[Congressional Record Volume 144, Number 55 (Wednesday, May 6, 1998)]
[Senate]
[Pages S4406-S4409]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998

  The Senate continued with the consideration of the bill.


                           Amendment No. 2347

(Purpose: To require 1 member of the Internal Revenue Service Oversight 
            Board to be a representative of small business)

  Mr. GRAHAM. Mr. President, I rise for the purpose of offering an 
amendment on behalf of myself and Senator Bond.
  Yesterday, I spoke at some length about the issue of small business 
and the Internal Revenue Service. In that statement I pointed out that 
small business is a peculiarly affected part of the American economy as 
it relates to the Internal Revenue Service.
  Small business, as we know, is the fastest growing sector of our 
economy. Typically, management has multiple responsibilities and does 
not have the kind of access to a panoply of expertise in accounting and 
law as a larger business would have. Oftentimes the small 
businessperson and those associated with the small business are in 
their own learning curve as to what requirements of compliance might 
be.
  Therefore, it is my feeling as we look at this reform of the IRS that 
we should pay some special attention to how this will evolve in terms 
of its application to small businesses. As we know, one of the 
principal elements of this reform is the establishment of an IRS 
Oversight Board. This oversight board has the responsibility of being 
both the window of the Government onto the taxpayer, and the taxpayer 
back to the Government. So it serves an especially important role of 
understanding and communication.
  The legislation is written so that three of the members of the nine-
member oversight board are ex officio--the Secretary of the Treasury, 
the IRS Commissioner, and a representative of IRS employees. The other 
six appointees are Presidential appointments, and according to the 
current draft of the legislation these six appointees must possess 
expertise in the following areas: management of large service 
organizations, customer service, Federal tax laws, information 
technology, organization development, and needs and concerns of 
taxpayers.
  The amendment that I am offering will add an additional category of 
expertise to be represented among the six Presidential appointees and 
that is the needs and concerns of small business. It is the expectation 
that the President would appoint six individuals, and his 
responsibility would be to assure that those six had a sufficient range 
of backgrounds that they would be able to cover the six and, if this 
amendment is added, the seventh requirement.
  I think it is extremely important that among the six people who are 
appointed as Presidential appointees to the oversight board for the 
Internal Revenue Service there be represented in that six one or more 
individuals who understand the needs and concerns of small businesses 
of America and can assure that those concerns are effectively 
communicated to the management and administration of the Internal 
Revenue Service and, if necessary, the Congress, for appropriate 
changes in law.
  The distinguished chairman of the Small Business Committee, Senator 
Bond, joins me in this effort. I want to commend him for his thorough 
analysis of the IRS bill as it affects small business and for including 
this provision in his legislation.
  So, Mr. President, I send to the desk an amendment which would add to 
the requirements for those persons who are serving on the IRS Oversight 
Board that there be included expertise in the needs and concerns of 
small business.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Florida [Mr. Graham] proposes an amendment 
     numbered 2347:
       On page 176, between lines 4 and 5, insert the following:
       ``(vii) The needs and concerns of small businesses.

  Mr. GRAHAM. I thank the Chair.
  I ask for immediate consideration of this amendment.
  Mr. KERREY addressed the Chair.
  The PRESIDING OFFICER. The distinguished Senator from Nebraska.
  Mr. KERREY. Mr. President, we would be prepared on this side to 
accept what I consider to be a very, very good amendment. The idea of 
this board is to give the President authority to select from a wide 
range of experiences that will assist the Commissioner of the Internal 
Revenue Service in managing the agency, and the Commissioner has 
already indicated--indeed, we are going to help him follow through--his 
preference to manage the IRS much differently than it currently is.
  The IRS is currently managed using a three-tiered system that we 
adopted in 1952. There are regional and district offices, multiple 
offices, and you have all different kinds of taxpayer needs taken care 
of in each one of these district offices.
  What the Commissioner has indicated he wants to do is reorganize 
along functional lines. Function No. 1 is large business of which I 
believe there are 7- or 800,000, individual taxpayers would be function 
No. 2, small business No. 3, and nonprofits No. 4.
  So what the Commissioner is already attempting to do, and this law 
would direct him, is to entirely or completely eliminate the three 
tiers in favor of this kind of functional organization. But what he is 
already recognizing is that taxpayer needs vary not according to their 
geography but according to the category of the taxpayer. One of the 
largest and most important categories of radically different needs than 
the other three is small business.
  So what the Senator from Florida is doing is adding to the list of 
requirements the President would have to consider when making a 
selection, and that would be some small business experience which 
reinforces very much

