mr. GREGG. Mr. President, I know there are a number of Members who
wish to speak, so I will keep my comments brief. But first I want to
congratulate the chairman of the committee, Chairman Roth, for bringing
forward this really excellent bill to try to address what have been
some extraordinary abuses which have been testified to before his
committee and testified to in other arenas.
In my own case, I held a meeting in New Hampshire--a number of
meetings, and found that we have had over 75 cases involving complaints
involving the Internal Revenue Service since I have been in the Senate,
which is an extremely high percentage.
We held a number of meetings. In one of the meetings, we had a
presentation that was really disturbing--two presentations, in fact.
The first was a fellow who practiced tax law and tax preparation for
over 27 years who brought in a memo, an actual memo that he had taken
off the desk of an agent. And the memo stated very bluntly that the IRS
agents in that arena, in that area, were to collect a specific amount
of dollars. Not only were they to collect a specific amount of dollars,
but they were to collect a specific amount of dollars every month. In
fact, it went further. It said how much they were supposed to collect
every day, almost down to every hour--how much money the agents in that
area were supposed to collect. It was not collection on the basis of
people who legitimately owed taxes; it was collection on the basis of a
quota system. It was outrageous that such a memo should exist or such
direction should occur with this agency.
The second instance, which was even more disturbing because it led to
a death, involved a fairly well known case now in New Hampshire of Mrs.
Barron and Mr. Barron. Mrs. Barron's husband was essentially driven to
suicide as a result of the abusive and totally inappropriate tactics
that the Service, and a specific member of the Service, used in
pursuing Mr. Barron for collection of taxes that were owed.
It was so terrible and so outrageous that it did lead to Mr. Barron's
death and has disrupted and destroyed really Mrs. Barron and her
family. As of today--in fact, I believe it will be announced today--
Mrs. Barron has now finally received, after 5 or 6 years, some slight
recompensation from the Internal Revenue Service in that they have
dropped all action against her and against her husband's estate, and
stated that they will no longer pursue the liability which they
originally alleged was due and which drove this family into such
despair. The manner of the collection was just horrific. The way in
which they proceeded was horrific.
Of course, we have seen testimony before the Senate committee on
which Chairman Roth has been holding hearings which reflected agents
coming into slumber parties and forcing young children to get dressed
in front of them, at gunpoint essentially, and throwing a household
into chaos in that manner.
Even a former majority leader of this Senate, Senator Baker, was
subject to what amounted to extortion as a result of the activities of
what I think was then a rogue agent pursuing Senator Baker.
The instances go on and on. And almost every Member of this Senate, I
suspect, has cases in their home State of abuse, of action taken by
specific agents which went beyond anything which we in a democracy
should tolerate.
Thus, this bill is absolutely appropriate because this bill puts the
taxpayer back on a level playing field. Instead of treating the
taxpayers as if
[[Page S4403]]
they are guilty until proven innocent--just the exact opposite of the
way our culture proceeds--this bill puts the burden back on the
Internal Revenue Service, where the taxpayer can present a reasonable
case.
In addition, this bill says to the spouse, who is just a bystander,
that they will not end up being treated unfairly or abused as a result
of the misdeeds of their husband. And in most instances where the
spouse simply signs the return, the innocent spouse language in this
bill is very, very appropriate. And the chance to recover from the IRS
for damages which are caused as a result of excessive activity on the
part of agents who may act outside the reasonable course of collection
of taxes is also very appropriate in this bill.
So this is truly a strong bill. It is dedicated to the purpose of
trying to rein in the Internal Revenue Service management activities
and make the Internal Revenue Service a more responsible agency as it
deals with our citizenry. Because the bottom line, quite honestly, in
our tax collection service, in our tax collection system as a
democracy, is that people have to have confidence; they have to have
confidence in the system. They have to have confidence that when they
pay their taxes, they are paying, No. 1, their fair share and, No. 2,
they are going to get fair treatment in the manner in which their taxes
are reviewed. And as people lose that confidence, we will lose
compliance.
What we have seen basically is that people have lost their confidence
in the manner in which the Internal Revenue Service pursues the
collection of taxes in this country. This bill will hopefully move a
large step down the road towards reestablishing faith in the collection
process that we pursue in this Nation for our tax obligations.
It does not get to the underlying problem, of course, which is that
the tax laws have become far too complex, far too intricate, have
gotten to a point of legal mumbo jumbo that very few people can
understand what the tax laws actually say or can even comply with them
without the assistance of professionals. That issue we also need to
address as a Congress.
We need to simplify, make fairer, make flatter our tax system; make
it a more comprehensible and understandable tax system. Pending doing
that, which I hope we will do in the next year or so, this bill is a
major stride forward in giving the taxpayers fairer and better
treatment under the Internal Revenue Service procedures and allowing
taxpayers to be treated like citizens of a democracy rather than
citizens of a police state.
