[Congressional Record Volume 144, Number 89 (Wednesday, July 8, 1998)]
[Senate]
[Pages S7621-S7643]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998--
                           CONFERENCE REPORT

  The PRESIDING OFFICER. Under the previous order, the Senate will now 
resume consideration of the conference report accompanying H.R. 2676, 
which the clerk will report.
  The assistant legislative clerk read as follows:

       Conference report to accompany H.R. 2676, an act 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 conference report.
  Mr. ROTH addressed the Chair.
  The PRESIDING OFFICER. The Senator from Delaware.
  Mr. ROTH. Mr. President, if my colleagues' July Fourth recess was 
anything like mine, then they heard a great deal from their 
constituents concerning the bill that we bring to the floor today. The 
Internal Revenue Service Restructuring and Reform Act of 1998 is 
legislation that not only has the interests but the support of 
Americans everywhere, and with good reason.
  For far too long, the Internal Revenue Service has been allowed to 
consolidate immense power without the counterbalance of accountability. 
For far too long, the agency has been allowed to operate in darkness, 
hiding behind section 6103 authority, using authority granted them by 
Congress to, in some cases, bludgeon taxpayers.
  Last summer, the National Commission on Restructuring the IRS, 
following an extensive review of the IRS, issued a report that called 
for major changes to the agency.
  In September, the Finance Committee held 3 days of hearings which 
identified numerous additional problems and some terrible, even 
unconscionable taxpayer and IRS-employee abuses within the IRS.
  Those hearings were followed by others which demonstrated clearly 
that

[[Page S7622]]

the Service was in need of serious reform. And we heard from taxpayers, 
tax collectors, tax practitioners. We heard from small business men and 
women. We heard from innocent spouses. And we listened to outrageous 
stories from innocent Americans who, for no valid reason, got caught in 
the crosshairs of an organization that was driven by quotas and lacking 
in oversight.
  Our outrage knew no partisan line. Colleagues on both sides of the 
aisle were offended by many of the stories. To the witnesses--many of 
whom testified without knowing what their efforts would bring--we 
apologized as best we could. We said that we would press forward, and 
we promised reform. That, Mr. President, is what we are delivering 
today.
  This is the bipartisan conference agreement on a plan that will 
effectively change the way the Internal Revenue Service does business. 
It represents the most comprehensive overhaul of the IRS ever enacted. 
It combines the House and Senate bills and incorporates the many good 
suggestions offered by the Agency's new Commissioner, Charles Rossotti.
  Let me be clear on just how important Mr. Rossotti has been to our 
efforts. Following our Finance Committee hearings, he had courage 
enough to release a report that validated the concerns we raised. 
Rather than try to throw up a wall or confuse issues, he made a 
commitment to reform. Every step we have taken he has taken with us.
  Commissioner Rossotti and I have met on many occasions, and he has 
testified before our committee. We have attended taxpayer service days 
together. He has advocated a new management plan that could 
revolutionize the way the Internal Revenue Service does business.
  I am also grateful for the taxpayers and the many current and former 
IRS employees who came before our committee. These were courageous 
individuals, and without them, there would be no reform. And they 
represent only a fraction of those who met with us, who wrote to us, 
who called, and, in the process, moved our investigation forward. 
Likewise, I am grateful to my colleagues--Senator Moynihan, a defining 
presence in the Senate, if ever there was one. I am grateful to 
Senators Charles Grassley and Bob Kerrey and their efforts on the 
National Restructuring Commission.
  Working with Congressman Portman, and others, they got the ball 
rolling early on, and were leaders in this effort. I thank Chairman 
Bill Archer for the work he did on the Ways and Means Committee, for 
the spirit of cooperation he brought to the conference, and for the 
success he had two weeks ago in getting this legislation approved 
overwhelmingly in the House.
  Now, the time has come, Mr. President, to pass it here--legislation 
that will open the door to real restructuring and reform of what can 
only be considered the most powerful agency in the United States 
government.
  This legislation is built on four principles:
  The first principle is to establish independent oversight of the 
agency to prevent abuses against taxpayers and against employees. One 
of the major concerns we heard throughout our oversight initiative was 
that the taxpayers who get caught in the IRS hall of mirrors have no 
place to turn that is truly independent and structured to represent 
their concerns. This legislation requires the agency to establish an 
independent Office of Appeals--one that may not be influenced by tax 
collection employees or auditors.
  Appeals officers will be made available in every state, and they will 
be better able to work with taxpayers who proceed through the appeals 
process.
  Mr. President, agency employees made it clear that there is no 
dependable and consistent mechanism in place to represent taxpayer 
interests. Just as this bill will give the appeals process greater 
independence, it will also make the Office of Taxpayer Advocate as well 
as local problem resolution officers more independent.
  In the future, the Secretary of Treasury, rather than the 
Commissioner will appoint the National Taxpayer Advocate. And the 
Taxpayer Advocate will be just that. Criteria to fill this position 
will include that the Advocate must not be an IRS employee two years 
before and five years after holding this position. In addition, this 
bill provides the Advocate with greater ability to issue an assistance 
order to help taxpayers.
  To ensure that independent review and accountability become part of 
the IRS culture--top to bottom--our legislation creates a nine-member 
IRS Oversight Board--a board composed of six experts from various 
professional fields in the private sector, the Commissioner, the 
Secretary of Treasury, and a full-time Federal employee, or a 
representative of employees. This board will be independent of 
influence from management and the senior executive corps. It will be 
able to monitor and hold managers and executives accountable for their 
actions, and the actions of their employees.
  Under our legislation, the Oversight Board will have broad 
responsibility and will ensure that the IRS has procedures in place to 
carry out its mission. I anticipate that the Board will be able to nip 
problems in the bud so that the IRS will not have to endure 
embarrassing Congressional hearings that expose systemic problems that 
should have been identified and addressed.
  These measures will go a long way toward protecting taxpayers and IRS 
personnel. To further protect IRS employees, this legislation creates a 
new Treasury Inspector General for Tax Administration. We heard far too 
often in our hearings that the current IRS Office of Chief Inspector 
does not have sufficient independence to adequately fulfill its 
obligation. Likewise, the current Treasury Inspector General lacks 
resources and has experienced problems of its own in providing seamless 
oversight of the agency.
  The new Treasury IG for Tax Administration will have greater 
independence than the IRS Chief Inspector.
  This provision is supported by Secretary Rubin and Commissioner 
Rossotti, and it will create a structure where the new Treasury IG for 
Tax Administration will not allow oversight to fall through the cracks. 
This new Treasury IG for Tax Administration will provide independent 
investigations of alleged IRS employee misconduct without management 
interference.
  The new Treasury IG will also respond in a timely manner to requests 
to investigate or audit made by the Commissioner or the IRS Oversight 
Board.
  Now, these measures will go a long way toward combating the 
intimidating culture that witnesses testified exists within the agency. 
They will provide independent protections and promote an agency that 
the public trusts--an agency that the employees can be proud of.
  The second principle incorporated in this legislation is to hold IRS 
employees accountable for their actions and to reward those who treat 
the taxpayer fairly. One of the problems we discovered in our hearings 
is that the Commissioner did not have the kind of authority that is 
necessary to streamline management and remove managers who contaminate 
the culture of the agency. Additionally, we found that the Commissioner 
does not have sufficient authority to hire those who will work toward 
making the kinds of changes that are necessary.
  This legislation changes that. It provides the Commissioner the tools 
he needs to hire top-flight managers who are experts in their field. It 
gives the Commissioner the wherewithal to transform the agency's work 
force by providing bonuses and other incentives, and to sufficiently 
discipline employees whose inappropriate actions harm the image and 
effectiveness of the agency.
  This bill requires the IRS to terminate an employee if it is proven 
that the employee willfully failed to obtain required authorization to 
seize a taxpayer's property, committed perjury material to a taxpayer's 
matter, or falsified or destroyed documents to conceal the employee's 
mistakes with respect to a taxpayer's case. It allows terminations to 
take place if an IRS employee engages in abuses or egregious 
misconduct.
  Conditions for which an employee can be dismissed include, but are 
not limited to, assaulting or battering a taxpayer or other IRS 
employee, violating the civil rights of a taxpayer or other IRS 
employee, or breaking the law, regulations, or IRS policies for the 
purpose of retaliating or harassing a

[[Page S7623]]

taxpayer or other IRS employee. Our legislation also allows an employee 
to be fired for willfully misusing section 6103 authority to conceal 
information from Congress.
  As I have said before, an environment that allows employees guilty of 
these kinds of behaviors to continue to work within the system is not 
acceptable to me, the Finance Committee, or to the American people. We 
have heard enough excuses. The time has come for change. And this 
legislation allows needed changes to take place.
  The third principle advocated by this legislation is to ensure that 
taxpayers are protected, that they have due process during collections 
activities. This includes requiring the IRS to obtain court approval 
before seizing a home.
  It also ensures that the burden of proof be lifted off the shoulders 
of the taxpayer when it's appropriate and placed on the agency. It 
allows necessary and long-overdue reforms to the interest and penalty 
system. This will guard taxpayers against the outrageous and often 
overbearing financial liability that occurs when the agency moves too 
slowly.
  With this legislation, the burden of proof is shifted to the IRS if 
the taxpayer maintains records, cooperates with the agency, and 
provides credible evidence to the court. In addition, the IRS will have 
the burden of proving a taxpayer's income if it uses arbitrary 
statistics to determine that income.
  Another major taxpayer protection in this legislation is our 
provision to strengthen innocent spouse relief. Some of the most tragic 
stories our committee heard concerned innocent spouses whose lives have 
been ruined by the unrelenting pursuit of IRS collections officers.
  This legislation allows divorced or separated spouses to elect to 
limit their liability for a tax deficiency to the amount of the tax 
that is attributable to their income. In this way, they will not be 
held liable for income earned by their spouse. Beyond expanding 
innocent spouse relief, this legislation allows the Secretary of the 
Treasury to provide equitable relief if innocent spouse relief is 
otherwise unavailable. It makes relief retroactive to help those 
innocent spouses who are still being hounded by the IRS.
  Let me say, however, that relief will not be available in cases of 
fraud, or if the IRS proves the taxpayer claiming innocent spouse 
relief had actual knowledge of an item giving rise to the tax 
liability.
  Beyond this, with this legislation, we make necessary and important 
changes to how penalties and interest are applied. In order to prevent 
IRS employees from arbitrarily using penalties as leverage against 
taxpayers, this bill requires non-computer determined penalties to be 
approved by management.
  Furthermore, each notice to taxpayers which includes a penalty or 
interest must specify how the amount was calculated. If a taxpayer 
enters into an installment agreement, the monthly failure-to-pay-
penalty is cut in half.
  Under this bill, if the IRS does not provide a notice of deficiency--
or other form of notification of the specific amount of taxes due--
within eighteen months after a return is timely filed, then interest 
and penalties will be suspended until the taxpayer is actually 
notified.
  This eighteen month period will be reduced to twelve months in the 
year 2004, as the agency improves its ability to notify taxpayers of 
their deficiencies. In this way it is the IRS, not the taxpayer, who 
bears the burden of IRS delay.
  These enhanced rights are meant to protect honest taxpayers. We do 
not excuse those who evade their responsibility or cheat on their 
income tax returns. The protections contained in this legislation 
exclude the failure to file, failure to pay, and penalties related to 
fraud.
  Finally, Mr. President, the fourth principle this legislation 
advances is to provide the Commissioner the tools necessary to take the 
IRS into the 21st century. It directs Commissioner Rossotti to 
eliminate the current national office, regional office and district 
office structure of the IRS.
  It gives him the authority to replace these antiquated management 
models with operating units that will directly serve particular groups 
of taxpayers, better meeting their needs and making the agency much 
more efficient and user-friendly. As I have said before, Commissioner 
Rossotti should be complimented on his tremendous work and managerial 
skills. His plan to restructure the agency is as bold as it is 
necessary, and this legislation gives him the authority he needs to 
move forward.
  And moving forward is what this legislation is all about--to usher 
the IRS into a new era of accountability--to provide taxpayers with the 
protections they deserve--to bring efficiency and modern management to 
an organizational structure that dates back to before the industrial 
age. With this legislation, we bring a promise of hope to honest 
taxpayers and hard-working employees who have waited far too long. We 
bring responsibility and greater openness.
  We focus on the need for service and fairness. With this legislation, 
Commissioner Rossotti will be able to transform the IRS, make it more 
effective and intolerant of corruption and abuse of power.
  I appreciate all the work that has gone into this bill--for the many 
hours and weekends given by Senators, Congressmen, and staff. 
Particularly, I want to thank Frank Polk, Mark Prater, Tom Roesser, 
Mark Patterson, Nick Giordano, and our committee investigators.
  I want to thank Lindy Paull, and the staff on the Joint Tax 
Committee--Barry Wold, Mel Schwarz, Cecily Rock and Mike Udell. Again, 
I am grateful to Senator Moynihan--for his leadership and dedication to 
this cause. I am grateful to my colleagues on both sides of the aisle 
who stood firm for legislation with teeth--who, in seeking change, 
demanded real change--real reforms. That's what we offer today. I am 
proud of this bill. Americans have every reason to celebrate. They have 
let their desire be known, and, Mr. President, they have been heard.


                     Sec. 1101-IRS Oversight Board

  Mr. President, there has been substantial debate on whether a 
Treasury employees union representative should have a designated seat 
on the IRS Oversight Board. I agree with many of my colleagues that a 
representative of IRS employees should not be provided a position on 
the IRS Oversight Board because such member would be subject to a 
substantial conflict of interest. I did not include an IRS employee 
representative on the IRS Oversight Board in my original chairman's 
mark. However, the members of the Finance Committee voted to include an 
IRS employees representative on the board and to waive the criminal 
conflict of interest laws for this particular board member. Amendments 
to these provisions were considered by the full Senate and defeated.
  During conference negotiations, the Department of Justice opined that 
``The employee-representative restriction in the bill would 
impermissiby limit the President's appointment power in violation of 
the Constitution.'' The Department of Justice suggested alternative 
language to avoid the Constitutional problem. In response to the 
Constitutional problems raised by the Department of Justice, the 
conferees agreed that one member of the IRS Oversight Board shall be a 
full time Federal employee or a representative of employees. The 
conferees also incorporated Justice's recommendation that this board 
member receive the same compensation as other board members who are not 
government employees. The Department of Justice also recommended that 
the employee representative should not be exempt from the conflict of 
interest laws. As a compromise, the conferees agreed to delete the 
provision which would exempt the employee representative from the 
conflict of interest laws. However, at the time of nominating this 
particular board member, the President could seek a waiver of the 
criminal conflict of interest laws to the extent such waiver is 
necessary to allow such member to participate in the decisions of the 
Board.
  Waiving criminal conflict of interest laws for one person is a very 
serious matter and should not be taken lightly. As such, the bill 
requires the President to submit a written intent of waiver along with 
the actual waiver language to the Senate with the nomination of such 
member. I anticipate that the President would seriously consider the 
ramifications of nonminating

[[Page S7624]]

an individual with inherent conflicts of interests. If, in the 
President's judgment, such an individual must be on the IRS Oversight 
Board, the President must submit a written statement of intent to waive 
the criminal conflict of interest laws. To be effective, the waiver 
must be provided verbatim with the nomination of such individual.

  While I would have preferred the language in my original chairman's 
mark, this conference agreement addresses the competing concerns of my 
colleagues as well as the Constitutional problems raised by the 
Administration.
  In September 1997 and April 1998, the Finance Committee held several 
days of oversight hearings regarding IRS practices and procedures. 
These eye-opening hearing revealed improper and inappropriate IRS 
practices and in some situations violation of the law. I, along with 
those taxpayers who watched the hearings, was shocked and deeply 
troubled with the practices of the IRS. I believe that proper oversight 
by Congress and the Administration should have reduced or even 
prevented such activity from occurring. One of the most important 
functions of the IRS Oversight Board is to prevent taxpayer abuse. The 
Oversight Board must have access to information that will enable the 
board to reveal problems, bring problems to the attention of the 
Commissioner to address, and inform Congress if the Commissioner does 
not address problems. The Oversight Board should have ``big picture'' 
oversight authority over law enforcement activity, including 
examinations, collection activity, and criminal investigations. 
Taxpayers must be protected from improper and/or illegal activity. 
Hopefully, the Oversight Board, rather than a congressional committee, 
will nip problems in the bud and keep the IRS on a straight course.