[[Page S4407]]

the other section of this bill, which directs the Commissioner to 
eliminate, as much as possible, the three-tier system in favor of this 
functional system of organization.
  So I think it is a very good amendment. It is one of these amendments 
that just has a few words in it. There is a lot more to this amendment 
than meets the eye. I think with the addition of a small business 
experience, this board is much more likely to be able to carry out its 
function, and that is to provide the kind of consistent oversight and 
advice the Commissioner needs to manage this very important agency.
  Mr. ROTH. Mr. President, I think we are all in agreement as to the 
importance of small business. Certainly, the current success of our 
economy has depended in large part on the contribution of small 
business. For that reason, from this side I agree that we should accept 
the amendment, and so do.
  The PRESIDING OFFICER. If there be no further debate, the question is 
on agreeing to the amendment.
  The amendment (No. 2347) was agreed to.
  Mr. GRAHAM. 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.
  The PRESIDING OFFICER (Mr. Sessions). The Senator from Montana.
  Mr. BAUCUS. Mr. President, during the last couple of months, in every 
household across the country, Americans went through an annual rite. 
They sat down at the kitchen table, pulled all their financial records 
together, and figured out what they owed the Government in taxes.
  Nobody likes doing their taxes. And people dislike paying them even 
more. Yet the vast majority of our citizens do pay their taxes. And 
they pay them honestly.
  In short, Americans expect their money to be used to pay for all of 
the things that help make this nation great. In return, though, the 
American people want their Government to do two things.
  First, the American people want their Government to treat them with 
respect and dignity as the revenue is being collected. They expect to 
have their privacy respected, and to be treated fairly.
  Second, Americans expect that everyone else who enjoys the benefits 
taxes pay for will shoulder their share of the burden. That their 
neighbor down the street isn't hiding part of his income, and thus 
avoiding paying his fair share of the tax. That everyone is filing 
returns, and that the amounts claimed on those returns are accurate and 
true.
  Mr. President, I truly believe the American people have the right to 
have both of these expectations met. And I believe we here in the 
Senate shoulder a great deal of the responsibility for making sure of 
it.
  Chief Justice John Marshall said: ``The power to tax involves the 
power to destroy.'' It is our duty as Senators to make sure this 
country does not use its power in that fashion.
  Running the IRS is a study in careful balances. And I believe that 
the IRS has somehow lost its ability to maintain one side of the 
equation over the years.
  Many tax collectors, in their zeal to catch those among us who don't 
pay their taxes, seem to have lost sight of the most important truth 
about our tax system--that citizens have rights that must be protected.
  Anything less undermines our ability to make a system of voluntary 
taxation work.
  Here's a graphic example of how the system has gotten out of whack. 
It's contained in a recent letter from one of my constituents. It's a 
plea for help:

       The problem with the IRS started in 1997. John [not his 
     real name] and I had just bought a house. I was a semester 
     away from graduating from college, and we thought the 
     [failed] business was behind us. The last week in July 1997, 
     I returned home after a day of working at my part-time job to 
     find a nasty note on my front door from [an IRS agent] 
     stating that he had `tracked' us down and expected a phone 
     call or action would be taken. I promptly called him to find 
     out the reasoning behind the note. He was very rude and 
     reluctant to give me any information, because I [was not my 
     husband]. I explained that I was his wife and he began 
     talking to me in a degrading manner. He said, ``Your husband 
     owes tax, and I expect to collect it in full.'' When I asked 
     him to explain, he very quickly said it was for [my husband's 
     failed business] and began treating me as a criminal who was 
     running from the IRS.
       We feel we have not been treated fairly in this situation. 
     We have attempted to make good on all other situations 
     regarding this [failed] business and have not been hiding 
     from the IRS. [The IRS agent] has been extremely rude and 
     unsympathetic toward us. He has put a tax lien on everything 
     we own. He has also made comments to our accountant 
     indicating that he has been tracking our personal lives and 
     mentioning purchases and other personal matters. In [the IRS 
     agent's] eyes we are criminals cheating the government. In 
     our eyes the government is cheating us by never giving us a 
     fair chance to make good. This whole situation has cost us 
     over $700 in accounting fees and is still unresolved. We are 
     turning to you as a final attempt to resolve this problem. We 
     hope you can help us in making the government work for the 
     people not against them.

  That letter sums up this issue in a nutshell: Make the Government 
work for the people, not against them. Make Government responsive to 
taxpayers' needs. Make service the priority of the Internal Revenue 
Service. Make the IRS treat taxpayers fairly--and with respect. That's 
what my constituent wants. And that's what I want.
  We certainly don't want to tie IRS's hands so much that tax cheats 
are encouraged. The rest of us end up picking up the tab when someone 
cheats. At the same time, we also can't have IRS harassing innocent 
citizens, assuming everyone is guilty the minute they walk in the door.