Mr. President, I yield back such time as I may have.
The PRESIDING OFFICER. Who yields time?
Mr. ROTH. I ask Senator Allard, do you want to proceed with your
comments?
Mr. ALLARD. Thank you, Mr. Chairman.
The PRESIDING OFFICER. The Senator from Colorado is recognized.
Mr. ALLARD. Mr. President, I rise in support of H.R. 2676.
Mr. President, I also want to talk about reform of the Internal
Revenue Service. The Senate Finance Committee examined this issue last
year, and they recently conducted a careful reexamination. I commend my
colleagues, particularly the chairman of the Finance Committee, for
their vigilance on this issue.
They have worked very hard to identify problems with the Internal
Revenue Service and to craft legislation to correct the problems that
were pointed out during committee hearings.
As we saw in the hearings last fall, the IRS has lacked
accountability for years. The most recent hearings remind us of the
importance of reforming this institution.
No one can dispute the fact that we must end business as usual at the
IRS.
We must bring accountability and integrity back to the IRS.
American citizens should not live in fear of their government.
Certainly most IRS employees work diligently and honestly to insure
that they administer the nation's tax laws accurately and fairly.
But as we have seen, the IRS as an institution has fostered a culture
that tolerates and at times even encourages those few who operate
outside the law.
We desperately need reforms to bring to justice those agents and
elements within the IRS that have so far flauted the law.
The best way to curtail the power of the IRS is to simplify our
nation's tax laws.
Congress is the principal entity responsible for the tax code.
Frankly, I believe Congress should scrap the current tax system and
start fresh with a simple and fair system.
The federal tax burden on hard working Americans is excessive and
overly intrusive, and reform is long overdue.
By striking at the heart of the problem with a fairer, flatter tax
system, Congress will put an end to abusive IRS practices.
Until Congress is able to pass substantive changes to the nation's
tax system that the President is willing to sign, we must reform the
IRS.
Senator Roth's bill would create an independent oversight board that
would redefine IRS accountability.
The board would provide desperately needed oversight of the
management and operation of the IRS, as well as its enforcement and
collection activities.
Taxpayers have a right to expect honesty and integrity in their
dealings with the IRS.
In fact, the mission statement of the IRS calls on its employees to
perform in a manner warranting the highest degree of public confidence
in their integrity, efficiency, and fairness. Let me repeat that. The
mission statement of the IRS calls on its employees to perform in a
manner warranting the highest degree of public confidence in their
integrity, efficiency, and fairness.
When this fundamental trust is breached, taxpayers must have adequate
recourse.
The Senate IRS reform bill gives them the necessary recourse.
Taxpayers would have expanded ability to collect damages and expenses
when they are the target of improper IRS actions.
Also, agents who take improper actions, such as improper seizures we
have heard on this floor, false statements under oath, which was heard
in the committee, falsifying documents, we heard those before,
violation of taxpayer confidentiality, and even harassing a taxpayer,
would be terminated under the Senate bill.
While it is important to make whole those who have been injured by
the IRS, it is even more important to prevent abuses from ever
happening.
Senator Roth's bill would provide this important protection for
taxpayers.
Innocent spouses could no longer be held liable for the tax debts of
their spouse, and spousal liability would be limited on joint returns.
Thanks to this bill, taxpayers will finally receive due process in
their dealings with the IRS, which I think is a significant part of
this bill.
IRS agents would have to follow specific procedures before seizing
assets or filing liens, and they would be prevented from seizing
someone's home for a minor tax liability.
The IRS would also be subject to the same Fair Debt collection
standards that all other bill collectors in America are required to
follow.
This year I have met with citizens in all 63 counties of Colorado.
In many of those meetings I had, I constantly heard about how
frustrating and intimidating it can be to deal with the IRS. The Senate
IRS reform bill would make it easier for citizens to communicate with
the IRS.
The bill would require all IRS notices and correspondence to include
the name, phone number, and address of an IRS employee that the
taxpayer should contact regarding the notice.
It would also be easier to contact the IRS with general questions
since they would finally be required to publish local phone numbers and
addresses in the phone book.
Unfortunately a few agents have elected to use the IRS as their
personal weapon, but the abuse of taxpayers must stop.
The IRS must recommit itself to serving the taxpayers.
The Senate IRS reform bill is a significant step towards that goal.
According to Judge William Downes,
The conduct of our Nation's affairs always demands that
public servants discharge their duties under the Constitution
and the laws of this Republic with fairness and a proper
spirit of subservience to the people whom they are sworn to
serve. Respect for the law can only be fostered if citizens
believe that those responsible for implementing and enforcing
the law are themselves acting in conformity with the law.
[[Page S4404]]
I conclude by saying Congress must pass this legislation to end
abusive practices and restore American confidence in the IRS.