              Sec. 1102--Commissioner and Other Officials

  The bill alters the reporting relationship between the IRS Chief 
Counsel and the Treasury General Counsel. The bill requires the IRS 
Chief Counsel to report directly to the Commissioner except for the 
extremely limited situations where an issue relates solely to tax 
policy. It is intended that ``tax policy'' would be limited to 
recommendations relating to tax legislation and the drafting of 
treaties. The Chief Counsel will report to both the Commissioner and to 
the Treasury General Counsel with respect to tax litigation and legal 
advice or interpretation of the tax law not relating solely to tax 
policy. In the rare circumstance where there is a dispute between the 
Commissioner and the Treasury General Counsel, the matter must be 
submitted to the Secretary or Deputy Secretary for resolution. The 
Commissioner, as the client, must be able to make a decision based upon 
the legal advice provided by the Chief Counsel. Neither the Treasury 
General Counsel nor any other Treasury official (other than the 
Secretary or Deputy Secretary) may overrule the Commissioner's 
decisions. The Secretary or Deputy Secretary may not delegate this 
authority to someone else. For example, the Commissioner should be able 
to decide whether to proceed with a litigation matter or recommend that 
a case be appealed. If the Treasury General Counsel disagrees, then the 
issue should be resolved only by the Secretary or Deputy Secretary. 
Furthermore, the Commissioner should have the ability to interpret the 
tax law and issue guidance in various forms. The Commissioner should be 
able to expeditiously issue guidance including regulations, revenue 
ruling and revenue procedures, technical advice and other similar 
memoranda, private letter rulings and other published guidance. Once 
again, if there is a disagreement between the Commissioner and the 
Treasury General Counsel, the issue must be resolved by the Secretary 
or the Deputy Secretary.


      sec. 1103--treasury inspector general for tax administration

  The bill transfers the IRS Office of Chief Inspector's function to a 
new Treasury Inspector General for Tax Administration which will 
provide more effective and efficient oversight over the IRS. The 
current system in which the Treasury Inspector General, with its 
limited resources and tax expertise, attempted to provide oversight 
along with the IRS Office of Chief Inspector which some believed lacked 
sufficient independence from management, simply did not provide 
adequate and independent oversight. I was appalled with the current 
system which allowed issues to fall through the cracks, included little 
or no ability to follow up on issues, or even to timely investigate 
media allegations of outrageous taxpayer abuse.
  The time has come to provide a new, credible Treasury Inspector 
General for Tax Administration which has the resources and expertise to 
independently audit and investigate problems within the IRS. Coupled 
with the IRS Oversight Board and a new more independent National 
Taxpayer Advocate, this provision in the bill will provide yet another 
check on the bureaucracy within the IRS to ensure that taxpayers and 
their problems don't slip through the cracks. While the vast majority 
of IRS employees are honest, hardworking, and law-abiding, enhanced 
oversight will help ensure that taxpayers are treated properly.
  Mr. MOYNIHAN addressed the Chair.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. MOYNIHAN. Mr. President, I rise in the first instance to thank 
our revered chairman, Senator Roth, chairman of the Finance Committee, 
who brings this measure to the floor with the unanimous vote of the 
Finance Committee. From the first, ours has been, under his direction, 
a nonpartisan effort to deal with a nonpartisan issue of the first 
order of consequence. We are equally, in turn, grateful for the work of 
the National Commission on Restructuring the Internal Revenue Service. 
Senators Kerrey and Grassley of our committee and Congressmen Portman 
and Coyne from the House side contributed significantly to shaping the 
concept of the Internal Revenue Service as a customer-based agency, as 
they put it.
  I believe, sir, that we have done this. We have done it with the aid 
and the cooperation and the participation of Chairman Bill Archer and 
ranking member Charles B. Rangel of the Committee on Ways and Means in 
the House, who worked with us on the committee of conference. Senator 
Roth was chairman. And the result before you is an exceptional piece of 
legislation--and not an everyday event.

  The Internal Revenue Service became a permanent part of our 
government in 1862 as part of the Civil War Income Tax Act, which was 
signed into law July 1, 1862, by President Abraham Lincoln. That was 
almost a century and a half ago. Yet it was not until just last 
September that the full Finance Committee of the Senate exercised its 
oversight jurisdiction to ask, how is this enterprise working and where 
is it going? The hearing illustrated the need for changes at the IRS 
and encouraged the thinking on the subject which has produced the 
measure we bring before you today.
  As evidence of the process already underway by the unanimous 
confirmation of this body, Mr. Charles O. Rossotti became the 
Commissioner of Internal Revenue. This was a stroke of administrative 
inspiration by Secretary Rubin, who went out into the private sector 
looking not for a tax lawyer--an honorable profession; normally the 
Commissioners of the IRS have been tax lawyers--but instead for an 
administrator. He found the head of a large company that specialized in 
information services of a wide variety, and who was prepared to do this 
as a public service and not to continue in the line that has been of a 
particular profession, the practice of tax law.
  We have established an IRS oversight board of six private persons, 
the Secretary of the Treasury, and the representative of the IRS 
employees, and finally the Commissioner of the IRS itself. The board 
will be responsible for setting the strategic direction and goals of 
the agency, while the Commissioner will continue to manage day-to-day 
operations. The Finance Committee--and then the Senate--specifically 
voted to include the Secretary and employee representative on the 
board.
  The conference agreement, which maintained this arrangement, passed 
the House by a vote of 402 to 8. With the Secretary of the Treasury on 
the board, the board will know things it cannot otherwise learn. The 
U.S. Secretary of the Treasury is a world figure. His presence on the 
board gives it stature within the Government and with the public. The 
fear was that otherwise it would lapse into a sort of advisory mode 
that would fail to serve the objectives of this ``reform and 
restructuring'' legislation.

[[Page S7625]]

  We are pleased that the agreement maintains the position on the board 
for a representative of the IRS employees. The representative will be 
able to work cooperatively on the inside rather than working in 
opposition from the outside.
  An ongoing problem is how to attract top executives to a government 
activity which has its counterpart in the private sector where 
compensation--if I may use that term--is often very high, if not indeed 
exorbitant, because the amounts of money involved are very large.
  So to recognize the disparity between government and private sector 
salary structures, the conference agreement adopted the Senate 
provision authorizing the appointment by the Commissioner of up to 40 
persons to critical positions for 4-year terms with an annual 
compensation equivalent to the pay of the Vice President of the United 
States; that is to say, currently $175,400. These will be persons 
chosen for their particular skills. They will be there for a 4-year 
period. They will be departing the private sector for an interval of 
public service at something approaching the salaries they normally 
enjoy.
  Other provisions will permit the establishment of a new performance 
management system focused on individual accountability, and allow for 
the creation of an incentive award system bringing the IRS into 
contemporary management modes--out of the model of the civil service 
that was developed a century ago when we set up the Civil Service 
Commission, again establishing grades for employees with salaries that 
were low, but careers that were guaranteed for life. That effort was 
very controversial at that time. I can record that two Senators from 
New York State resigned from the Senate when the newly elected 
President appointed a collector of customs in the port of New York of 
whom they did not approve. One was Roscoe Conkling; the other, Thomas 
P. Platt. Mr. Conkling was no friend of civil service reform and once 
observed that when Dr. Johnson declared patriotism to be the last 
refuge of a scoundrel, he underestimated the potential of reform.

  And yet reform didn't come about, a century passed, and we found that 
the system had not the internal energies to change itself, to adapt to 
new technologies and new management modes. We hope the IRS will with 
these new arrangements--the infusion of new people, and a clear 
understanding that we expect the system to be open, innovative, and 
``user friendly,'' in the term the chairman frequently used in our 
hearings. And we shall see.
  There are several other measures, Mr. President. I should point out 
that the conferees were heroic in their determination not to include 
all manner of extraneous or narrowly-applicable provisions, as is often 
the case in a tax bill but is not the case, with very few exceptions, 
in ours.
  There are two provisions in the conference report, however, that are 
of special interest to the Senator from New York. The first adopts the 
Senate provision for a complexity analysis requirement. It requires the 
staff of the Joint Committee on Taxation to provide an analysis of the 
complexity and administrative issues associated with tax legislation 
reported by the Finance Committee and Ways and Means Committee. The 
provision is intended to provide notice, prior to floor consideration, 
about provisions that have widespread applicability and may be unduly 
burdensome for taxpayers to understand and comply with, or difficult 
for the IRS to interpret and administer, or both.
  I might interject that when this was before us in the Finance 
Committee, the distinguished chief of staff of the Joint Committee on 
Taxation said that she looked forward to this, but that she was fearful 
as to whether the joint committee could begin this complicated effort 
so long as it was burdened with the task of determining which items in 
tax legislation were subject to the line-item veto, a detailed and 
exhaustive analysis of every tax bill, which was a new responsibility 
for the joint committee. I am happy to say, in the weeks since that 
exchange took place, the Supreme Court has dutifully and properly 
declared the line-item veto to be unconstitutional. So one of the 
unintended consequences--I cannot imagine the Court had this very much 
in mind--is that the joint committee is now in a position to begin a 
type of analysis which is new to American legislation.
  We are in the practice of having an increasingly complex Tax Code. 
There can surely be no question that we are dealing with the problems 
that we found in the Internal Revenue Service because the Internal 
Revenue Service has to administer a Tax Code that is frequently 
incomprehensible. An almost priestly hierarchy understands its meanings 
and can work them through the tax courts and such like. But to the 
public and, too, the Congress, they are often simply incomprehensible.
  I remember standing on this floor a year and a half ago with an 800-
page tax bill, Mr. President, and that was the only copy of the tax 
bill on the Senate floor, which we were about to vote for 92-8. A copy 
provided to the distinguished chairman had been promptly appropriated 
by the Budget Committee to see if there were any budget points of 
order, and so the one copy was here on this desk, and Senators on both 
sides of the aisle would come up and ask whether a provision they had 
an interest in was in the bill, and I would say, ``I hope in good 
spirit I can find out, but what will you pay me?'' Indeed, there was no 
other way for the Senator to learn. And this is not an unusual event.
  I am going to say this not once but twice because we have to start 
attending to our own behavior in these matters. I was one of the 
participants in the enactment of the Tax Reform Act of 1986. This was a 
wonderful, collegial experience led by our good friend and former 
colleague, Senator Packwood, along with Senator Chafee, Senator 
Danforth, a ``core group,'' as we called ourselves, of about six of us. 
We would meet for coffee at 8 o'clock every morning in Senator 
Packwood's office, and it would be my job, rather as the dean in a 
cathedral, to provide a reading for the morning. I would make sure I 
got the Wall Street Journal early, and without a great deal of effort I 
would find the advertisements where you would see a little classified 
ad which would say, ``Rocky Mountain sheep, guaranteed losses.'' And 
the Wall Street Journal would tell you how you would be certain to lose 
money in such a manner that the code would eventually reward you for 
your losses, which is an interesting game to play if you are interested 
in C notes but not a very productive form of economic activity.
  Well, we cleaned up that Tax Code. We brought the rates down from, 
oh, half a dozen income tax rates to 28 percent and 15 percent--two 
rates. We did ``base broadening'' as the term was; more and more income 
became subject to taxation, so the rates of taxation could be lowered. 
And when it was all over, to our surprise and rather to the 
consternation of the tax bar, you might say, we had, indeed, produced a 
fairly simple and comprehensible Tax Code. That was 1986--1986, Mr. 
President.
  What you have before you, sir, what we have in the Senate before us--
and my revered chairman will know this better than anyone else 
present--we have the 65th public law to amend the Internal Revenue Code 
since the Tax Reform Act of 1986. We have passed 65 tax bills. That 
comes to about six a year. If you were assigned that task, you would 
say it would be impossible to achieve; it would be asking too much of 
our staffs and our Members. But we have done this heroic, if absurd, 
task, and it has to be said again that simplification is the essence of 
justice and efficiency in the code. We are a large, complex economy, an 
international economy. We are not going to have a simple code, but 
there is no reason we should have an incomprehensible one, particularly 
when the complexities often reflect the influence of special interest 
in the code.
  In this regard, not many weeks ago we heard testimony from one of our 
Nation's most distinguished and accomplished economists, Murray 
Weidenbaum, who had been chairman of the Council of Economic Advisers 
in the administration of President Reagan. I served with him in the 
administration of President Nixon. At that time he took it upon himself 
to explain and popularize the idea of revenue sharing--get Federal 
revenue out to cities and States, let them decide

[[Page S7626]]

how to spend it, and reduce the dependency on administrative judgments, 
decisions, and statutes here in Washington. That was a very fine idea 
which we lost to the budget deficits of the 1980s.
  But Murray Weidenbaum made a powerful point, coming from a powerful 
mind. He said, if you spend all your income, the American Tax Code is 
simple. You just fill out a one-page form: I made $50,000 last year, 
spent $50,000; I made $100,000, I made $100 million--God in heaven 
knows there are some who do--but I spent it all, and my taxes are as 
follows. It is only when you begin to save that the Tax Code gets 
complicated.
  Of course, our largest economic question right now is the rate of 
savings in the American economy. The fact that we have large trade 
deficits basically reflects that we are importing capital. We have the 
lowest savings rate of any industrial country in the world--or any 
prime industrial country of which I am aware. It is quite striking. I 
would not argue this is the principal factor, but it is the fact that 
if you save money you can get in trouble with the Internal Revenue 
Code. Whatever else, that should not be the case. It is the case.
  I think the complexity analysis, particularly if it is directed with 
this kind of issue in mind, has the potential of a very important 
innovation in the development of tax legislation. Don't expect it to 
change anything in the next 3 or 4 years, but in 20 years' time we 
might find that this small provision in this large legislation had 
large consequences.
  One other item. In the interval since this legislation was agreed to, 
the majority and minority leaders have created a special committee on 
the year 2000 problem, with a hurry-up reporting date. But during the 
Finance Committee's consideration of the bill, Commissioner Rossotti 
specifically noted, in a six-page letter, that some of the changes the 
chairman has described in such admirable detail would overburden the 
IRS's ongoing efforts to upgrade its computers to allow for the century 
date change. In time we came to see the need for the effective-date 
changes he recommended--and Secretary Rubin reinforced this in a 
typically succinct one-page letter. We have, in the main, accommodated 
the Commissioner in this regard. I think this is probably the first 
statutory recognition of the year 2000 problem, which we are going to 
know a lot more about in very short order.
  Now, briefly, a few matters of concern. Contrary to the unanimous 
opposition of the tax profession, this legislation includes a provision 
that shifts the burden of proof in civil cases from the taxpayer to the 
IRS. We all live in the real world and no one on the surface would ever 
think it right that the burden of proof be on a taxpayer, not the 
Government. But reality can be different. Four former IRS 
Commissioners, who appeared on a bipartisan panel before the committee, 
testified that shifting the burden of proof would cause more harm than 
good to the taxpayer. Similar sentiment was expressed by dozens of 
professors of tax law. Their concern is that this provision will result 
in more intrusive IRS audits, create additional complexity and 
litigation, and create confusion for taxpayers and the IRS as to when 
an issue needs to be resolved in court and when the burden has shifted. 
I recognize the political popularity of the provision, but I fear it 
may actually prove to work against the taxpayer. Be warned--persons who 
have the best reason to be impartial in their judgment have said this 
is not going to help, it is going to make things yet more difficult.
  Another provision certain to cause confusion and to lead to 
additional litigation with the IRS is the expansion of the privilege of 
confidentiality to tax advice furnished by accountants. This new 
privilege may be asserted in noncriminal tax proceedings before the IRS 
and in Federal courts. However, like the current attorney-client 
privilege, information disclosed for the purposes of preparing a new 
tax form is not privileged and the conference agreement precludes 
application of the expanded privilege to written communications to a 
corporation ``in connection with the promotion of the direct or 
indirect participation of such corporations in any tax shelter.'' This 
is a right that most taxpayers will never be eligible to assert, and 
many will be surprised to learn about its limitations.
  One provision that the bill does not include, and should, is the 
correction of a drafting error in the 1997 act which gives a windfall 
to the few estates in this country with a value of more than $17 
million. It costs nothing to fix, and the joint committee estimates 
that the failure to correct this error would cost taxpayers $900 
million in the next 10 years. The Senate bill fixed it. But somehow the 
conferees could not reach agreement.
  Finally, Mr. President, and possibly most important, I direct the 
Senate's attention to a modest, but hugely significant, semantic 
triumph that has been included in this legislation.
  Section 5003 of the conference agreement replaces in U.S. trade law 
the confusing 17th century phrase ``most-favored nation,'' which begins 
with the French phrase ``la nation la plus favorisee.''
  We now replace that term with the plain American term ``normal trade 
relations.'' This relieves the President and the Congress of the burden 
of having to ask, why is this typically not-very-popular country being 
made a most-favored nation?
  Why, for example, is there now a dispute about whether Vietnam should 
be given most-favored-nation status? Of course, it is not most-favored 
nation; it simply means you get the same treatment that the most-
favored nation, some other nation most favored, gets. It is antique 
usage that immediately confuses everyone involved, and now we will be 
able to say we propose ``normal trade relations.'' It is plain English 
and avoids the needless misunderstandings that have accompanied that 
other term.
  I do not want to overburden the Senate with detail, but the most-
favored-nation concept is well over 700 years old. It has been traced 
by historians to a clause in the treaty of November 8, 1226, in which 
Frederick II, Emperor of the Holy Roman Empire, conceded to the city of 
Marseilles the privileges previously granted to the citizens of Pisa 
and Genoa. Not greater privileges, but merely the same.
  The term itself is perhaps a little more recent. The first use that 
we can come across specifically is in the treaty of 1659 between France 
and Spain, which guaranteed that the subjects of each sovereign, while 
in the realm of the other, would be treated as the most-favored nation. 
Again, the phrase ``le plus favorablement,'' or in modern French, ``la 
nation la plus favorisee''--having the same rights as were granted the 
English and the Dutch.
  In the main, the usage has become counterproductive. It confuses the 
public as to what is being proposed. I think it is fair to say 
sometimes it confuses the Congress as well, and we are well to be rid 
of it. I think it is past time and, if I may say, this is a matter that 
the Finance Committee has had in mind for some while. The distinguished 
and revered chairman and I introduced legislation last year for this 
purpose, and now we see it about to become law.
  Mr. President, I thank you for your courtesy, and I have said my 
piece on the matter. I yield the floor.
  Mr. GREGG addressed the Chair.
  The PRESIDING OFFICER. The Senator from New Hampshire.
  Mr. GREGG. Does the Senator from Nebraska wish to speak?
  Mr. KERREY. I am prepared to proceed.
  Mr. GREGG. I am going to speak about 10 minutes. Will that be an 
inconvenience to the Senator, or does he have to get somewhere?
  Mr. KERREY. One of the things I want to do, and I will be pleased to 
step aside for 10 minutes, I want to engage in a short colloquy with 
the distinguished Senator from New York on this bill. I will try to be 
as brief as possible and then yield back to the Senator. I have a 
longer statement I will make on this legislation.
  The PRESIDING OFFICER. The Senator from Nebraska.
  Mr. KERREY. I thank the Chair, and I thank the distinguished Senator 
from New Hampshire. One of the things the Senator from New York has 
referenced--and I will later in my remarks praise both he and the 
chairman of this committee for what they have done in bringing this 
legislation to the floor--one of the things the Senator referenced in 
his comments was the 1986 Tax Reform Act. Indeed, this bill, it should 
be noted by colleagues,