  I believe this legislation will help IRS find its way back to the 
reasonable balance that our tax system requires.
  The IRS has suffered from years of neglect and lack of focus. The 
spotlight that has been turned on the Service, by the IRS Restructuring 
Commission and by the series of hearings we have held in the Senate 
Finance Committee, has already had a positive effect on the IRS.
  The Service is expanding hours and people for its telephone answering 
service. Taxpayers got 13 million fewer busy signals this year when 
they called IRS to ask questions about their taxes. Toll-free calls are 
being answered 91% of the time--a huge improvement. Last year callers 
only got through 66% of the time, and only 39% of the time the year 
before. This year, phone lines are being answered 18 hours a day. And 
for the first time, the IRS is open on Saturdays.
  People answering the phones are also getting better. One group of 
Baltimore IRS workers gave correct advice to 100% of recent random test 
calls. Nationally, accuracy scores are up to 93% this year, from only 
63% as recently as 1989.
  So more taxpayers are able to get through to the IRS when they have a 
question, and more of the answers they will get will be the right ones.
  IRS has a webpage where taxpayers can download documents and forms. 
Now taxpayers don't have to run all over town just to find the right 
paperwork.
  And the Service has had a series of ``Problemsolving Days'' around 
the country, where taxpayers can come in and get their problems taken 
care of. The last ``Problemsolving Day'' in my home state of Montana 
was in Billings in January. More than half of all the taxpayers who 
participated walked out with their problems taken care of on the spot. 
Many of the rest have been resolved in the succeeding weeks.
  But there are still problems at the IRS, as our hearings--and my 
constituent's letter and plea for help--have clearly identified. And 
many of the improvements planned by our new IRS Commissioner, Charles 
Rossotti, require legislative action in order to go forward.
  The bill before us is a very good beginning. It addresses the first 
expectation the American people share--making sure the Government 
treats them with respect and dignity as the revenue is being collected. 
It does this through a series of provisions.
  First, the bill creates a board, made up chiefly of private citizens, 
to oversee the direction the IRS is going. The Board will keep an eye 
on the Service's budget, to make sure enough resources are being 
dedicated to customer service. It will help define long-term goals, and 
make sure the Service stays on track to meet those goals. The Board 
will ferret out problems at the IRS, and help craft solutions to those 
problems.
  The bill creates significant new personnel flexibilities to make it 
easier for Commissioner Rossotti to get his

[[Page S4408]]