I yield the floor.
The PRESIDING OFFICER. The Senator from North Dakota.
Amendment No. 2344
(Purpose: To examine the transfer pricing enforcement efforts of the
Internal Revenue Service)
Mr. DORGAN. Mr. President, I rise to offer an amendment on behalf of
myself and Senator Reid from Nevada. I believe the amendment has been
worked out.
Let me describe it briefly. As I describe this amendment, let me say
that the issue that is addressed in this bill dealing with the behavior
of the Internal Revenue Service is an important issue. Stories with
respect to hearings that have been held here in recent months, stories
of abuse and taxpayer harassment, are stories that reflect horrible
mismanagement, in my judgment, at the Internal Revenue Service.
This bill serves notice that that kind of behavior will not ever be
tolerated at the Internal Revenue Service. This piece of legislation
gives taxpayers some muscle to fight back when and if this occurs, and
this piece of legislation makes some management changes at the Internal
Revenue Service, some structural changes, to make sure the
mismanagement does not occur again.
Now, there is another issue, however, that is important and this
issue has not been the subject of hearings. That is the issue of
enforcement. You must have a tax system to collect the money to do the
things we need to do as a country--provide for our common defense, to
pay for roads, to pay for health research, to pay for food safety, to
pay for environment protection. So who pays those taxes? What kind of
agency collects them and who pays the taxes?
We want to make sure our tax laws are enforced sufficiently so that
some of the largest economic interests are not getting by paying zero
taxes while the working families, who get out, go to work and work all
day, and have a salary or a wage and have withholding taken out of
their check, pay their taxes because they have no choice and no
flexibility.
A recent study done by the GAO says foreign-controlled corporations
doing business in the United States and not paying taxes equal 73
percent of all foreign corporations doing business here. Let me say
that another way. If you think of the brand names of foreign products
that you purchase in this country, just the most common brand names of
companies who sell billions of dollars' worth of products in this
country, and make billions of dollars in net income in this country,
you can be sure that some of those names you just thought of are part
of this 73 percent who do business here, make money here, and pay no
taxes here--none, none at all. Seventy-three percent of foreign-
controlled corporations doing business in the United States pay zero in
Federal income taxes.
Now when they come here and compete against a U.S. corporation that
does business only here and must pay taxes only here, they are engaged
in unfair competition because they do business here tax free while our
domestic business pays a tax to our country. This deals with tax
enforcement.
The reason I offer this amendment is I want to just describe in a
moment how tax avoidance occurs in this area and why it is important to
have an Internal Revenue Service that is making sure these corporations
pay their fair share of taxes in this country as well.
There have been a number of studies--a GAO study, a Treasury study,
an IRS study, a study by two professors from Florida, Pak and
Zdanowicz. Let me show Members what these studies have told us.
Corporations, in this case foreign corporations doing business in this
country, can simply inflate the cost of what they are selling to their
U.S. subsidiary that they wholly own, and when they inflate the cost of
the product they are selling to their wholly owned subsidiary, their
subsidiary in the United States ends up doing a lot of business but
ends up paying no taxes because they say they made no profits.
Let me give you an example of pricing. Tweezers. A pair of tweezers
for $218. You have been to a drugstore or a grocery store and bought
tweezers. Did you pay that for tweezers? I don't think so. Tweezers are
priced at $218 so that a foreign corporation can overcharge to the
domestic subsidiary and, therefore, take all the profit out of that
subsidiary and claim they made no profit in the United States.
How about safety pins for $29 each? That is $29 for a safety pin.
That is another way to price your profit out of the United States and
show no income and pay no taxes to the United States.
How about a toothbrush imported into the United States from France
for $18 apiece? Has anybody here bought a toothbrush for $18 apiece
lately?
There is another way to do this, by the way, which is that
corporations can have a foreign subsidiary in another country and they
underprice their export to that foreign subsidiary, and that tends to
move profits away from the United States as well.
Let me tell you what they do there. How about a piano, selling a
piano to a company in Brazil for $50? Or what about tractor tires,
selling a tractor tire to France for $7.69? Do you think U.S. farmers
are able to buy a tractor tire for $7.69? How about a bulldozer for
$551? You all know what a bulldozer looks like. Do you think you can
buy that for $551? How about a missile-rocket launcher for $58? That is
the way you move income around and end up not paying income tax to the
United States of America, when all the rest of the taxpayers here pay
the tax.
My point is very simple. How do you enforce what is called arms-
length transactions between related corporations? Well, you take all
their transactions and try to put them back together and measure
whether they are priced in a way that would represent fair market
prices. That is like taking two plates of spaghetti and trying to
attach the ends of the spaghetti. It cannot be done. The result is
billions and billions and billions of dollars--some estimates are over
$40 billion a year--are lost to the U.S. Treasury through massive tax
avoidance, while we are worried about whether people who go to work
every day pay their taxes--and they do pay them because they don't have
any flexibility; they can't get out of it and they can't overprice
tweezers to $18 and tractor tires to $7.60. They pay their tax.