[[Page S7627]]

amends that act. So this would be the, I guess, the 65th tax bill we 
have passed since 1986.
  I wonder if the Senator from New York can engage briefly in a 
discussion for the benefit of the Senator from New Hampshire and for 
those who happen to be watching this debate. One of the things that we 
struggle to do as citizens is to understand what it is that the 
government is doing and why.
  Under our constitutional authorities as a Congress we have a whole 
range of things we are charged with doing. One of the most difficult 
things we are charged with doing, once we have decided we are going to 
have a government of any kind at all, is we have to collect taxes and 
what to use those taxes for and we then have to decide who is going to 
pay the taxes, and we write the law accordingly. We then distribute the 
money to the various agencies of government that we previously created.
  I wonder if the Senator from New York, with his understanding of the 
rest of the world, can talk a little bit about how much we take for 
granted our capacity to voluntarily collect. We have a voluntary system 
of tax collection, unlike many other nations on Earth.
  I know right now one of the most difficult problems, for example, 
that the newly democratic Russia is facing is their capacity to collect 
tax revenues in sometimes a not-so-voluntary fashion.
  I wonder if the Senator can talk a little bit about the 
constitutional issues of us raising the taxes to pay for the government 
and the importance of our being able to maintain a voluntary system of 
tax collection.
  Mr. MOYNIHAN. I certainly will. I will be succinct, because nothing 
could be more clear.
  The United States is blessed with a citizenry that pays its taxes on 
time and in full. There are exceptions, but we do it voluntarily. 
Technically, we self-assess; we decide ourselves what we owe the 
government. The rate of compliance is very high.
  Up until just recently, and it is just beginning to change, for 
example, in the United Kingdom, which we associate with and we think of 
as a free society, and it certainly is, the subjects of the queen did 
not decide how much taxes he or she owed; the queen decided. They were 
sent a bill. You are free to contest it in court, and you can contest 
it in court the rest of your life, but you still have to pay the bill.
  So the idea of complexity in this system, making it so difficult to 
know what it is you owe jeopardizes a precious institution, which is 
the faith of the public in the good intentions and performance of the 
government itself. That, I think, was one of the reasons the Kerrey 
Commission called for the reforms that are in this legislation of the 
IRS. You can have an openness and a sense that things are on the level 
here and government is doing the right thing.
  Mr. KERREY. I thank the Senator for delaying his exit from the floor. 
I appreciate very much that reference.
  Mr. President, I believe this piece of legislation goes to the heart 
of our capacity to maintain government of, by and for the people. Our 
republican form of government is at risk if people feel they are not 
getting a fair shake with this voluntary system of collection.
  Congressman Portman and I cochaired this restructuring commission. We 
noted U.S. tax collection is the most efficient in the world. Less than 
half of a percent of the total revenues collected is in cost. In the 
face of mounting criticism, problems, it seems to me it is very 
important to make certain that as we write the laws that will determine 
how this money is collected, that we not throw the proverbial baby out 
with the bathwater. We have problems, and this legislation attempts to 
correct the problems. But underneath these problems is a relatively 
efficient system of collecting taxes that enables the citizens to fund 
their Government, and in a relatively efficient fashion.
  Mr. MOYNIHAN. Indeed.
  Mr. GREGG addressed the Chair.
  The PRESIDING OFFICER. The Senator from New Hampshire.
  Mr. GREGG. Mr. President, I wish to join with what I am sure will be 
numerous Senators in congratulating the Senator from Delaware and the 
Senator from New York and the Committee on Finance for bringing forward 
this exceptionally good bill which is truly timely.
  Many of us, as we have tried to help folks out in our States, have 
run into situations where people have been treated in ways which can 
only be described as abusive by the Internal Revenue Service, where the 
Internal Revenue Service has gone way beyond the appropriate action for 
the purposes of collecting the revenues of the country and has treated 
American citizens in a way that you might expect were they to be living 
in a police state instead of in a democracy.
  In my experience, probably one of the worst cases I have ever seen of 
Government excesses involves a family known as Barron in New Hampshire. 
That family, unfortunately, got into some tax trouble, failed to pay 
its taxes, and the IRS, in an appropriate way, attempted to collect 
those taxes--at least appropriately at the beginning. But then it got 
carried away. And as a result of getting carried away, it put that 
family through an extraordinary trauma, to a point where Mr. Barron 
ended up committing suicide. And his wife, Shirley Barron, who is now 
responsible for the family, found herself in a situation which was 
beyond all reason, which was untenable and which was horrible.
  A lien had been put on her house. Her children's bank accounts had 
been taken. Her bank accounts had been taken. The IRS was even making 
it impossible for her to pay her electric fee, her utility fees. This 
all occurred after a time period when they thought they had reached an 
agreement with the Internal Revenue Service. They thought an 
understanding had been reached, and, in fact, an understanding had been 
reached. Then the IRS, in a manner which can only be called bait and 
switch, backed out of that agreement and assessed them with even more 
penalties and interest. And on an original tax bill which was, I 
believe, somewhere in the vicinity of $20,000 or $40,000, they ended up 
with an obligation, according to the Internal Revenue Service, of 
multiple hundreds of thousands of dollars.
  It was a situation which was so horrendously handled that it 
literally drove Mr. Barron to commit suicide, destroyed the lives of 
this family. And it has become a cause celebre in New Hampshire, and to 
some degree nationally. It would be terrible in and of itself, because 
there is really nothing we can do as a Government to correct what 
happened to Mrs. Barron and the treatment she received. Her life has 
been irreparably harmed, and her family will always suffer as a result 
of this.
  It would be terrible enough if it were the only instance of this type 
of situation occurring, but as we saw from the hearings which the 
Senate Finance Committee held under Chairman Roth, it was not the only 
instance. Regrettably, on too many occasions the Internal Revenue 
Service has acted in this almost malicious but certainly abusive way.
  This does not mean that the Internal Revenue Service is populated 
with people who wish to treat American citizens, taxpayers, in a manner 
that is totally inappropriate. No. In fact, just the opposite. The 
Internal Revenue Service is filled with good and conscientious people, 
in my opinion; but there are bad apples.
  More importantly than that, the Service has created an atmosphere, a 
way of management, a culture, which has allowed the excesses to proceed 
in the actions against taxpayers which are beyond the pale of 
reasonableness to become commonplace, through the lack of management 
and, in my opinion, due to lack of structure, both legal and 
managerial. So this bill attempts to correct that.
  The most important thing it does, or one of the most important things 
it does, is it shifts the burden of proof, gets us back to where we 
should have been to begin with, which is to presume that the taxpayer 
is innocent rather than presuming that the taxpayer is guilty until the 
taxpayer has proven himself or herself innocent. That is very 
important, so that the taxpayer goes in at least on some level of a 
playing field which has some levelness to it versus a playing field 
which was radically tilted against the taxpayer under the present 
structure.
  In addition, the bill protects the innocent spouse. In so many 
instances, the spouse is a part of the familial activity as being part 
of a family; signs

[[Page S7628]]

the return without a great deal of knowledge of what is in that return, 
sometimes without any great knowledge of what is in that return, but 
signs it and then finds out later on, as was the case in Mrs. Barron's 
situation, that action has been taken that was inappropriate and 
liability exists. And when the spouse who is responsible disappears, as 
a result of divorce, or in this case as a result of death, the innocent 
spouse ends up with an obligation which is totally inappropriate. So 
the protection of the innocent spouse is absolutely critical and a 
very, very good part of this bill.
  In addition, the bill takes what I think is a critical step in the 
area of managing the Internal Revenue Service's procedures because it 
limits the ability of the Internal Revenue Service to assess interest 
and penalties in a manner which uses the interest and penalties to 
basically force settlements on the taxpayer, even when the taxpayer 
feels they did not owe the obligation.
  There is no question but that the basic collection process at the 
Internal Revenue Service proceeds with, in many instances, running up 
the interest and penalty obligations so when they get into negotiations 
with the taxpayer, even if the taxpayer knows they do not owe the 
taxes, the utility of proceeding becomes so expensive, it becomes so 
impossible to ever want to proceed in a manner which would put you at 
risk for the interest and penalties which have been run up that you end 
up paying the underlying tax and negotiating out the interest and 
penalties. That is a collection process which, regrettably, has become 
the modus operandi of the Internal Revenue Service.
  This bill puts some limitation on that by limiting the ability of the 
Internal Revenue Service to run those interest and penalties up if they 
have not notified the taxpayer within a timely manner--18 months 
initially, 12 months as time goes out--that an obligation is due or 
they perceive that an obligation is due. This is an extremely important 
change in the collection process. In addition, the bill provides much 
better services to the taxpayer, which is critical.
  Thus, I am extremely supportive of this effort. I say this. It does 
not resolve the problem. The problem goes to the basic law. The fact is 
that we have created a tax law which is so complex, so convoluted, such 
a mishmash of regulations and cross-purpose legislation, that it 
becomes basically unenforceable because it is not comprehendible.
  After finishing law school, I went back to school for 3 years and got 
a graduate degree in tax policy with an LL.M. I have to say, I do not 
fill out my own tax return because it is simply too complex. Now, if I 
cannot do it, how can somebody who is just working every day and trying 
to make ends meet be able to do it? Obviously, they cannot.
  And what we see in the collection atmosphere is that the Internal 
Revenue agents, regrettably, because of the complexity in many 
instances, do not understand it because it is not understandable.
  So the law itself is a basic problem here, and we simply have to 
reform the law if we really want to correct this problem. We have to go 
to a much simpler law, a fairer law, something that can be managed in a 
way that is comprehendible to people who are working every day and 
trying to fill out their return, who don't happen to be specialists.
  As an interim step, as an effort to try to correct what is basically 
a law that is not enforceable effectively but is being enforced in a 
manner which in many cases is abusive--as an interim step, this bill 
makes great progress. Thus, I congratulate the committee for their 
efforts. I hope it will not be looked at as the end of the process but 
will be looked at as a step in the process to reforming our tax laws so 
that they can be administered in a way which will regain the confidence 
of the American people that they are fair and that they are reasonable.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Wyoming.
  Mr. THOMAS. Mr. President, I come to the floor, as many other Members 
have, to speak in favor of the IRS reform bill that is before the 
Senate. As the Senator from New Hampshire indicated, I want to take 
just a little bit of a different approach. We talk about this as one of 
the steps in the changes that do need to be made.
  I do come to the floor to express my support for the package. The 
agency, of course, has basically run roughshod over American taxpayers 
for too long. This is the first significant reform in this agency in 
over four decades.
  Congress should do more of this kind of oversight. It seems to me in 
this whole business of funding the Government, this whole business of 
appropriations, that we need to find a way to have more time for 
oversight. That is why I am supporting and continue to support a 
biennial budget in the appropriations process, so we would have off 
years to do this kind of thing for many other agencies.
  Basically, I guess my point is that this is an important part of the 
Republican agenda, of our agenda, to do things about taxes. No. 1, of 
course, is to have tax reduction. I think American families deserve 
that. I think it is good for the economy. It has to do with having less 
Government and a smaller Government. IRS reform is part of it, and this 
is a great step in that direction.
  Certainly, the third point is simplification of the Tax Code. I 
think, also, that is a necessary element before we find satisfaction 
with our Tax Code.
  So, reducing taxes, IRS reform, and simplification comprise a three-
pronged agenda, one which I support. Last year we made some progress in 
terms of reducing taxes, reduced them in capital gains, reduced estate 
taxes, installed a $500-per-child tax credit, expanded IRAs, and passed 
other important small business tax reductions.
  I would like to go forward in that area, and I hope we shall. Further 
reducing capital gains, eliminating estate taxes, reducing and 
eliminating the marriage tax penalty are areas in which we can make 
progress.
  This year we will reform IRS, the Federal agency that has interaction 
with more Americans than any other agency. I salute Senator Roth and 
the Senator from New York and members of the Finance Committee for 
holding fast against the initial White House reluctance and opposition 
to reforms in this agency. His hearings, the committee's hearings, 
brought to light many unbelievable abuses of taxpayers by this agency.
  This reform package, then, increases the oversight on IRS, holds IRS 
employees more accountable, makes IRS a more service-friendly agency, 
puts the law on the side of the taxpayer, has some very key provisions: 
Taxpayer confidentiality, extends the attorney-client privilege to 
accountants, reverses the burden of proof from the taxpayer to the IRS, 
guarantees 30 days to request a hearing of disputes, gives new powers 
to the taxpayers who petition the courts to contest decisions, and 
reforms the management of the IRS.
  These are all good things.
  The third part of our agenda, which is still there and I believe is 
of paramount importance if we are to really change the tax atmosphere: 
I think we have to address the basic underlying Tax Code. Hopefully, 
that will take place in the next year or two. We plan to significantly 
reform the Tax Code and to eliminate the complexity that is now there. 
There seems to be some misunderstanding about one of the proposals now 
which would terminate the current Tax Code in the year 2001. It does 
not eliminate the Tax Code, it simply gives a time certain in which a 
new Tax Code needs to be devised.
  The IRS is responsible for creating many of the problems the 
taxpayers have, but Congress needs to bear the burden of fixing the 
current Tax Code. There are 17,000 pages of inherently confusing data 
that need to be changed. Taxpayers spend $200 billion and 5.4 billion 
hours to comply with the tax law. The IRS employs over 100,000 people, 
more than five times the number of the FBI. After 80 years of abuses by 
lawmakers, lobbyists, and special interests, the tax system is unfair, 
complex, it is costly and punishes work, savings, and investment.
  Certainly there is a great opportunity for basic recodification of 
the Tax Code. I support plans, of course, that have the basic elements 
of fairness, of simplicity, reducing the overall tax burden.
  It is interesting, as you go about in your State, my State of 
Wyoming, and

[[Page S7629]]