own team on board and reward employees who are doing well. It requires 
the IRS to submit an employee training plan to Congress, to help 
employees improve the quality of their work. The bill requires IRS to 
tell Congress about taxpayer complaints of misconduct by employees, and 
to take disciplinary action against ``bad apples''. The bill also makes 
it easier for IRS employees to provide confidential information to the 
Finance and Ways and Means Committees to report allegations of employee 
misconduct or taxpayer abuse.
  The bill will reorganize the IRS, much as IBM was reorganized when 
they realized they couldn't compete against newcomers like Microsoft. 
Right now, IRS is organized horizontally, by function. This means every 
time a taxpayer has a question or a problem that crosses the Services' 
functional lines, they are handed off to a different person in an 
entirely different department. No one has final responsibility to 
getting the taxpayer's problem solved.
  There is no accountability.
  This bill reorganizes the agency by type of taxpayer. There will be a 
separate division for individuals, one for small businesses, one for 
large corporations, and one for tax exempt organizations. Employees 
within these divisions will be responsible for just about every type of 
problem their assigned group of taxpayers could have. They will stick 
with the taxpayer until his problem is solved.
  No more passing the buck.
  The bill also adds important new taxpayer protections to the law, to 
help protect citizens against arbitrary actions of IRS agents.
  The bill will allow taxpayers to sue for negligent actions by IRS 
agents. Today they must meet a very high treshold by proving any abuse 
was intentional.
  The bill expands the offers-in-compromise program. It makes it harder 
for IRS to turn down legitimate offers. The bill also requires IRS to 
leave taxpayers with more money to live on when they enter into 
repayment agreements.
  In our hearings, taxpayers complained about the difficulty of using 
innocent spouse protections. The House and Senate bills take different 
approaches to solving this problem. Both make it easier for truly 
innocent spouses to be protected from the tax debts their guilty 
spouses have accumulated.
  These are only a few examples of the taxpayer protections built into 
the legislation.
  Finally, the bill before us today takes a first step toward 
addressing what may be the biggest contributor to taxpayer problems 
with our Tax Code--Congress itself. Witness after witness at our 
hearings complained about the complexity of the Code. Witness after 
witness complained about how hard it is to keep up with frequent 
changes we make in the law. And they are right.
  This bill requires that every tax bill in the future be accompanied 
by an analysis of whether it will further complicate the Code. How hard 
it will be for taxpayers to comply with the new law. As we strive to 
achieve fairness in our Tax Code, we sacrifice simplicity. With this 
bill, we will be able to clearly understand the extent of that 
sacrifice.
  I believe that one of the hardest things to do when restructuring any 
agency, and particularly one as sensitive as this one, is to find that 
delicate balance between giving the Government too much power and 
giving it too little.
  Give it too much power, and innocent citizens will be abused. This 
is, obviously, unacceptable in a civilized society. Even one single 
instance of taxpayer abuse is one too many.
  Law abiding taxpayers should not fear the taxman.
  But clipping the Government's wings too closely presents its own 
dangers. Americans expect us to make sure everyone is sharing the 
burden of paying for the services our Government provides. And it is 
clear some of us are not. IRS estimates the ``tax gap'', which is the 
measure of tax avoidance, now is almost $200 billion a year. This 
amounts to more than $1,600 per year for every tax return filed by the 
rest of us.
  This, too, must stop. Our entire system of collecting revenue would 
unravel if taxpayers stop paying their fair share because they believe 
everyone else is cheating.
  The bill before us today is not perfect.
  It does not address the problem of tax non-compliance. We have left 
that challenge for another day.
  There are provisions in it that may seem good at first blush, but may 
cause more harm than good. We should try to fix these as the bill goes 
through the legislative process.
  But I firmly believe we must not let the perfect be the enemy of the 
good. We must not let yet another tax season go by without the taxpayer 
protections this bill provides.
  Passing a solid restructuring bill will do more to get the IRS on 
track than a hundred hearings where we sit, posture, pontificate and 
play politics.
  It is our responsibility to the American people to get this job done 
quickly, and to get it done right. I want to be able to go back to the 
constituent who wrote me that letter and say, Yes, we fixed your 
problem. And, Yes, the Government works for you, not against you.
  Thank you, Mr. President.
  Mr. GRAMS addressed the Chair.
  The PRESIDING OFFICER. The Senator from Minnesota.
  Mr. GRAMS. Mr. President, I rise today to speak briefly about IRS 
reform and overall reform of the tax system.
  Paramilitary-style raids, attempted frame-ups, retaliation against 
whistle blowers, harassment of innocent individuals, all carried out by 
a Government agency oftentimes operating outside the bounds of the law 
and with seemingly limitless authority. A premise played out within the 
pages of the latest popular novel? Not exactly. These examples, 
unearthed during recent hearings here in the Senate, are taken directly 
from the playbook of the Internal Revenue Service.
  The hearings, and the abuses they highlighted, have focused the 
nation's attention on the ``IRS Restructuring and Reform Act'' that is 
now before the Senate. Included within the legislation are many good 
provisions that would protect taxpayer rights and restrict the power of 
the agency. Key provisions would limit interest and penalties on 
delinquent taxes and shift the burden of proof from the taxpayer to the 
IRS in tax disputes.
  Before I continue, Mr. President, I would like to take this 
opportunity to commend Senator Roth, the Chairman of the Finance 
Committee, for his tremendous efforts to reform the IRS and his 
leadership on tax relief.
  I also commend the Chairman for holding the series of oversight 
hearings that exposed the abuses upon taxpayers carried out by the IRS. 
All of us are greatly indebted to Senator Roth for that. He has done an 
outstanding job to formulate a sound and responsible IRS restructuring 
plan.
  If enacted, these reform provisions before us today would improve IRS 
service, make the agency more accountable, and provide better 
protections for the taxpayers. I fully agree with Senator Roth that the 
goal of IRS reform should be to make the IRS ``a service-oriented 
agency instead of a law-enforcement agency.''
  Still, Mr. President, a fundamental question remains: can the IRS 
really be fixed by reform without scrapping the Tax Code? To answer 
this, we need to take a closer look into the problems with the IRS.
  The passage in 1913 of the 16th amendment to the Constitution granted 
Congress the power to impose an income tax. A tiny division of the 
Bureau of Internal Revenue Service was created to collect the taxes. 
Eighty-five years later, this division, now known as the IRS, has grown 
to become the most powerful agency in the entire Federal Government.
  The IRS today employs more investigative agents than the FBI and the 
CIA combined, and boasts a total workforce of more than 100,000. It is 
hard to believe, but more employees work at the IRS than in all but the 
36 largest corporations in this country. The decisions its bureaucrats 
make daily affect every American who takes home a paycheck.
  The agency's job is to administer and enforce the Nation's tax laws 
and collect tax revenue for the Government. To ensure that all 
Americans pay their taxes, Congress has given the agency almost 
unlimited power--power that