I want the IRS to worry about enforcement of our tax laws with
respect to those who are doing business here to the tune of tens of
billions of dollars, earning income here to the tune of tens of
billions of dollars, and paying zero to this country in taxes. American
firms that do business here must pay taxes; so too should foreign
companies.
The amendment I offered is very simple. It simply requires the
Internal Revenue Service Oversight Board that we are creating to
conduct a study of whether the IRS has the resources needed to prevent
the tax avoidance by these companies. In other words, do they have the
resources to enforce in this area, No. 1; and No. 2, to analyze how
much we are losing in this area of tax avoidance.
It is, in my judgment, scandalous. I refer anybody who is interested
to the study by Pak and Zdanowicz, released not long ago. They are two
Florida doctors who say that the U.S. Government was cheated out of
$42.6 billion in tax revenues in 1997. That is a huge area.
I heard all this discussion on the floor about the IRS targeting low-
income folks. That represents a different sort of enforcement. That
deals with the earned-income tax credit. That is why that is happening.
What about targeting the folks doing business here and not paying taxes
here, who are earning billions of dollars every year in the United
States in profits and using price transfers to price their income out
of this country and shield it from the U.S. taxpayer? Shouldn't they
have to pay income tax on their profit as well?
My amendment requires the oversight board to do certain things and
report back to Congress within a year. I hope that perhaps this will
stimulate some activity to take a look at this area and to see if we
can't get the taxes that are owed this country by foreign corporations
doing business in this country, making a great deal of money and paying
nothing--literally zero--in Federal income taxes. My understanding is
that this amendment has been cleared on both sides and, if so, I would
only need a voice vote.
Mr. KERREY. Mr. President, we are prepared to accept this amendment.
It
[[Page S4405]]
requires a study to be done. I think it is a very important amendment.
I appreciate the Senator bringing it onto this bill and bringing it to
our attention. There is a problem with noncompliance; it is a big
problem. Indeed, there is a problem in the IRS with noncompliant
taxpayers, and Americans believe a problem with the IRS is that people
who are complying are being harassed by the IRS. We have spent a lot of
time, as is appropriate, dealing with the second category. I appreciate
what the Senator is asking for very much.
Mr. ROTH. Mr. President, likewise, I am willing to accept the
amendment of the Senator from North Dakota.
The PRESIDING OFFICER (Mr. Hutchinson). Will the Senator call up his
amendment?
Mr. DORGAN. Mr. President, I send an amendment to the desk and ask
for its immediate consideration.
The PRESIDING OFFICER. The clerk will report.
The assistant legislative clerk read as follows:
The Senator from North Dakota [Mr. Dorgan], for himself and
Mr. Reid, proposes an amendment numbered 2344.
Mr. DORGAN. Mr. President, I ask unanimous consent that reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
On page 394, between lines 15 and 16, insert:
SEC. 3803. STUDY OF TRANSFER PRICING ENFORCEMENT.
(1) In general.--The Internal Revenue Service Oversight
Board shall study whether the Internal Revenue Service has
the resources needed to prevent tax avoidance by companies
using unlawful transfer pricing methods.
(2) Assistance.--The Internal Revenue Service shall assist
the Board in its study by analyzing and reporting to the
Board on its enforcement of transfer pricing abuses,
including a review of the effectiveness of the current
enforcement tools used by the Internal Revenue Service to
ensure compliance under section 482 of the Internal Revenue
Code of 1986 and to determine the scope of nonpayment of
United States taxes by reason of such abuses.
(3) Report.--The Board shall report to Congress, not later
than 12 months after the date of enactment of this act, on
the results of the study conducted under this subsection,
including recommendations for improving the Internal Revenue
Service's enforcement tools to ensure that multinational
companies doing business in the United States pay their fair
share of United States taxes.
Mr. DORGAN. Mr. President, I urge adoption of my amendment.
The PRESIDING OFFICER. Without objection, the amendment is agreed to.
The amendment (No. 2344) was agreed to.
Mr. REED. Mr. President, I ask unanimous consent to proceed as in
morning business.
The PRESIDING OFFICER. Is there objection?
Without objection, it is so ordered.
Mr. KERREY. I wonder if the Senator would specify an amount of time.
Senator Graham of Florida is going to offer an amendment, and we would
like to keep moving on the bill. Do you have a period of time in mind?
Mr. REED. I will finish within 10 minutes, or maybe much less.
Mr. KERREY. Fifteen minutes is fine with me.
Mr. REED. Mr. President, it will be way under that.
____________________