ask how many people like the Tax Code the way it is now, nobody 
responds, of course. Then you say: What do you want to do about it? Do 
you like sales tax? Do you like flat tax? Do you like consumption tax? 
But we haven't come, yet, to a consensus on what the replacement ought 
to be. That is the challenge before us.
  I am pleased we are about to pass this historic bill, complete the 
second part of a three-pronged tax agenda. I hope soon we will move to 
finish the job and fundamentally reform the Tax Code.
  I yield the floor.
  Mr. GRAMM addressed the Chair.
  The PRESIDING OFFICER. The Senator from Texas.
  Mr. GRAMM. Mr. President, I rise in support of the conference report 
on IRS reform.
  What I would like to do is very briefly give a summary of the two 
philosophical approaches that were initially embodied in the debate, 
why I believe we chose the better of the two, and then I will outline 
the few issues in the bill that I feel very strongly about.
  First of all, when we started learning of IRS abuses--something that 
most of our offices heard about from constituents from the very 
beginning of our congressional service--and then when we saw it in its 
rawest form in testimony before the Finance Committee, I think there 
were two basic approaches or responses people had. I think one view was 
that people at the IRS had become insensitive, that there was something 
wrong with them, and that what we needed was a massive effort to try to 
sensitize people in the IRS. I have to say, that is the 
administration's initial viewpoint. It was as if they thought we could 
solve the problem simply by hiring every sociologist in the country and 
have them sit down individually with IRS employees and encourage them 
to be good people.
  My own view, and the view that I believe dominates this bill, was a 
view that by and large, with a few notable exceptions, there was 
nothing wrong with people who work with the IRS. They are ordinary 
people. They have families. They own dogs. They are pretty much like 
us. The problem is, as the ancient Greeks observed, power corrupts. In 
the Internal Revenue Service, you have an agency of government that has 
tremendous power. As compared to the criminal justice system, for 
example, the IRS in its dealings with us on tax matters is literally 
the police, the investigator, the prosecutor, the judge, and the jury. 
And as a result of the fact that the IRS has so much unchecked power, 
that created an environment in which abuse occurred.
  What bothered me most in listening to the testimony was not that you 
had people do bad things. We know that even good people sometimes do 
bad things. We know smart people sometimes do dumb things. But what 
alarmed me about the testimony over and over was the fact that nothing 
bad happened to bad people, that when people did bad things in the IRS, 
they were seldom, if ever, punished. And when people did good things 
like trying to raise the level of awareness in the IRS that abuses were 
occurring, often bad things happened to them.
  That convinced me and, I believe, convinced the majority of the 
members of the Finance Committee, and ultimately the majority of 
Members of both Houses of Congress, that the system needed changing, 
that we had a system that reinforced bad behavior, and what we, of 
course, want is a system that reinforces good behavior.
  I don't know what we are going to get from the oversight board we 
have established. I hope it will be productive. I certainly am 
supportive of it. I am not sure how well that approach will work, but 
there is a secondary approach in the bill that I am convinced will 
work, and that is an approach that really aims to curb this unbridled 
power.
  The first change we made in the bill, which I think is vitally 
important, is we shift the burden of proof from the individual taxpayer 
to the Internal Revenue Service. We do that not only on income taxes, 
but we do it on estate taxes. I believe this is a very important 
change. Now, critics of this change said that only the taxpayer knows 
the facts, only the taxpayer has real access to the records, and so if 
you shift the burden of proof, the taxpayer will have an incentive to 
destroy records.
  I think we came up with an excellent compromise in this area, and 
that compromise is that if taxpayers keep records that a prudent person 
could be expected to keep, if they turn those records over to the 
Internal Revenue Service on a timely basis, at that point the burden of 
proof shifts. I believe that this is a vitally important provision. It 
is a provision of the bill that basically guarantees honest taxpayers 
the same rights that criminals have in the criminal justice system. I 
think this is a major step in the right direction.
  The next change that I believe will change the relationship between 
the tax collector and the taxpayer is a provision that is basically a 
version of loser-pay. This is an important principle, it seems to me. I 
would personally like to see it throughout our legal system. I have 
always been amazed that the British had the best legal system in the 
world and one of the poorest health care systems in the world, but we 
are interested in adopting their health care system and not their legal 
system. But the brilliance of their system, which actually dates back 
to ancient Greece, is that if you bring a lawsuit and lose, you have to 
pay the costs--costs incurred by the court, costs incurred by the 
defendant in defending their rights.
  Now, we have a variant of that in this bill, and I think it is a very 
important provision. What this bill says is, if you are audited by the 
Internal Revenue Service, and you end up in a running dispute with 
them, and in the process you are forced to hire attorneys and to hire 
accountants to defend yourself, at the end of the process, if it is 
found that you did not violate the law, then the Internal Revenue 
Service is liable for the costs you incurred in hiring lawyers and 
accountants and defending yourself. I believe that by shifting the 
burden of proof and expanding the loser pays concept, that the rights 
of the taxpayer--the honest taxpayer--will be strengthened because it 
will change the behavior of the Internal Revenue Service.
  In a related provision, we have language in the bill where, if you 
offer to settle with the Internal Revenue Service and offer to make a 
payment to them and they refuse to accept that payment, and instead 
they take the taxpayer to court, if at the end of the day the court 
rules that you owe the amount you offered, or less--not counting 
interest and penalties that might have been imposed by the Internal 
Revenue Service in the interim--then the IRS again becomes liable for 
payment of the cost of legal and accounting expenses incurred from the 
point that you made the offer to settle until the final judgment was 
reached in the court of law. It seems to me that is another vitally 
important change.
  The third and, I believe, final major section of the bill has to do 
with the flexibility of the Internal Revenue Service hiring people. 
Under our current system, basically, you have to be in the Internal 
Revenue Service for 25 years to have a major supervisory, decision-
making post. One of the things we have done in this bill is waive a 
number of the general procedures under civil service. We are allowing 
the Internal Revenue Service to go outside the system and bring in 
private expertise--some on a permanent basis, some on a temporary 
basis--and in the process, we are bringing in new people with private 
experience, many of whom will go back into the private sector. The net 
result, I believe, will be a more efficient and basically a more 
balanced Internal Revenue Service.
  Finally, related to this third issue is the whole issue of people who 
violate the law and people who behave in ways that you can, under no 
circumstance, justify, nor should you ever tolerate in a government 
agency--or any other entity, for that matter. What we have done in this 
bill is not only given the new IRS chief flexibility in hiring new 
people from the outside, including very highly skilled and highly 
compensated individuals, but we have also given the Internal Revenue 
Service Director the ability to fire people--to fire people for a list 
of violations, and in the process strengthen his power to hold the 
agency accountable to the taxpayer.
  So I want to congratulate Senator Roth for his leadership on this 
bill. The major provisions of the bill relating to the burden of proof 
and to the loser-pay provision were provisions

[[Page S7630]]

that the chairman insisted on and made part of this bill. They are 
dramatic changes. I want to congratulate Senator Moynihan as well as 
Senator Kerrey and Senator Grassley who served on the commission whose 
recommendations we built on in developing this legislation and did 
adopt many of its proposals. I think we have put together a good bill 
that will shift the burden of proof, that will force the IRS to pay 
when it is wrong, that enhances the ability to hire and fire--hire on 
the basis of competence, fire on the basis of incompetence, and on the 
basis of illegal or reprehensible behavior. I think it is a good bill.
  I simply want to say this: Anybody who sat through all those hearings 
that we had in Finance--and I did--had to be convinced that the time 
had come for a fundamental change in the relationship between the 
taxpayer in this country and the agency that is charged with collecting 
taxes. We needed substantial changes that enhanced the power and 
standing of the taxpayer and that diminished the unbridled power of the 
Internal Revenue Service. I believe this bill achieves those goals. 
Nobody claims this solves every problem in the country. Nobody claims 
this makes our Tax Code any more decipherable. Nobody would claim that 
every problem is solved. But this is a major step forward.
  I am strongly in favor of this bill, and I hope we can follow this 
bill next year with an effort to reform the Tax Code, to make it 
simpler and fairer. I think everyone believes that would be an 
improvement. The trick, obviously, is to make it happen. But I 
congratulate those that have been involved in the bill. I am proud to 
support it. I think it is certainly one of the highlights of this 
Congress and recent years, and I am glad to have been a small part of 
it.
  I yield the floor.
  Mr. KERREY addressed the Chair.
  The PRESIDING OFFICER (Mr. Hutchinson). The Senator from Nebraska.
  Mr. KERREY. Mr. President, I also rise in support of the conference 
report, the Internal Revenue Service Restructuring and Reform Act of 
1998. I would like to begin my comments with high praise for the 
Chairman of the Finance Committee, both for calling the hearings last 
fall and again this year, and for his efforts every step of the way to 
make certain that this was a responsible bill, a balanced bill, and a 
bill that reflected the high values of the American people. I 
appreciate very much his leadership, as well as the ranking member of 
the Finance Committee, Senator Moynihan. The chairman, I think 
conducted the hearings in a very responsible way and in a way that 
enabled the American people to see that the laws governing the IRS were 
in urgent need of changing. It simply would not have happened without 
Senator Roth's diligence and willingness to bring to the American 
people's attention many of the problems that they saw last fall and 
again this year.

  Mr. President, representative democracy is a very difficult system. 
We all know it. We all view it to be the best. With all of its faults, 
it still is the best system around. But it is a difficult system, 
because the people themselves have to decide what they want their laws 
to be. We, as their representatives, have to reflect their wishes and 
desires. But at the end of the day, you have to write a law and decide 
which words they ought to be. What goes into those laws very often is 
an attempt to resolve conflicts.
  This piece of legislation I believe is in an area of government that 
in many ways is the most difficult of all. I would put law enforcement 
closely behind it as being both the most important and the most 
difficult. You always have conflicts between law enforcement and the 
desire for public safety, which is an overriding concern in the desire 
to protect individual rights. It is always there. It will never end. It 
is a never-ending battle. It is a never-ending argument. It is a never-
ending struggle to try to resolve those conflicts.
  Likewise, when it comes to paying for government--and all of us, I 
presume, are careful in how we spend the taxpayers' money--many of us 
are of the view that government itself needs to be watched very 
carefully, in an attempt, especially at the Federal level, to reduce it 
as much as possible so that taxpayers get to keep as much of their 
money as possible. The bottom line is, we are going to have some 
government.
  I was very struck watching President Jiang Zemin in China. I didn't 
see any demonstrators over in China. And the reason is, they don't have 
a law protecting them. They don't have government of, by, and for the 
people. That is a law that protects, but it also costs us money.
  We have to decide how we are going to organize our police force, fire 
department, and all the rest of it. When, at the Federal level we 
decide we want an Army, a Navy, an Air Force, and a Marine Corps, which 
we authorized not too long ago for the defense of this Nation, we have 
to decide how we are going to collect the money. So we write a law that 
not only decides how that money is going to be collected but we write a 
law that authorizes the collection agency--in this case, the IRS.
  I begin with those basics because sometimes I hear people describe 
the IRS as if it is a Sears & Roebuck or a private-sector operation. It 
is not. It is a creation of law. If you wanted to get rid of the IRS 
completely--I have heard some people argue that--you could come down 
here and offer an amendment to abolish the IRS. The IRS needs a law. 
The IRS--and in its current form, for those who are in the private 
sector and used to working with private-sector organizations--the IRS 
has a board of directors composed of 535 Members of Congress, 100 in 
the Senate and 435 in the House. Again, it is important to understand 
that.
  We come--all of us--with different views, different ideas. The 
distinguished occupant of the Chair represents the good people of 
Arkansas. I represent the good people of Nebraska. The chairman of the 
committee so responsible for this legislation represents the good 
people of Delaware. We come with a variety of ideas in the way that we 
want the IRS to be governed. We bring those ideas typically forcefully 
to the floor, or to our respective committees, to try to get things 
done.
  I say that because sometimes those ideas are in conflict. Sometimes 
at the very moment we are calling for tax simplification, we are voting 
``aye'' on something that makes the code more complicated. As the 
distinguished Senator from New York said, this piece of legislation 
amends the 1986 act, which itself was called, I think, the Tax 
Simplification Act of 1986. It was enacted before I arrived in the 
Senate. Fortunately, I could blame all of the problems that thing 
created on those who voted for it. But that legislation has been 
amended 64 times, and each time, typically, it makes the code a bit 
more complicated.
  We talk about wanting the IRS to do a better job of collecting 
revenue. It doesn't take long, after they have been trained and get up 
to speed, before the private sector puts an offer on the table to try 
to pull the good people away, hire them away. Sometimes the IRS says, 
``We want to modernize so as to have good computer operating systems.'' 
Sometimes we fail to appropriate the money that they need to get the 
job done.
  All of this, and more besides, describes the difficulty of writing a 
law that enables the IRS to do the things that the American people 
want, which is to collect the amount of money that is owed in a 
voluntary fashion and to create an environment so that those who are 
willing to pay in a voluntary fashion--those who are volunteering to 
pay their fair share--get the answer to the question, ``How much do I 
owe?'' in as efficient a way as possible and get their taxes paid in as 
efficient a way as possible with the least amount of cost and 
harassment on their side, while still preserving the power of the IRS 
to go after individuals who are not willing to voluntarily comply, 
don't want to pay their fair share, and who, I think it is fair to say, 
burden those who are voluntarily complying by withholding their fair 
share.
  So the IRS restructuring legislation is an attempt to improve the 
law. I believe it does that in a number of very, very significant ways. 
I would like to describe a few of those for my colleagues. Indeed, at 
the press conference, after the conference work was done, I heard a 
number of people in the press ask--and I have been asked as well in 
Nebraska--``How will we notice the changes in this law? How will the

[[Page S7631]]

changes be noticed by me, a taxpayer who has a relationship with the 
IRS?'' I would like to identify a few of those.
  First, the law that creates governance for the IRS has been 
dramatically changed. It has been changed in the executive branch side. 
But it also has been changed in the legislative branch side.
  It must be noted, I think, in fairness, that we first started 
noticing problems with the IRS a half-dozen years ago when the tax 
system modernization program that we had appropriated money for wasn't 
functioning very well. The GAO was requested to do an examination. The 
GAO came back and said that as much as $3 billion had been wasted. At 
the time, I had the high honor of serving on the Appropriations 
Committee under Chairman Byrd and the ranking Republican, Senator 
Hatfield. Our Subcommittee on Treasury-Postal Appropriations tried to 
fence the money for a couple of years. We tried to work with the IRS to 
figure out some way to make this work better.
  In 1995, what Senator Shelby and I were going to do was withhold the 
money entirely. We took an alternative course to create in 1995 this 
restructuring commission that Congressman Portman and I had the high 
honor to be cochairs of in 1996 and 1997. We were just one of six 
committees, and still are, that the IRS had to report to. They had to 
come to the Appropriations Committee, the Finance Committee, and they 
go to the Governmental Affairs Committee. And they had to go to all 
three of their counterparts on the House side. They are required under 
law to go to each one of those.
  What the GAO reported--both at that time and later to the 
restructuring commission--was that you need to reorganize that, that 
you are not going to be able to make good investments in computers and 
operating systems and the software for those computers. You will make a 
mistake when you spend the taxpayers' money unless you get to a point 
in some environment where there is a shared agreement on how that money 
is to be spent: What is the purpose? What is the goal? Where is it that 
you are trying to go?
  This legislation creates on the executive branch side a new board of 
governance which the President appoints. They have a considerable 
amount of power and independence. These individuals will come from the 
private sector with a variety of different experiences to be able to 
assist the Commissioner in making a decision about what kinds of 
management objectives and what kinds of computer systems and software 
systems are going to be in place. But that board will have the 
opportunity as well under this legislation to meet with a single 
committee on an annual basis to review IRS operations and management.
  So the appropriators, the Finance Committee, and the Governmental 
Affairs people, in both the House and the Senate, will be meeting with 
this board of directors in reaching agreement. It is much more likely 
in this kind of environment--whatever plan the IRS comes up with and 
the Commissioner comes up with--that the Congress will support that 
plan, and support that plan on a consistent basis.
  This governing board is also much more likely to provide taxpayers 
with a sense that the IRS is more directly accountable to them. There 
will be an opportunity for citizens to go to that board, and it is much 
more likely that we in our offices will be able to follow up on cases 
that are brought to our attention.
  So the governance board on the executive branch under this law and 
the change in governance on the legislative branch are the first things 
that I believe taxpayers are going to see. They are going to see better 
decisions and more consistent support being provided for those 
decisions as a consequence of the changes in this law. They were very 
controversial for a long period of time. The administration reached 
agreement with the Congress on what those provisions were going to be. 
But I believe every single taxpayer is going to see a benefit as a 
consequence of improved governance and improved decisionmaking being 
made by the Commissioner of the IRS.
  The second big area where people are going to notice a change is the 
new management powers and authorities that are granted to the 
Commissioner.
  First of all, under law, the Commissioner will be able to serve a 
full 5-year term. Over the past, I think, 5 years now, we have had 
three different Commissioners. There has been substantial turnover and 
difficulty as a consequence of maintaining continuity. And the 
maintenance of continuity is a very important objective of this 
legislation. The IRS Commissioner not only will have the power to make 
management decisions in an affirmative way by providing incentives for 
people to perform and rewarding them when they do perform but new 
authorities to terminate employees who are not performing up to the 
highest standards of the American people and the American taxpayer.
  In addition, the Commissioner is not only given authority but 
directed to change the way we manage the IRS from the current system, 
which is a district and regional geographical organization, to 
functional lines of governance. Every single taxpayer is going to 
notice that change, Mr. President, not this year but certainly over the 
next 2 or 3 years. Our taxpayers are going to say it is an awful lot 
easier now that the Commissioner has organized the IRS by individual 
taxpayers, by corporate taxpayers small, by corporate taxpayers big, 
and by nonprofits. It is going to be a lot more likely that the 
Commissioner is going to be able to give each one of those entities the 
continuity of service they are asking for.
  As individuals move from one part of the country to another, they 
find themselves in a different region, in a different district. It is 
much more likely that the Commissioner is going to be coming to the 
Congress saying: Here are some changes we could make to decrease the 
cost of compliance and make it easier for larger taxpayers, for smaller 
taxpayers, for individual taxpayers--much more likely when we organize 
around functional lines.
  And with the increased authority under the law the Commissioner will 
have, it is much more likely that every single taxpayer will say: It 
has gotten much easier for me to pay my taxes. They may still think 
they are too high. They may still say: It should be a consumption tax 
or some other way of paying my taxes, but it has gotten easier; I have 
gotten the information more quickly; there is an operating system here, 
a computer system here, an information system here, that has made it 
easier for me to acquire the information if I have a complaint or 
discrepancy.
  And you hear it all the time. Somebody calls up and says: I am making 
$10,000 a year; I got a bill for $140,000; it's ridiculous; something 
is wrong. I call up my IRS office. They don't have the ability to 
reassure me that a mistake has been made. It takes months and months 
and months.
  With this new governance structure, with this new authority, we are 
providing the Commissioner what I think every single Senator and every 
single Representative is going to hear citizens saying: I am able to 
call up and get an immediate change. If I have a change of address and 
my refund check hasn't arrived, it is going to be much more likely I am 
going to get immediate attention, same-day attention, to that and 
shorten the amount of time that is required to get the problem 
resolved.
  Mr. President, not only do taxpayers save money because the IRS will 
spend less money, but the taxpayers themselves downstream will save a 
lot more money, not having to chase around and solve the problem.
  The third big area is in taxpayer rights, and there are a lot of 
changes. I am just going to list a few of them. The chairman talked 
extensively about the burden of proof shift. I think it is a reasonable 
compromise, although there is still some cause for concern. If we find 
ourselves with some problems as a consequence of this provision, which 
I don't think we will, Congress can always make some modifications. It 
shifts the burden of proof in all forms of income at the Tax Court. 
There are changes in the way taxpayers' proceedings are handled at the 
IRS, including such issues as to how costs are awarded and apportioned, 
civil damages if the IRS is negligent.
  One of the things we are trying to do all the way through the rights 
provision is make certain that when the IRS sends out a collection 
notice, they are going after a taxpayer for doing something, that they 
have relatively high