[[Page S4409]]

goes beyond the authority granted to any other agency in the Federal 
Government.
  By law, the IRS can audit individuals or businesses. It can impose 
penalties and impose a lien on a taxpayer's property or bank accounts, 
or seize them altogether. Average taxpayers and small business owners 
have few little administrative or legal remedies against such a 
powerful agency.
  Its unlimited power has made the IRS a wasteful, arrogant, 
incompetent, intrusive, and abusive agency. The IRS is driven by 
illegal quotas and collection goals. It has targeted the 
underprivileged for audits. It has mistreated hundreds of thousands of 
innocent taxpayers. Clearly, this is an agency out of control, an 
agency in need of a complete overhaul.

  But let us not forget how the IRS reached this troubled point. 
Congress deserves much of the blame for the present state of our 
hostile tax system, for it is Congress that created the IRS in the 
first place.
  Congress grants the IRS its unlimited power. Congress writes the 
complicated Tax Code that taxes Americans' income over and over and 
provides loopholes to thousands of special groups, making the Tax Code 
too complicated for even most attorneys and tax accountants to fully 
understand. Congress requires the IRS to squeeze more tax money out of 
the taxpayers so that Congress has more to spend. On top of that, 
Congress does not have time to fully exercise its IRS oversight 
responsibilities. Even while it talks reform, Congress is making the 
Tax Code ever more burdensome--since last year, Congress has added 185 
new sections and 824 changes to the Tax Code.
  Most IRS employees are decent, hardworking people who face an 
impossible task: interpreting and applying the hundreds of thousands of 
pages of the Tax Code and its related regulations. A recent study shows 
that more than 8 million Americans each year receive incorrect bills or 
refunds due to IRS errors. Each year, Money magazine hires 50 
professional tax preparers to calculate a return for a sample family. 
No two preparers have ever had the same result; answers can vary by 
thousands of dollars. It just shows that the Tax Code is confusing and 
arbitrary, and this in turn encourages waste, harassment, corruption 
and abuse.

  Tinkering with the system by merely restructuring the IRS will not 
solve its fundamental flaws. It is clear that the real problem with the 
IRS is not management, or administration, but the Tax Code on which all 
IRS decisions are based. This is such an ugly agency it is hard to make 
it pretty by reforms.
  We can replace the IRS management, we can improve its service, crack 
down on abuses, increase its efficiency, and reduce its waste, but the 
fundamental problems will not go away. Reorganizing the IRS without 
real reform of the Tax Code will send a false signal to the American 
people that once we restructure the IRS, all its problem will be solved 
and there will be no need to reform our tax system. Unfortunately, as 
the history books reveal, it is not that easy.
  We have tried to overhaul the IRS in the past, and somehow the agency 
always comes back more powerful and more abusive than ever before. At 
least two versions of a ``taxpayer bill of rights'' previously enacted 
into law have had little effect in taming the IRS. Even after last 
year's IRS abuse hearings, which resulted in promised reforms, the 
abuses continue.
  Mr. President, let me make this clear: it is vitally important that 
we continue our efforts to reform the IRS, and I strongly support 
Chairman Roth's work and his legislation. My point is that we should 
not let this debate delay or derail real tax reform--to delay us from 
carrying out the demands of the taxpayers to scrap the Tax Code and 
replace it with one that is simpler, flatter, fairer, and friendlier.
  This Chamber already passed a resolution to sunset the Tax Code. Now 
we should set a date to establish a new tax system. Once we have 
eliminated the Tax Code, there will be little, if any, need for the IRS 
and its playbook or its abuses.
  Thank you very much, Mr. President. I yield the floor.
  Mr. CONRAD addressed the Chair.
  The PRESIDING OFFICER. The Senator from North Dakota.
  Mr. CONRAD. I ask unanimous consent to be able to speak as in morning 
business for 12 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DORGAN. Mr. President, I certainly would not object, but I ask 
the chairman if I might be able to speak for 8 minutes by unanimous 
consent following Senator Conrad.
  Mr. ROTH. A total of 20 minutes then. The manager has no objection.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. CONRAD. I thank the Chair.

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