[[Page S7632]]

certainty the taxpayer has done something wrong. The burden is on them 
to make a judgment with this new law, because if we find that the IRS 
has been negligent, the IRS has done something wrong, under these new 
provisions the IRS can be held not only responsible but liable for 
payment to the taxpayer--much more likely, as a consequence, taxpayers 
are going to see fewer collection notices that are sent out when no 
collection is warranted.
  There is relief for innocent spouses, changes in interest and 
penalty, new protections under audit, new disclosure requirements to 
taxpayers--extremely important provisions, Mr. President. The taxpayer 
very often just doesn't get the information, doesn't know what is going 
on. As a consequence, they are not able to make a judgment about how 
much they owe.
  There are provisions in the bill to create low-income clinics, a very 
important provision as well. We all know that the higher your income, 
the more likely it is you are going to have somebody do your taxes for 
you. With all the tax simplification and complexity issues that we 
hear, as income gets more complicated, it is more and more likely as a 
result that your income is going to be higher and more likely that 
somebody else is going to do your tax return for you. But for that 
lower-income American, these low-income clinics are going to be, I 
think, an extremely important part of our overall effort to make 
certain that all Americans say, whether it is the IRS or the FBI or the 
USDA or whatever it is, it is still Government of, by, and for the 
people. And the law has to be on the side of all Americans, not just 
those of higher incomes but on the side of middle-income Americans and 
lower-income Americans. And I think this low-income clinic provision is 
a very important part of it.
  In addition, under the rights provision, the IRS will be required to 
catalog complaints it can bring to Congress, and we can sort out and 
see if there are any repetitive problems here and make judgments about 
whether or not, as a result of those repetitive problems, we need to 
make further changes in the law.
  The fourth big area is the area of simplicity. The distinguished 
Senator from New York commented on that at length. I would only point 
out that I think, again, Members are going to hear taxpayers saying: 
Well, finally we have some things in there that help us deal with this 
problem, estimated to be $100- to $200-billion a year, of costs to the 
taxpayer to comply with the current code.
  Now, it has to be said, as long as you tax income, it is going to be 
invasive. That is my own belief. If you tax income, it is almost going 
to be true that it is going to feel invasive if you are in an audit 
situation. This law will give taxpayers, I think, some new evidence 
that we are getting the word out on simplification.
  First of all, for the first time under law, the Commissioner is 
empowered to make comments and to be there when laws are being written. 
Right now, you will have to search your memory bank, and I think in 
vain, to find a time when you have ever heard an IRS Commissioner say: 
Great idea, Mr. President; great idea, Senator Blowhard--for some new 
tax break--but here is what it is going to cost the taxpayer to comply.
  We heard in the restructuring commission examples, and we filed them 
as a part of our index, of situations where provisions in the code cost 
far more to enforce than they generate in revenue. The cost to the 
taxpayer and the cost to the IRS to collect the money is greater than 
the benefit measured in the amount of money that is collected.
  So in addition to putting the Tax Commissioner at the table and 
giving him authority to comment, as the distinguished Senator from New 
York mentioned earlier, there is a new simplicity analysis that will be 
done and prepared so we can judge whether or not an idea that we have 
is going to either increase or decrease the cost to the American people 
to comply.
  There are new provisions, next, Mr. President, in the area of the 
Taxpayer Advocate, making the advocate more independent, making the 
Advocate more likely to help in the resolution of problems--a very 
important section. And I think every single taxpayer who has a problem 
with the IRS is going to see that this new Taxpayer Advocate is more 
likely under this new law to be able to help resolve in an expeditious 
fashion any complaint or problem they have.
  Last, Mr. President, in the section dealing with electronic filing, 
those of us who have spent some time on this believe, No. 1, that if 
you are trying to reduce the cost, the most important thing is to 
reduce the number of errors. In the electronic world, there is less 
than half of 1 percent errors. In the paper world, it is 20 to 25 
percent errors being made both by the IRS and the individuals who are 
filling out the forms. The electronic world offers us a tremendous 
opportunity to decrease the cost to comply for both the taxpayer and 
the IRS.
  The language of this bill says that the IRS would encourage private 
sector competition. Again, I must say I think it is very important that 
Congress pay attention to this. Though I want the IRS to be able to 
offer services to the American taxpayer, I want to make certain that 
there is vigorous competition out in the private sector for the 
delivery of these services.
  All in all, I believe this piece of legislation represents a good-
faith effort on the part of Members of this body and the House to do 
something that is extremely difficult, and that is to write the laws 
governing the collection of our taxes in a way that resolves all the 
various conflicts that you have when you are trying to write any piece 
of legislation dealing with something where you are simultaneously 
trying to make it easy for taxpayers to comply and make it difficult 
for people who are not willing to comply to live outside the letter, 
the spirit, and the intent of the law.
  I close with what I said at the beginning. I have high praise for 
Chairman Roth for his good work, his balance, and his determination to 
finally get this done. I have high praise as well for Senator Grassley, 
who served on the restructuring commission, for Congressman Portman, 
who was my chairman, as well as Congressman Cardin and the senior 
Senator from New York, Senator Moynihan, the ranking Democrat on the 
committee.
  I look forward to final passage, and I yield the floor.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Mr. President, America is a great country. It is not 
perfect, but it is a great country. It is a country where the voice of 
the people is usually heard. That is what this is all about today. The 
American public, for some time, has been upset about the way their tax 
collector has been handling a very important aspect of the business of 
this country. Today we are dealing with something that is very 
important to the American people.
  I also must say that this IRS restructuring and reform bill would not 
have been possible but for the senior Senator from Nebraska. The senior 
Senator from Nebraska has worked long and hard on this issue. Even 
before this legislation was introduced, as he has just briefly 
outlined, when he was a member of the Appropriations Committee and a 
member of the subcommittee that had jurisdiction over the IRS, he 
started this legislation. It seems it was only yesterday, even though 
it was much longer. It was last year that Senators Grassley, Kerrey, 
and I stood to introduce this legislation.
  When we introduced this legislation, we didn't have a lot of people 
who wanted to help us. There was a sparse group of people from the 
Senate supporting us--Senator Kerrey, from Nebraska, Senator Pryor, 
from Arkansas, and Senator Grassley, from Iowa. But I commend and 
applaud the Senator from Nebraska for his vision and, most of all, for 
his tenacity on this legislation. I am glad we are finally at a point 
now where we can pass this because this IRS restructuring and reform 
bill is important.
  Mr. President, when I first came to the Congress, I came with the 
feeling that something had to be done about the IRS. I was elected in 
1982. During that period of time, the State of Nevada was going through 
some very difficult times with the Internal Revenue Service. The reason 
for that is that the resort industry had been in a battle that had gone 
on for several decades as to whether people in the gambling business, 
when they received a gratuity from somebody who was playing cards

[[Page S7633]]

or dice, could treat that gratuity as a gift, or whether it was taxable 
by the Internal Revenue Service.
  This battle was taken to the court structure and the courts 
determined that this was taxable income. It took several decades to do 
this. After the decision was made by the courts, many of the people in 
the resort field owed money to the IRS. They acknowledged their debt, 
and made arrangements with the Internal Revenue Service, saying I owe 
$20,000 or I owe $4,000, whatever the amount might be, and they would 
repay it at whatever rate they could work out with the IRS agent, for 
example, $200 a month or $600 a month. The problem was, the IRS would 
keep reneging on their deals. A new IRS agent would come along and say, 
``You are not going to pay $200 a month, you have to pay $400 a 
month.'' They would say, ``We already made an arrangement with you to 
pay at $200 a month.'' The IRS agent would say, ``I'm a new agent; I 
will make the deal with you that I think is appropriate.''
  This went on and on. The people in the resort business had their 
property seized and their bank accounts levied. It was a very chaotic 
situation. As a result of this experience, when I came to the Congress, 
I introduced a bill in the House called the Taxpayer Bill of Rights.
  On the day I introduced that legislation, I appeared on the ``Charlie 
Rose'' show. At that time, Charlie Rose came on at 2 o clock in the 
morning. I thought the legislation I introduced had impact only on the 
people of the State of Nevada. I was surprised, amazed, and impressed 
to learn that it was not only a Nevada problem. After I appeared on 
this TV program that aired at 2 a.m., I came to the office the next day 
and to find hundreds of telegrams. The phone wouldn't stop ringing. 
This problem was a problem throughout our country, not just in the 
State of Nevada. All over the country the IRS had not been treating 
people appropriately.
  I was not able to move the legislation in the House for various 
reasons. The chairman of the subcommittee in the House liked the IRS 
more than he liked my legislation. I was elected in 1986 to the Senate. 
My maiden speech in the Senate related to the same Taxpayer Bill of 
Rights that I introduced in the House and that I said I was going to 
introduce here. Very fortunately for me, and I hope for the country--I 
feel confident that is true--presiding over the Senate that day was the 
subcommittee chair of the Finance Committee subcommittee that had 
jurisdiction over the Internal Revenue Service, David Pryor, from 
Arkansas. Senator Pryor sent a note to me by a page, after I finished 
my speech, saying: I like what you have said. I want to work with you 
on this.

  Also, that same day, Charles Grassley, a Republican Senator from 
Iowa, made contact with me saying: I want to work with you on the 
Taxpayer Bill of Rights. So I had two very senior Members of the Senate 
who wanted to work with a brand new Senator's legislation that we now 
call the Taxpayer Bill of Rights. We conducted hearings and we learned 
some amazing things.
  I would relate to the chairman of the Finance Committee, even back 
then we had some very courageous people who were the beginning of some 
of the people who came forward in the latest round of hearings relating 
to the IRS restructuring reform bill. For example, we had one IRS 
employee from Los Angeles who put his job at risk, because the IRS 
testified that they did not promote people on the basis of how much 
money they collected. This IRS employee came in and said, ``That's not 
true.'' He said, ``In our office there were big glass windows in the 
inner offices and there were big pieces of paper there saying: `Seizure 
fever, catch it.' '' That was a message to all the IRS agents that they 
should go out and seize all the property they could. That would get 
them promotions. We therefore outlawed promotions on the basis of how 
much money was collected and we outlawed quotas.
  The Taxpayer Bill of Rights passed, and on November 10, 1988, 
President Ronald Reagan signed into law the Taxpayer Bill of Rights 
that I had written. But I acknowledge I could not have gotten that done 
without the tremendous support from Senators Pryor and Grassley. They 
were champions. They were on the Finance Committee, and they were the 
ones who were responsible for working with me and moving that 
legislation.
  The Taxpayer Bill of Rights, signed by President Reagan, really did 
create new rights that taxpayers had never had before. For the first 
time in the history of the country, the taxpayer was put on a more 
equal footing with the tax collector. Note I say ``on a more equal 
footing with the tax collector.'' The tax collector still had some 
serious advantages. Because of that, Senators Pryor, Grassley, and I 
moved forward with the Taxpayer Bill of Rights 2.
  We had some difficulty with that. It was vetoed on a couple of 
different occasions, not because of the substantive nature of our bill, 
but because it was part of a tax bill. It was part of partisan 
wrangling which took place here, and President Bush vetoed the bill 
twice. Included in that bill was our Taxpayer Bill of Rights 2.
  However, in July of 1996, we achieved a crucial milestone on the road 
to IRS reform when President Clinton signed the Taxpayer Bill of Rights 
2 as Public Law 104-168.
  I underline and underscore, President Bush did not oppose our bill 
when he vetoed the tax bill. I repeat, it was part of an overall tax 
problem that caused him to veto the whole tax package. So we had 
Taxpayer Bill of Rights 1 and 2. They both did things to help the 
taxpayer versus the tax collector.
  I served as an appointed member, by then-Leader George Mitchell, on 
the Entitlement Commission. I served there with Senator Kerrey and 
others. I came to the realization at that time that the IRS, even 
though we had Taxpayer Bill of Rights 1 and 2, still needed significant 
work, principally because of how much money it cost the American 
taxpayer and the government to collect the taxes. It was estimated 
during the entitlement hearings that it cost about $500 billion a year 
just to collect the income tax of this country.
  In the autumn of 1997, Senator Grassley, Senator Kerrey of Nebraska 
and I introduced the IRS Restructuring and Reform Act of 1997. I was 
happy to join in that. Someone asked me in an interview, ``The 
President doesn't support this; why are you out on front on this?'' I 
said, ``I believe he is going to have to get out of the way or the 
steamroller is going to run over him,'' and, in fact, that was true. 
Within a few weeks, the President and many others joined in this 
legislation which initially had very little support.
  The bill we introduced was referred to the Ways and Means Committee, 
and the chairman of the Finance Committee in the Senate, the senior 
Senator from Delaware--I say through the Chair to my friend, the 
chairman of the committee, as a matter of information, are you the 
senior Senator from Delaware? Yes, he is. Both Senators have served a 
long time, and I wasn't certain which one was the senior member.
  The chairman of the Finance Committee, the senior Senator from 
Delaware, held some hearings that I thought were very probative, very 
important to get the American people behind this legislation. The 
witnesses were carefully chosen. I thought the timing of those hearings 
was very good to add impetus to this legislation.
  In his State of the Union Address, President Clinton challenged the 
Congress to pass the IRS reform bill as its first order of business. I 
am glad it is one of the things that we have worked on very quickly.
  This bill has been outlined on several occasions today. It shifts the 
burden of proof; it expands IRS authority to award administration and 
litigation costs; it expands current law to allow taxpayers to sue the 
Federal Government; it requires the IRS to fire an employee for 
misconduct relating to the employee's official duties; it creates an 
oversight board to watch over IRS administration, management and 
conduct; and it does something that I think is so important--it creates 
confidentiality between the tax preparer and the taxpayer. I think that 
is very important.
  The bill also contains a provision addressing the meals tax. As a 
matter of good-faith bargaining between an employer and employee, if 
they say that an employee should have a meal on the premises, that meal 
is not going to be taxed by the IRS.

[[Page S7634]]

  Also, there is something I call the ``rewards for rats'' program, 
where private citizens are encouraged to turn in those who they believe 
are not paying their fair share of taxes. The IRS is directed to 
examine the conduct of this program. It is important to find ways to 
prevent such things from taking place.
  It also does very important work related to an innocent spouses. The 
other issues that are covered here have been elaborated upon in some 
detail, but innocent spouse status I want to talk about a little bit.
  My daughter--I have one daughter and four boys--my daughter had a 
wonderful teacher. She was a second grade teacher who had moved from 
the Midwest to the Las Vegas area and had recently gone through a 
divorce. Her husband had been a bank officer, and had embezzled huge 
amounts of money. Totally unaware of this was the second grade 
schoolteacher in Las Vegas.
  The fact of the matter is, though, the IRS--and I won't talk about 
the woman's name--were relentless in going after this woman's wages. 
She was a schoolteacher. She had no money other than her limited salary 
from teaching, and they just harassed and badgered this poor soul 
unbelievably. At the time I said, some day I hope I have an opportunity 
to prevent further acts against people like Mrs.--I won't mention her 
name. And we are doing that today.
  In the future, innocent spouses will have an opportunity to explain 
their situation as innocent spouses. This is important legislation. Why 
should somebody who steals huge amounts of money from a bank, as in 
this example, shift the burden of proof to an innocent spouse? It is 
not fair, and this legislation will solve that problem.

  I believe Congress works best when it works together. This 
legislation is bipartisan legislation. This legislation is a testimony 
to the power of bipartisanship and how we need to act together to focus 
on the problems that relate to the American public.
  This legislation is legislation the American public wants. It is 
legislation in which this Congress has joined together in a bipartisan 
fashion under the leadership of the chairman of the Finance Committee. 
I am a member of the other party from this Senator, but I say publicly 
that under his leadership, this legislation has moved along to a point 
where we are now passing a bill.
  I am sure the senior Senator from Delaware has many things that he is 
proud of having done in his long legislative career, but I hope today's 
resolution of this very important issue will be near the top of his 
legislative list of accomplishments. I am very happy with having worked 
with him, with the senior Senator from Nebraska, and with Senator 
Grassley from Iowa, to the point that the legislation which we 
introduced a year or so ago is now going to become law. I also want to 
recognize the essential role played by my good friend the ranking 
member of the Finance Committee, Senator Moynihan.
  I, again think this legislation is reflective of how our country 
works when the people of this country speak out loud enough for us to 
get the message. We have gotten the message. Hopefully, we have 
answered the concerns of the American public. I am confident that we 
have.
  Mr. KERREY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nebraska.
  Mr. KERREY. Mr. President, the Senator from Nevada and I have had the 
occasion to work together on a number of things. I appreciate his early 
support, not just of this piece of legislation, but his early support 
for changing laws giving taxpayers more rights when dealing with the 
Internal Revenue Service. This is just a continuation of Taxpayer Bill 
of Rights 1 and 2 with which I know the Senator from Nevada was very 
much involved.
  I also thank him for bringing to our attention this issue of meals 
deductibility. That was a judgment that was being made by the Treasury 
Department. I understand it is one of those situations that sort of 
makes sense if all you are doing is pushing a pencil and trying to make 
your numbers and the law come together. Had he not brought that to our 
attention, we would have had one more example, one more situation where 
the Code becomes enormously complicated, enormously burdensome. What 
happens is, people just lose confidence in their government. They say, 
``How could you do something so stupid?''
  I appreciate him bringing it to our attention. It had not been 
brought to our attention. Not only would the people of Nevada have been 
up in arms about it, but I say throughout the country. I say to my 
friend from Nevada there would have been an awful lot of people 
knocking on our doors talking to us about ``How could you do something 
that required people of average means to reach even farther to try to 
stay on the right side of the law?'' I was happy to assist in this 
matter, but I assisted not just to help the people of Nevada who have 
such able leadership in the Senator from Nevada, but I believe 
everybody from the United States of America is going to benefit as a 
consequence of that change.
  Mr. BRYAN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. BRYAN. I thank the Chair. Mr. President, let me preface my 
comments by joining the senior Senator from Nebraska in commending my 
senior Senator from Nevada for his untiring efforts for taxpayers not 
only in Nevada, but across the country, in terms of his efforts on the 
earlier variations of the bill of rights and the strong support of the 
legislation that we are debating today and that will be signed into law 
very shortly by the President.
  Mr. President, I come to the floor this morning as a member of the 
Senate Finance Committee to offer my strong support for this historic 
legislation. It has been a long time coming. It has been a difficult 
process, but it is clear that the American people will benefit greatly 
as a result of this legislation which will soon be signed into law by 
the President.
  None of us really enjoy paying our taxes. But the vast majority of 
Americans do make a good-faith effort to pay their fair share. And 
while the IRS will never be popular, the legislation that we will soon 
vote on will go a long way in providing fairness to taxpayers in their 
dealings with the IRS and will assist Commissioner Rossotti to meet his 
goals of making the IRS a more efficient and customer-oriented service.
  Mr. President, the American tax system is essentially one of 
voluntary compliance. And implicit in that relationship is a sense on 
the part of the taxpayer that he or she is receiving fair treatment. To 
the extent that that perception is diminished, it undermines the public 
confidence in our system, it reduces the level of tax compliance, and 
it creates problems for those of us who do comply with this system and 
who will be paying a disproportionate share, larger than our fair 
burden, for those who do not.
  So it is a responsibility of the Congress to make sure, in its 
oversight capacity and the laws which we enact, that the IRS operate in 
a fair, evenhanded way in dealing with the taxpayer. And I must say, as 
a result of the hearings that the chairman of the committee held, the 
abuses that were pointed out, in several instances, are rampant. And I 
will comment on those in just a moment.
  I think it is fair to put this in some perspective as well, and that 
is that the great majority of employees of the IRS are really very 
dedicated public servants. They try to do their very best in performing 
the duties that they have. Much of the criticism that is directed 
against them properly ought to be directed against us. It is the 
Congress that enacts the code, and it is by every standard 
extraordinarily complicated, complex. Each year that we seek to make 
improvements to the code, at the same time it is also fair to say that 
we add additional complexity to it.
  That having been said, that their job, being the IRS and the 
employees of that Service have a very difficult job, there is 
absolutely no excuse for the kind of conduct that we saw evidenced in 
the hearings that the chairman had this year and last year. That is 
totally unacceptable conduct. I believe that several of the reforms 
that are addressed here in this legislation will help to alleviate 
those kinds of conditions.
  In addition to the obvious problems that were pointed out in the 
hearings, other problems are a bit more subtle, but they are also 
damaging to the taxpayer. And that is poor and inefficient

[[Page S7635]]

management, inadequate and outdated computer systems, or the corporate 
culture that we saw much evidence of--the view of the taxpayer as the 
adversary instead of the customer. That has been deeply entrenched.
  One example that comes to mind is the quota system. There had been an 
attempt, in previous legislation, to send clear, unmistakable direction 
to the IRS that a quota system is not to be employed. A quota system 
forces the revenue agent to look at a taxpayer who comes into his or 
her office, not as a customer who has a problem that needs to be dealt 
with, but as a quota, that is that he or she is to be viewed as an 
individual from which that revenue agent must collect a certain amount 
of dollars, much like a traffic cop who is told by his or her boss that 
some 15 or 20 tickets must be issued each day. And that is what creates 
this adversarial system.

  We thought that we had eliminated that practice and that abuse. But 
no sooner had the chairman convened the hearings last fall that I 
received in my office, from an employee in the IRS office in Las Vegas, 
an internal document that gave every appearance of being a quota. Those 
in charge asserted that it was not a quota, but in point of fact, 
clearly, the revenue agent was given the impression that each 
individual was to be assessed a certain amount of money in terms of 
additional tax to be brought in. And clearly implicit in that direction 
was the fact that that employee's future and career prospects with the 
Internal Revenue Service would be judged based upon his or her 
performance. Hence, this confrontational relationship that I described 
continued to be deeply ingrained as part of this culture.
  Now, those are not easy things to root out. I must say that 
Commissioner Rossotti and the interim director, in response to 
questions that I raised during the course of those hearings, reaffirmed 
the policy that no quota system would exist and that the practice which 
had been conducted in Las Vegas, and perhaps other district offices as 
well, was not to be continued. And to the best of my knowledge, there 
has been no indication that it has.
  However, I do think that one of the fundamental changes made in this 
piece of legislation--the creation of a citizen oversight board, 
involving six members from the private sector--can be very helpful in 
monitoring the kinds of activity which comes to our attention as 
Members of Congress and, hopefully, will be helpful in eliminating that 
practice. Although it does not have the pizzazz of some of the other 
provisions, I believe the power that we invest in the new Commissioner 
to make changes at the top level of management will also have some far-
reaching consequences.
  It is clear that those who are steeped in this corporate culture, 
this deeply ingrained practice that I and others who have spoken on 
this issue have described, simply are unable to make that change, that 
the frame of mind that allows that to continue has been such a part of 
the daily operational conduct of the agency that in some instances at 
the top level individuals simply have to be replaced.
  I think it is important to point out that in Commissioner Rossotti we 
have the first Commissioner whose background is not tax accounting law, 
but he is an individual who is a businessman, not a lawyer, who has 
committed to provide the kind of management reforms that we need to 
change that corporate culture. So the powers that we give him to make 
those kinds of changes, which no previous Commissioner has had, I think 
will help to send a very powerful message at the top that this is not 
business as usual and that we want not only a more efficient and a more 
responsive agency, but we want an agency that eliminates the kinds of 
abuses that were provided during the course of the hearings.
  Some years back the Congress intended to provide an ombudsman, as it 
was initially called, later a Taxpayer Advocate, to represent the 
individual. Those intentions, I think, were well conceived. Indeed, in 
their implementation, I think an effort was made to create such a 
position. But in point of fact, individuals who were chosen to serve in 
this capacity came directly from the IRS, returned to the IRS, and 
because that individual's ultimate career plan in the IRS could be 
impacted by his or her performance as a Taxpayer Advocate, the Taxpayer 
Advocate Office did not achieve its desired purpose to provide 
independent representation and advocacy on behalf of the taxpayer.
  I believe in the legislation that will be signed into law, as a 
product of this bill, that we have created that kind of independence by 
making it clear that this is not an individual who can come directly 
from the IRS and immediately, upon completion of his or her tenure in 
the Office of Independent Advocate, once again continue a career path 
within the IRS. That independence, in fact, as well as perception, I 
think, will provide invaluable help to America's taxpayers.

  Much criticism is directed at the agency and much is warranted. Let 
me comment, in the interest of balance, on something that the agency 
has done an excellent job in doing and that is the implementation of 
telefiling. It is a paperless tax filing system. In 1997, nearly 5 
million taxpayers took advantage of that by simply picking up their 
telephone and filing their return. Its calculation is done on the other 
end. It is paperless. It is fast. Those taxpayers who have a refund 
coming to them will receive that refund much more quickly than in the 
process in which one files a paper return that is processed. It also is 
less cumbersome for the IRS in terms of the paperwork which has been 
generated, thousands and thousands of different forms and millions and 
millions of returns. So it helps us achieve the goal of efficiency in 
terms of the IRS' response.
  I am pleased to note in 1998, nearly 6 million taxpayers took 
advantage of the telefiling. That is an increase of nearly 27 percent. 
Indeed, that is just the tip of the iceberg. The potential is 
significantly greater. Other types of electronic filing have also been 
developed. In 1997, we had about 14 million who filed electronically. 
In 1998, some 18 million. That is 28 percent. That also provides for a 
faster evaluation of the return, provides less opportunity for errors, 
for misdirected paperwork, and I think will be extremely helpful in 
providing the standard of service to which the American taxpayer is 
entitled.
  Among the more significant things, dramatically significant, is a 
shift in the burden of proof for taxpayers and small businesses when 
their dispute with the IRS reaches the Tax Court level. That shifts the 
burden of proof from the taxpayer to the IRS. That will be another 
significant change. Perhaps if there is any one change that more 
dramatically signals what we are trying to accomplish in this 
legislation in trying to provide fairness to the American people who 
are attempting to comply with a very complicated tax system, this is an 
indicator.
  Having practiced law in years past, I am not unmindful of a situation 
which innocent spouses are frequently victimized by the conduct of 
their spouses, oftentimes in the context of separation or divorce, in 
which the spouse involved in business is involved in either concealing 
or fraudulently filing a return, that return is jointly signed by the 
other spouse who has no involvement in the business and no culpability. 
The offending or culpable spouse is no longer available and the IRS 
turns to the innocent spouse. By any fair standard, that is conduct we 
should not endorse. An innocent spouse truly not involved, not 
culpable, should not be victimized by the conduct of his or her spouse. 
This legislation provides expanded benefits and protection for the 
innocent spouse.
  In addition, we do several other things. That is, we provide for 
additional authority to award litigation costs to taxpayers who prevail 
in court disputes with the IRS. It costs a great deal of money to 
engage counsel. Most American taxpayers are not in the position to 
afford that kind of expense. It is only fair when that taxpayer 
prevails that, indeed, the cost of the litigation be recovered in favor 
of the taxpayer. We send a very strong message that the kind of 
misconduct which was much in evidence during the hearings last year and 
this year is not to be tolerated. We say to the American taxpayer, to 
those who have been victimized by such conduct, that a cause of action 
for civil damages based on claims of negligence by IRS employees will 
now be available to such taxpayers.

[[Page S7636]]

  We improve taxpayers' rights during audits, collections, including 
prohibiting the IRS from seizing residences for deficiencies of under 
$5,000 and prohibiting the IRS from seizing a residence without a court 
order, increasing the availability of taxpayer assistance, reducing 
penalties for taxpayers making good-faith efforts. I think this might 
require an additional word of embellishment.
  For those taxpayers who for whatever reason have failed to pay their 
full amount of taxes due, who are on a schedule of payment, only to 
find that the compounding effect of penalties and fines makes it 
virtually impossible for them ever to reduce the amount of principal 
that is the original amount they failed to pay, nothing could be more 
frustrating, nothing could be more discouraging, and it is a 
disincentive to those taxpayers who say, look, I recognize I owe the 
money, but I don't have it all. Establish a schedule of payments so I 
can make my payments. We heard testimony of people who had paid for 
extended periods of time and after having made such payments really had 
not reduced their principal; if at all, very minimally. This 
legislation addresses such an issue, and I think will be an incentive 
and encouragement for taxpayers to, indeed, begin making payments and 
to see the proverbial light at the end of the tunnel.
  Greater disclosure and notice to taxpayers, including details of the 
computations of any penalties and interest due; more detailed 
explanations of the entire audit and collection process in the first 
deficiency notice; disclosure of taxpayers' rights at interviews with 
the IRS; disclosure of the criteria for examination--all part of the 
process to make one's visit to the IRS less of a mysterious and 
frightful experience, but to provide the taxpayer a broader 
understanding of the circumstances that bring him or her to the 
office--rationale for the deficiency, for any that is assessed, what 
that taxpayers' rights are in terms of responding.
  In sum, Mr. President, all of these provisions should result in a 
more efficient and friendly IRS in the future.
  I want to commend the chairman of our committee with whom I have had 
the great pleasure of working in this Congress as a newly appointed 
member to the Senate Finance Committee, the ranking member, the senior 
Senator from New York, and my colleague who sits to my right, the 
senior Senator from Nebraska, Senator Grassley and others, who have 
labored in the vineyards for many years to provide fairness to the 
Code. It has taken us a long time. I freely acknowledge that some of us 
have been frustrated and thought this ought to have been done last 
year, but there can be no doubt that our work product that will 
ultimately be signed into law will be a vast improvement for the 
American taxpayer, and it does enjoy the imprimatur of bipartisan 
effort and support.
  Finally, I will address an issue that has been of concern for 
literally tens of thousands of Nevadans who work in the hotel industry 
in our State. It is not a provision that is confined or limited to 
Nevada only because the practice in the hotel industry not only in my 
own State but across America is to provide for the convenience of the 
employee, by the employer, a meal at the business location. For more 
decades than I can remember, that benefit has been provided and it has 
been viewed as a nontaxable benefit. That is to say that the meal is 
provided and that there is no tax liability attached to that benefit 
that the employee must pay as a result of receiving that meal at the 
employer's expense, on the job, at the employer's place of business.
  A year ago, a decision of the Tax Court astounded most of us who are 
familiar with the practice and created a situation that would be 
monstrously unfair to literally tens of thousands of taxpayers in my 
own State where this issue was widely publicized, but would have the 
potential of affecting hundreds and hundreds of thousands of employees 
in every State in the Union. Not only would it be unfair to those 
employees who no longer would receive that benefit--and there would 
have been hundreds of thousands, as I say, across the country--but it 
would have created the anomaly that some employees in some occupational 
categories may continue to receive the benefit, their coworkers who 
worked alongside them in a different capacity would not have received 
that benefit, thereby creating an inherent morale problem within the 
workforce and a nightmare for employers to administer. That decision 
sent a shockwave throughout the hotel industry in my State, and 
employees were much concerned.

  The consequence of the Tax Court's decision, uncorrected, would have 
imposed several hundreds of dollars of additional tax liability each 
year. We are not talking about those who are part of a senior executive 
class, whose salaries are six figures or greater. By and large, we are 
talking about people who tend to be at the bottom end of the pay scale 
in the hotel industry--those who are porters and maids and in other 
categories. So hundreds of dollars, for them, had a major impact.
  I am pleased to say that as a result of the bipartisan support and 
the efforts of Nevada's delegation and the leadership on both the Ways 
and Means Committee and the Senate Finance Committee, and several of 
our colleagues who served as conferees--I acknowledge that the senior 
Senator from Nebraska and the senior Senator from Louisiana who, in 
addition to the chairman and ranking member on our side, were extremely 
helpful--that consequence is not going to be visited upon the tens of 
thousands of employees in my own State and the hundreds of thousands 
elsewhere.
  In effect, a provision that is incorporated in this conference report 
will reverse the Tax Court's decision and will continue a practice that 
was established in terms of fairness and equity and will allow those 
employees to continue to receive those benefits without the additional 
tax consequences that the court decision would have imposed upon such 
employees. I want to publicly acknowledge all who were involved in 
helping to make that provision part of this provision.
  So, finally, Mr. President, this will not make this code a perfect 
code. I suspect that this will not be the end of our endeavors to 
provide additional ways in which we can provide fairness to the 
American taxpayers. But, hopefully, as a consequence of this 
legislation, the word will come from this Congress to the American 
people that we heard the complaints, we understand their legitimacy, we 
recognize that in a system such as our own, in which the compliance is 
essentially voluntary, we have an obligation to make sure that those 
who are trying to comply with the provisions of our complex Tax Code 
are treated fairly and, when problems are called to our attention, we 
will correct them.
  Again, I salute our colleagues who worked on this. I thank the 
chairman and the ranking member of the Finance Committee for their 
courtesies in hearing the concerns that I and other members of the 
committee brought.
  I yield the floor.
  Mr. HUTCHINSON addressed the Chair.
  The PRESIDING OFFICER (Mr. Burns). The Senator from Arkansas.
  Mr. HUTCHINSON. Mr. President, I rise in strong support of the 
Internal Revenue Service Restructuring and Reform Act. I want to take 
this opportunity to commend Senator Roth for the outstanding work he 
has done on this legislation. As a new Senator, I was impressed with 
the hearings that Senator Roth conducted and which have galvanized this 
institution to move on something that was a compelling need. They were 
dramatic hearings not because they were highly choreographed or because 
there was sophisticated promotion; they were dramatic because of the 
impact and the gripping nature of the stories that were told to the 
committee and to the American people.
  I think our country and this institution owe a great debt of 
gratitude to the Senator from Delaware for the role that he has played 
in calling the attention of the American people to the abuses. It 
became evident during the course of both sets of hearings that these 
stories were not isolated incidents but were all too typical, as we 
found from the response of the American people in calling our offices 
all over Capitol Hill about similar incidents that had occurred.
  I want to take just a moment to praise my predecessor in the U.S. 
Senate, the former senior Senator from Arkansas, Senator Pryor. Senator 
Reid

[[Page S7637]]

spoke of his role in taxpayer rights in the past. I think that the work 
Senator Pryor did as a Senator from Arkansas has helped to lay the 
groundwork for the step that we are taking as a body today. I want to 
express my appreciation on behalf of the people of Arkansas and on 
behalf of taxpayers across this country for Senator Pryor's unfailing 
efforts and untiring efforts to provide protections for the taxpayers 
of this country. And although the Taxpayer Bill of Rights was not the 
ultimate solution, and the Taxpayer Bill of Rights 2 was not signed 
into law, it helped to call our attention to it and to galvanize the 
American people to push for this action. I want to pay my highest 
regards to Senator Pryor, who I know is pleased with the action that 
the U.S. Senate is taking today.
  I think the protection provisions in this legislation will take a big 
step toward assuring the American people that we are still on their 
side and that the tax system of this country is not stacked against 
them. We should remind ourselves of the things that this does not do. 
It would be, I think, a shame if this legislation were to be the 
release on the pressure that has built up over the years to demand 
comprehensive tax reform. This is an essential step, and it moves the 
ball in the right direction. It does not simplify the code. The code is 
still a labyrinth of confusion, incomprehensible to many people, tax 
preparers, and to many in the IRS themselves. It does not provide the 
lower rates the American people deserve, and it does not eliminate 
inequities in the code, like the marriage penalty and the exorbitant 
estate tax rates. I know Senator Roth will continue to push for 
comprehensive tax reform for the taxpayers of this country.

  I believe that one way we can do that is to set a sunset date, a date 
certain in which this Tax Code will be eliminated and we will require 
ourselves to take action in providing comprehensive tax reform, a lower 
tax rate, a fairer Tax Code for the American people. We may disagree on 
that, but it is imperative that this be one more step in moving toward 
what is essential, which is comprehensive tax reform for the American 
people.
  I will conclude with a statement that President Clinton made during 
his recent trip to China, in which he addressed the students at Beijing 
University and spoke to them about the nature of freedom, about our 
heritage of freedom in this country. I believe that what he said--and 
said eloquently--applies to the ongoing debate about IRS reform and 
restructuring and making the Tax Code of this country fairer for the 
American people. He said:

       In America, we tend to view freedom as the freedom from 
     Government abuse or from Government control. That is our 
     heritage. Our founders came here to escape the monarchy in 
     England.

  Then he said this:

       Sometimes freedom requires affirmative steps by Government.

  I simply say that this legislation, which Senator Roth has led the 
way on, is an affirmative step that this Government must take to ensure 
that the American people truly enjoy the fruits of freedom, which is 
our legacy and heritage.
  I yield the floor.
  Mr. BREAUX addressed the Chair.
  The PRESIDING OFFICER. The Senator from Louisiana.
  Mr. BREAUX. Mr. President, I want to make a few comments on the IRS 
Reform Act, which is now on the floor. This is indeed, in my opinion, a 
very historic day. Never before in the history of the Internal Revenue 
Service have we ever had legislation that brought about massive changes 
to an institution that is not thought of too well by the American 
people. This legislation goes far beyond anything that Congress has 
ever done in trying to reform the Internal Revenue Service.
  I want to join with others in commending a couple of people for the 
work they have done, particularly the chairman of our committee, the 
distinguished Senator Roth, who chaired the hearings, which really woke 
up a number of Members of Congress to the massive problems that were 
out there. It was really very moving to hear American citizens come in 
and actually tell about their experiences and the abuses they had 
suffered as a result of the Internal Revenue Service.
  I would, I think, fairly and properly add, however, that the vast 
majority of the people who both work for and work at the IRS are good, 
honest, decent citizens of this country, who are very loyal to what 
America stands for and respect the rights of taxpayers in this country. 
But as in any institution, whether it be government or private, there 
are abuses. What the hearings were able to do was to lay out in a 
public forum the problems with the current bureaucracy that represents 
the Internal Revenue Service.
  I want to commend, in addition to Senator Roth, Senator Moynihan for 
the work he has been doing, and I think Senator Hutchinson was proper 
in pointing out also the work done by a former Member of this body who 
used to sit right about over there on the Democratic side, a member of 
the Democratic leadership, David Pryor. He is not with us today, he is 
residing in Arkansas, but he is with us in spirit in the sense that we 
are discussing today something that he started a long, long time ago 
with his Taxpayer Bill of Rights.
  Long before the Roth hearings, David Pryor was working on this 
particular problem in bringing our attention to the defects that the 
IRS had. He always stood up for the individual taxpayers of America. I 
know that wherever he is in Arkansas, or wherever today, he is 
justifiably proud of the work that is being done today because he led 
the way in that area.
  The final person is Senator Kerrey in this body from the great State 
of Nebraska who chaired an IRS reform commission. As one who chairs a 
commission right now, I know how difficult it is to try to get people 
to agree and make recommendations on how to reform legislation. Many 
times a commission has so many experts on it that it is difficult to 
get any kind of consensus about change. But Senator Kerrey led the way 
in getting a commission to focus in on this problem and help produce 
legislation and recommendations. Without his work on the committee 
itself this product would not be in the good shape that it is in today.
  I am reminded of the old stories, which are repeated in Louisiana. 
You have various versions of this. One of them heard is about the two 
greatest lies ever told. The first one is people who say, ``I am from 
the Federal Government. I am here to help you.'' Of course, the second 
greatest lie could be just about anything that you want to add to it. 
And I have heard various variations, which I would not care to repeat 
on the floor of the Senate. But the first one is, ``I am from the 
Federal Government. I am here to help you.''
  It is true in a sense that people have a great deal of mistrust in 
many institutions of government. That is unfortunate. When most people 
think of the Internal Revenue Service, they do not think of the word 
``service.'' They think of fear, they think of intimidation, they think 
of threats, and they think of all sorts of things, none of which are 
very good. The last thing they think of is service.
  This legislation today will go a long way to restoring service to the 
Internal Revenue Service and letting that agency of our government know 
that their principal function is to serve the people of this country. 
They work for the taxpayers--not the other way around. The taxpayers in 
Louisiana should know this is a major improvement in how that agency is 
going to have to operate in the future, so that no longer if you get a 
letter from the Internal Revenue Service should there be a fear of 
opening it. No longer if you get a call to come down and meet with 
someone from the IRS should you be intimidated about having to fulfill 
that request.
  Some have advocated: ``Just abolish the agency.'' That is a good 
headline. That will get you 15 seconds of fame perhaps. But is it 
responsible? No. Is saying, ``We are going to abolish the Tax Code; and 
don't worry, sometime in the future we may replace it with something we 
hope might be better than we have now,'' responsible? How do you buy a 
house if you do not know what the Tax Code is going to be? How do you 
make a business investment if you do not know what the tax laws are 
going to be in 12 months? While it is very simple to say, ``Let's 
abolish everything and hopefully one day we will replace it with 
something that will be better than we have today,'' I question whether 
that is the responsible thing to do. It is much easier to, as they say,

[[Page S7638]]

kick down the barn than it is to construct a new one.
  But what we are trying to do with the Roth legislation and people who 
put this package together is to say we want to repair what is broken. 
We want to reform what needs reform. We want to tell the American 
taxpayers there will be predictability in how and when and how much tax 
they legally owe to run the government functions that are important to 
this country.

  This legislation accomplishes what I think is incredibly the most 
massive change in the IRS that we have ever had since the agency was 
created--to restore service, to restore confidence, to restore fairness 
to the American people when they have to deal with their government, 
which hopefully will treat them in a fashion that makes all of us much 
prouder of the work that we have done with this legislation.
  Let me just make a comment about one particular aspect of the 
legislation which I think is important.
  The government, it is clear, has thousands of lawyers working for the 
IRS on behalf of the government--when a taxpayer is called upon, and it 
is said that they are deficient in some kind of a way--to represent the 
government's interests. Now, under this legislation we will have a 
taxpayer advocate who will now be called the National Taxpayer 
Advocate. We have done more than just change the name. We have changed 
the functions. Taxpayers should know that they will have someone who 
will be on their side when they have a problem to discuss with the 
IRS--someone who will represent their interests, and not just represent 
the interests of the government against them, but represent their 
interests before their own government. I think that is incredibly 
important.
  The National Taxpayer Advocate will be appointed by the Secretary of 
the Treasury, but only after consulting with the Commissioner of the 
IRS and the new IRS oversight board.
  It is very important to further point out that the Advocate would 
have to have experience in customer service representing customers--not 
representing just the government. You will have a requirement that he 
also--or she--has to have experience in tax law and have experience 
representing individual taxpayers. You would think you would not have 
to spell that out. But we have to make sure that person who is going to 
be in that position has experience representing individual taxpayers, 
has a knowledge of the tax law of this country, and also has background 
in customer service, also getting back to the point that this is a 
service organization of our government.
  I think it is particularly important to ensure their independence--
that we have also required in this legislation that the Taxpayer 
Advocate cannot have been an IRS employee within 2 years of his or her 
appointment, and must agree not to work for the IRS for 5 years after 
serving in this position. Why is that important? I think it is pretty 
obvious--to ensure their independence. We just do not want to pull 
someone out of the IRS and have them serve in this position 
representing taxpayers knowing that one day they will go right back to 
the IRS, or to have a career in the IRS and have that mindset guiding 
what they do representing the individual taxpayers. No. We have done 
just the opposite. We say that the Taxpayer Advocate has to have 
experience in representing the taxpayer and have experience in customer 
relations and not be an employee of the IRS, and not go to the IRS 
within 5 years after they leave this job.
  What that will ensure is that we will have a National Taxpayer 
Advocate who will be truly interested representing the individual 
taxpayer, so that taxpayer will know that there is someone on his or 
her side for a change when they have to present their case.
  I also point out that people believe lots of Americans are audited. 
That is not true. It is not true at all. Less than 2 percent of the 
people in the country are ever audited by the IRS. Ninety-eight percent 
of the people, plus--more than 98 percent--file their taxes, pay their 
taxes, maybe get a refund, and maybe have to owe something. But that is 
it. Ninety-eight percent plus of the people in this country are never 
audited, and abide by the law. Less than 2 percent ever have a problem 
with having to be audited. But when a person falls into that situation, 
under the new IRS service they will be assured of the fact that there 
will be an advocate who will stand by their side and represent their 
interests, and not just be an IRS employee, saying, ``Don't worry, we 
will take care of you.''
  This is a major part of the reform that we will be voting on today.
  I would just say that this is monumental change. It is important. I 
think everyone who has worked and contributed to this effort, of which 
there have been many, would conclude with me that when we work in a 
bipartisan fashion we produce good results. And that is what we are 
voting on today--good legislation for all of America.

  I yield the floor.
  Mr. JEFFORDS. Mr. President, our passage today of the IRS 
restructuring bill is a tribute to the dogged and determined efforts of 
Finance Committee Chairman Roth. This reform effort originated with the 
report of the bipartisan National Commission on Restructuring the 
Internal Revenue Service, filed just over a year ago. It was given 
further impetus by the historic Finance Committee IRS oversight 
hearings held last year. Those hearings were the first comprehensive 
oversight hearings ever undertaken by the Finance Committee. They 
showed us how miserable the lives of average, law-abiding taxpayers 
could be when they ran afoul of a tax collection agency that was at 
best uncaring, and at worst abusive. Many taxpayers' suffering was 
prolonged; their cases got lost in an IRS black hole and took years to 
resolve. These oversight hearings really struck a nerve with the 
public, which flooded our offices, and the Finance Committee, with 
further complaints of abuse, mistreatment, and inattention. There were 
widespread calls for IRS reform. This public response not only led to 
further oversight hearings, but it also showed that any reform effort 
needed to be comprehensive, addressing a range of issues broader than 
those that surfaced during our oversight hearings. To his credit, 
Chairman Roth resisted calls for a quick fix, adopting instead a 
methodical, thoughtful approach to reform.

  The result represents the most comprehensive reform of the Internal 
Revenue Service in more than 45 years. This bill contains over 50 new 
taxpayer rights, leveling the playing field for taxpayers. It calls for 
an innovative oversight board. It assures that Congress will no longer 
shirk from oversight responsibilities. It calls for innocent spouse 
relief for taxpayers, usually women, who were the unknowing victims of 
former spouses that underpaid their taxes.
  There are three aspects of this bill that I believe are especially 
significant and on which I want to focus my remarks. The first is the 
new organizational structure at the IRS. Until now, the IRS has been 
administered by the Commissioner and his or her subordinates, many of 
whom have spent their entire career at the IRS. Since World War II, 
every commissioner has been a tax lawyer. Last year, Commissioner 
Charles Rossotti, a non-attorney, skilled in the areas of information 
management and familiar with the problems inherent in running a large 
organization, took the reins. With over 100,000 employees, the IRS 
presents a significant management challenge. Effectively managing an 
agency the size of the IRS requires skills other than those necessary 
for tax law enforcement. With a fresh viewpoint, Commissioner Rossotti 
has already made some proposals for reform that look promising. He has 
proposed to restructure the agency on a functional, rather than 
geographic, basis. This will allow functional units of the IRS to 
develop in-depth expertise in specific aspects of tax law and to 
provide more efficient service. The re-structuring bill builds on this 
fresh point of view, directing the Commissioner to implement an 
organizational structure with units serving particular groups of 
taxpayers with similar needs.
  Further, this legislation bill will assure that the IRS continues to 
benefit from fresh ideas. Administration of the IRS will be 
supplemented by new nine-member board, responsible for oversight of 
administration, management, conduct, direction of the IRS, as well as 
administration and execution of the tax laws. The majority of the board

[[Page S7639]]

will be outsiders with expertise in such areas as customer service and 
management of large service organizations. These outsiders, not wedded 
to the current way of doing things, will be able to offer valuable 
input on new ways of doing business and will provide an important link 
to expertise from the private sector. To my knowledge, this type of 
public-private management partnership is unprecedented.
  An IRS employee representative is also on the oversight board. The 
presence of an employee representative on the board generated a 
substantial amount of controversy. In my view, inclusion of this 
representative will be key to the success of any future reform efforts. 
Reforming the IRS is not going to work unless it enjoys the support and 
understanding of those charged with carrying out the reforms. The 
employee representative's input will be very valuable, enabling board 
members unfamiliar with the day-to-day IRS operations better assess the 
impact and workability of reform proposals.
  Another aspect of this act that I think is particularly important is 
its emphasis on quicker and fairer dispute resolution. Taxpayers I have 
talked to are really bothered by the length of time it takes to resolve 
problems at the IRS. While cases await resolution, interest and 
penalties on unpaid taxes continue to accumulate. Frequently, the 
amount of interest due on unpaid taxes ends up exceeding the amount of 
taxes themselves. This bill contains several provisions that should 
make dispute resolution faster and more efficient. First, it provides 
that if the IRS doesn't contact taxpayers within a year after they file 
their returns, interest and penalties will not continue to accrue until 
the IRS sends the taxpayer a notice that additional taxes are due.
  Second, the bill mandates that the Commissioner's restructuring of 
the IRS include an independent appeals function. This appeals unit is 
intended to provide a place for taxpayers to turn when they disagree 
with the determination of front-line employees. A truly independent 
appeals unit will assure that someone takes a fresh look at taxpayers' 
cases, rather than merely rubber-stamping the earlier determination.
  This legislation also broadens the powers of the IRS Taxpayer 
Advocate. This will be especially important to taxpayers who find 
themselves facing immediate and serious harm as the result of actions 
taken by the IRS. In cases of hardship, the Taxpayer Advocate can 
intervene to issue taxpayer assistance orders, requiring the IRS to 
release seized property or otherwise refrain from taking action that 
could result in a significant hardship. The definition of ``significant 
hardship'' is expanded. This should make taxpayer assistance orders 
more widely available. In addition, the bill provides that persons 
appointed to the post of Taxpayer Advocate must agree not to accept 
employment with the IRS during the five-year period following their 
tenure. This will assure that they won't hesitate to overturn IRS 
actions out of concern about offending future bosses or co-workers.
  These provisions represent important steps to cut down on the time it 
takes to resolve disputes. In addition, the bill provides for informal 
Tax Court proceedings in certain types of small cases, giving more 
taxpayers, usually without lawyers, a greater opportunity to resolve 
disputes that cannot be resolved administratively. Expanded criteria 
for installment agreements and offers-in-compromise should mean that 
more taxpayers will be able to take advantage of those settlement 
tools.
  The last aspect on which I want to comment is the role that Congress 
will play in these reforms. With more frequent Congressional oversight, 
perhaps a bill of this scope might never have been necessary. With more 
oversight, we in Congress might better to be able to identify and 
address problems when they first arise. This bill imposes oversight 
responsibilities on Congress. It will assure that the Committees of 
Congress with jurisdiction over the IRS will hold an oversight hearing 
at least once a year.
  In addition, this measure requires that when Congress passes a tax 
bill, it must consider the practical consequences of tax law changes. 
Our tax system is built on the principles of self-reporting and self-
assessment. Luckily, we have relatively high compliance rates from 
individual taxpayers. The increasing complexity of our tax laws, 
however, threatens to undermine voluntary compliance. The more complex 
the law becomes, the more difficult we make it for taxpayers to comply. 
The bill provides that IRS should comment on the administrability of 
tax law amendments when they are under consideration by the tax-writing 
committees. The IRS must also submit an annual report on sources of 
complexity in administering the tax code. Finally, the bill requires 
committee reports to include an analysis by the Joint Committee on 
Taxation of complexity and administrability issues. When we considered 
the tax law proposals in the Taxpayer Reform Act of 1997, it would have 
been helpful to know how those proposals would translate into new 
record keeping and paperwork requirements for taxpayers. This analysis 
will be a helpful, welcome addition to the legislative process.
  I suspect that nothing we do will make the IRS loved, but this bill 
makes it a kinder and gentler agency. It will be an agency guided by 
principles of fairness, rather than the bottom line and an agency held 
accountable for its actions, no longer out of control. Any organization 
the size of the IRS is going to experience some problems, and adoption 
of this conference report isn't going to solve every problem in our tax 
collection process. Still, it is our obligation here in Congress to see 
that those problems are minimized to the largest degree possible. This 
bill marks the beginning of fundamental structural changes at the IRS; 
it changes the way the IRS does business. It also provides important 
new protections for taxpayers embroiled in a dispute with the IRS. Most 
taxpayers pay their taxes and never again hear from the IRS. These 
taxpayers may not appreciate any immediate consequences of the new 
taxpayer protections. All of us, however, should benefit from a more 
efficient and effective tax collection process that I hope will result 
from the sweeping reforms we initiate today.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Florida.
  Mr. GRAHAM. Mr. President, I believe in the order I was the next to 
speak, but our colleague from Utah has a committee hearing to chair, 
and so I would ask that he be recognized next, reserving my right to 
speak after Senator Hatch, in the hopes that my colleague from Montana 
could be recognized after my remarks so we maintain the balance of 
speakers on either side of the aisle. I also ask unanimous consent that 
for the duration of the consideration of this conference report Mr. 
Jason McNamara, Ms. Catharine Cyr, Mr. Brian O'Hara, and Mr. Michael 
Magidson of my staff be accorded floor privileges.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Utah is recognized.
  Mr. HATCH. Mr. President, I thank my colleague for allowing me to 
make my remarks ahead of his. It is very accommodative and I appreciate 
it.
  Mr. President, today we will cast one of the most important votes of 
the 105th Congress. Today, we vote to enhance the power of the 
individual taxpayer and to reduce the opportunity for abuse by an arm 
of the federal government. We will vote on the conference report to 
H.R. 2676, the Internal Revenue Service Restructuring and Reform Act of 
1998. This legislation is a tremendous leap forward in enhancing the 
credibility and effectiveness of the IRS.
  But Mr. President, this bill is about more than just changing the way 
one federal agency works. This bill is about reflecting American values 
and priorities; it is about remembering who the federal government is 
here to serve and what it is here to do.
  Of all the powers bestowed upon a government, the power of taxation 
is the one most open to abuse. As the agency responsible for 
implementing and enforcing the tax laws that we here in Congress pass, 
no other agency touches the lives of American citizens more completely 
than the IRS.
  I believe that Americans understand and appreciate that they have to 
pay taxes. Without their tax dollars, there would be no national 
defense; no Social Security, Medicare, or Medicaid; no environmental 
protections; no assistance

[[Page S7640]]

for education or job training; no national parks, food inspection, or 
funds for highways and bridges.
  But, everywhere I go in Utah, I hear from my constituents about their 
frustrations. My office receives numerous letters each month detailing 
taxpayer interactions with the IRS. It seems that everyone has had, or 
knows someone who has had, a bad experience with the IRS. This adds to 
the impression of the IRS as an unfeeling, impersonal machine that will 
run roughshod over anyone in its way.
  I, myself, have seen abuses at the hands of the IRS. One of the 
reasons I ran for the U.S. Senate over twenty years ago was because of 
the abuses I saw. As an attorney, I had occasion to represent taxpayers 
against the IRS. The treatment these taxpayers received appalled me--
and that was twenty years ago. The stories have not changed all that 
much over the years; in fact, they seem to be occurring more and more 
frequently.
  The stories range from small annoyances such as unanswered phones or 
long periods of time spent on hold to shocking abuses such as 
unwarranted seizures of assets or criminal investigations being based 
on false information for the purpose of personal revenge. It is small 
wonder that the taxpayers are scared and frustrated. These stories 
illustrate a disturbing trend. They are dramatic reminders of the 
failure of Congress to exercise adequate oversight over a powerful 
federal agency.
  I have been here long enough to know that we are never going to be 
able to achieve a system where people do not get frustrated about 
paying their taxes--both the process of paying taxes and the amounts. 
Let's face it: paying taxes is not something we will ever enjoy doing.
  We must, however, achieve a system of collection that is efficient, 
fair, and, above all, honest. While not perfect, the conference report 
before us today moves us a long way toward a better system.
  During our oversight hearings and through letters to my office, I 
have heard several horror stories from taxpayers, innocent spouses, IRS 
employees, and those who have been the subjects of criminal raids and 
investigations. While these are the minority of the cases dealt with by 
the IRS, they still illustrate the nature of the abuses occurring.
  We are not talking about appropriate enforcement of the law. We are 
talking about heavy-handed abuses of enforcement powers. At best, such 
tactics are counterproductive; at worst, it is reprehensible behavior 
by big government. It must stop.
  The conference report before us is a comprehensive approach to 
reforming the IRS. No one provision can stand alone as the silver 
bullet that brought down the bear. Taken as a whole, however, this 
legislation provides a strong foundation for a new IRS by changing the 
way the IRS operates and interacts with individual taxpayers.
  The bill before us today gives the IRS Commissioner great flexibility 
to carry out a fundamental reorganization of the agency. But, it also 
places the IRS under an independent, mostly private sector board to 
oversee the big picture of operations at the agency. Through this 
board, the American taxpayer will now have a focused advocate examining 
the operations of the IRS and input into the way the agency runs. These 
are two very important elements to creating a new culture at the IRS: 
responsible leadership and accountability.
  I commend the new Commissioner for the steps he has taken so far to 
rectify these problems at the IRS, and I encourage him to keep going. 
And, I hope he will not feel constrained by ``business as usual'' 
attitudes among those who have an interest in maintaining the current 
methods. I hope the new Commissioner will shake the dead wood out of 
the trees.
  But, Mr. Rossotti needs to know that Congress will hold him and the 
agency accountable. And, our expectations--and the expectations of the 
American people--are not hard to fathom.
  We do not expect tax delinquents or cheats to go undetected or 
unpenalized. But, we do expect the IRS to enforce our tax laws 
appropriately. We expect the IRS to assist taxpayers to understand and 
comply with complicated laws and regulations. We expect taxpayers to be 
treated courteously. We expect taxpayers' questions to be answered 
promptly and their returns processes efficiently. And, we expect any 
penalties to fit the crime.
  Today, we will vote on a bill that takes a leap forward in 
eradicating a culture that has allowed corruption and abuse to occur 
over and over again and to taint the efforts of honorable IRS 
employees. There has been a lot of talk about changing the IRS into a 
service-oriented agency, and the bill before us goes a long way towards 
doing just that. We cannot stop there, however.
  While customer service is an important part of the equation, we must 
go further and address taxpayer rights. The conference report removes 
taxpayers from the reach of IRS excesses by instituting over 70 new 
rights and protections. The way the taxpayer deals with the IRS, 
individual IRS employees, and the courts will be changed.
  The conference report shifts the burden of proof in selected 
situations off of the taxpayer and onto the IRS. It also ensures that 
compromise is more accessible to taxpayers by making offers-in-
compromise and installment agreements easier to achieve and the terms 
of these agreements more flexible.
  The conference report also contains some much-needed assistance for 
innocent spouses. The understatement thresholds are lowered and it is 
now easier for taxpayers to receive innocent spouse protections. In 
addition, limited proportional liability will now be available to a 
spouse who is legally separated and living apart for at least one year 
from the person with whom a taxpayer originally filed a joint return.
  Interest and penalty accrual will be suspended after a year in some 
cases when the IRS fails to notify a taxpayer of a liability for 
additional taxes within 18 months of filing a tax return. This period 
will be shortened to within one year of filing the tax return after the 
year 2004.
  The conference report also makes significant changes to the Taxpayer 
Advocate's Office to ensure that it will be an empowered and 
independent voice for the taxpayers.
  A long list of procedural due process safeguards are also provided in 
reaction to IRS collection abuses. These include a 30-day period to 
appeal before liens and levies are put into place, early referral to a 
strengthened and more independent appeals division, and implementation 
of fair debt collection practices.
  The conference report increases congressional accountability for the 
performance of the IRS through provisions such as streamlined 
congressional oversight and an independent voice for the IRS in the 
tax-writing process.
  This legislation also contains legislative incentives for tax law 
simplification by requiring a tax complexity analysis for new 
legislation.
  In this vein, the conference report goes one step further and 
simplifies one of the most embarrassingly complex computations for 
today's taxpayers by retroactively reducing the holding period to 
qualify for the preferential capital gains tax rate from 18 months to 
12 months. This provision not only simplifies the process, it also 
reduces capital gains taxes and encourages further investment.
  The legislation before us today will fundamentally change how the IRS 
works. It is a necessary and bold set of initiatives. But, we cannot 
just declare victory and bask in the glow of a job well done. We must 
remember how we got to this point in the first place.
  The IRS was not born evil, and it is not an inherently bad 
organization. Rather, it has suffered from decades of neglect and 
inadequate oversight. Once we have set the agency on the road to 
recovery and given it the tools it needs to move forward, we must 
continue to guide it and ensure that the agency continues down the 
right road. Passage of this bill does not mean we can pat ourselves on 
the back and tell ourselves what a great job we did.
  We must continue to exercise our oversight responsibility. We must 
have continued hearings, reviews, and cooperation. We must remain 
vigilant in our search for areas where further reform is needed and 
ways to simplify the tax code. Left alone, any entity with power and 
authority will lose its way. Without continued oversight and 
cooperation, we will soon see this debate repeated on the Senate floor.
  This legislation can be summed up in one word--accountability. For 
too

[[Page S7641]]

long, the IRS and its employees have operated in an environment with 
little or no accountability. This bill changes all that. The 
legislation before us makes individual IRS employees accountable for 
their actions. It makes management more accountable for the treatment 
given taxpayers and other employees. Finally, it makes the agency as a 
whole more accountable to the Congress and the American taxpayer.
  This debate has focused largely on the negative--and there is plenty 
of negative to focus on. But, we must also put these abuses and 
misdeeds in perspective. I believe that they are the exception and not 
the rule. Just as a vast majority of the taxpayers are honestly trying 
to comply with the tax code, the vast majority of IRS employees are 
honest and hard working individuals doing their best in a very 
difficult and unpopular job.
  Yes, abuses do occur, and we must reform the system to prevent 
improper activities. At the same time, we must make sure that we 
acknowledge those employees who are doing their jobs with competence 
and integrity. I have to look only as far as my own state of Utah to 
find numerous examples of this type of employee.
  I'd like to take a moment to recognize the exemplary work of several 
IRS employees in the Ogden, Utah, office of the IRS. I daresay that my 
colleagues could find IRS personnel in their states who share this 
dedication to service.
  Milt Flinders has worked with the IRS for 26 years, 13 of them as a 
manager. He currently has 20 IRS employees working under his 
supervision. Mr. Flinders has great management skills, and has a well-
known reputation for being fair both to IRS employees and to the 
taxpayers with whom he comes in contact.

  Avon Wales has worked with the IRS for 20 years. She currently works 
as an office collection representative/revenue officer aide. Ms. Wales 
is a very conscientious employee who makes sure she knows the relevant 
rules and procedures regarding each case she works on. She treats 
taxpayers with kindness and patience, often putting in hours at a time 
with an individual taxpayer who is confused about the rules or needs 
additional assistance.
  Susan Vail, a revenue officer, has worked with the IRS for 31 years. 
She makes sure she stays current with the complex laws and procedures 
surrounding the collection of taxes--no easy task there. She is fair 
and evenhanded in her dealings with taxpayers. She gets positive marks 
from her supervisors and other IRS employees, but, perhaps most 
importantly from taxpayers themselves who have worked with her.
  These three, and other employees like them, are the reason that most 
taxpayers today, even if frustrated by the forms and irritated with the 
amount of their tax bill, continue to comply with our voluntary tax 
collection system. Thank goodness for these employees.
  Is this conference report perfect? No. There are some things I would 
like to see changed. For example, I have some serious concerns about 
the creation of an accountant-client privilege in this context. I am 
concerned that we are using the Internal Revenue Code to effectively 
amend the Federal Rules of Evidence. We have a clear procedure for 
amending these rules already set out. Changing these rules is no simple 
matter. It should only be done through careful, deliberate evaluation 
of the change and the effect it will have on the judicial system. It 
should only be done with input from the Judicial Conference of the 
United States and others.
  Despite these misgivings, I want to reiterate the importance of the 
bill before us today. The IRS touches more taxpayers in more aspects of 
their lives than probably any other agency. The American taxpayers have 
every right to expect a higher level of professionalism, customer 
service, and fair treatment from an agency charged with enforcing the 
law in an area as important and pervasive as is the area of taxation.
  The conference report before us stays true to the ultimate goal of 
the IRS reform legislation--it protects both the honest taxpayer trying 
to comply with our complex tax laws and those honest employees 
struggling to enforce an almost incomprehensible set of tax laws with 
integrity. This conference report takes on and accomplishes the 
difficult task of striking the right balance between granting taxpayers 
the experience of paying taxes without abusive treatment while 
providing the tools necessary to fund the Government.
  There is no question that we have come a long way, with this bill, to 
resolve many of the conflicts and problems that do exist between 
taxpayers and those who serve the taxpayers at the IRS. This bill makes 
gigantic steps forward, to try to make the system more fair. I think we 
on the Finance Committee and those on the Ways and Means Committee in 
the House have certainly all worked very hard to get this done.
  In particular, I commend Senators Roth and Moynihan, Representatives 
Archer and Rangel, and my colleagues on the IRS Conference Committee 
for the hard work they put into crafting the conference report before 
us today. I was proud to add my name to the conference report as a 
conferee. I wholeheartedly support its passage and urge my colleagues 
to do the same.
  This is the right thing to do. Once we have this done, then, it seems 
to me, Democrats and Republicans have to get together to see if we can 
simplify our tax system in whatever way is best in the interests of the 
taxpayers of America. This is only step one, but it is an important 
step. It is a step that will make a lot of difference in people's 
lives. It is a step that will make this system much more fair than it 
has been in the past.
  But it is only the first step. If we can get together and come up 
with a way of simplifying the Tax Code so everybody can fill out their 
own tax forms, for the most part, and also make it more fair to 
everybody in America, then I think in the end we will have done things 
that no other group of people in the history of our country would have 
done. I know we have colleagues here on both committees, the Finance 
Committee and the Ways and Means Committee, who have the capacity to do 
this, both on the Democrat side and on the Republican side. I call on 
all our colleagues to do that, whether it be by a flat tax, a value-
added tax, a sales tax, or any other of a number of approaches. We have 
to look into this and get this code so it is not the monstrosity that 
we all know it to be today.
  Having said this, I thank again my dear colleague from Florida for 
his kindness and also my colleague from Montana. I appreciate their 
deferring to me so I could make these few remarks. I really appreciate 
it. Thanks very much.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Florida is recognized.
  Mr. GRAHAM. Mr. President, I wish to express my appreciation to my 
colleague and good friend from Utah for his kind remarks, as well as 
for his excellent analysis of this legislation. I join him in the same 
enthusiastic reform of the Internal Revenue Service and see this as an 
important chapter in a longer book which will soon bring us to the 
pages of simplification of the Internal Revenue Code.
  Mr. President, this legislation does mark a new era for the Internal 
Revenue Service. The hearings that we had disclosed some of the culture 
of the IRS as it has operated in the past. We focused on how to change 
that cultural orientation. Let me just mention three areas that we 
uncovered.
  One was typical of many large organizations, public or private, and 
that is a loss of focus on the mission and a tendency to become too 
internal in the way in which issues were reviewed. That tendency to 
become incestuous, to answer questions based on what is in the best 
interests of the organization rather than what is in the best interests 
of the customers--in this case, the taxpayers served by the 
organization--is, unfortunately, a typical transformation and a 
transformation which we found that the IRS had succumbed to. The new 
IRS will begin to analyze issues from the perspective of their 
customers, the American taxpayers, and, with that new reorientation, 
will become more effective in carrying out its mission and will be seen 
by the taxpayers as being less intrusive in their lives.
  A second aspect of the old IRS was its evaluation of employees based 
on how much money was collected. This is analogous to a police 
department which requires its officers to issue so many parking tickets 
or speeding tickets per day. It changes the priorities, it

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changes the perspective, it changes the public respect of the 
organization. I am pleased that the new IRS will evaluate employees 
based on how they deal with taxpayers as well as on their collection 
efforts.
  A third factor in the old IRS was the tendency to threaten taxpayers 
with enforcement action if they didn't agree to extend terms of payment 
or enter into other measures that would make tax collection easier for 
the IRS. We had an example of this recently, in which the IRS--and I 
commend them for having come forward with this--became aware that there 
were threats being made to taxpayers who already had entered into a 
multiyear installment payment, where a portion of that installment 
payment would be beyond the statute of limitations, beyond the reach of 
the IRS. Taxpayers in that circumstance were being threatened that, if 
they did not agree to waive the statute of limitations, they would be 
subjected to immediate cancellation of their installment agreement and 
required to make full payment at that time.
  The IRS had uncovered that there were approximately 22,000 instances 
of that improper threat and are in the process of notification. I am 
pleased to say on June 29 of this year, in Tampa, FL, the first actual 
check of over $1,500 was paid to a taxpayer as a refund because of the 
consequences of such a threat.
  Mr. Carl Junstrom, who was the taxpayer receiving that refund, has 
become a hero of American taxpayers because of his efforts to overcome 
the travails to which he was subjected and now has become a symbol that 
individual taxpayers can prevail in their own cases and can benefit 
many thousands of others.
  One of the significant parts of this reform effort is that it was a 
grassroots-up effort. It was an effort that didn't start by Washington 
telling American taxpayers what their problems with the IRS were, but 
rather listening, understanding, and then being willing to act on what 
we had heard.
  This is in the best tradition of democracy. Many of these individual 
issues came to the attention of the IRS and to congressional offices 
through taxpayers who had specific problems with the IRS, and they 
brought them to the attention of a taxpayer advocate in the IRS or to 
their Member of Congress.
  That kind of information began to accumulate, and it was seen that 
the problems were not specific and focused, but rather began to 
disclose a pattern of IRS problems, a pattern of needs for taxpayers to 
have a new relationship with their tax collection agency.
  Those individual taxpayer concerns then became the focus of hearings 
that were held by the Senate Finance Committee and the House Ways and 
Means Committee. Some of those were held here in Washington; others 
were held across the Nation. In January of this year, I participated in 
such a hearing with Congresswoman Karen Thurman in Orlando, FL, in 
which we heard, again, some of the specifics of taxpayer concerns which 
had previously been the subject of specific constituent complaints. Let 
me just mention a couple of those.
  Karen Andreasen, from Hillsborough County, FL, when filing for 
divorce discovered that her soon-to-be ex-husband had failed to file 
tax returns for 1993 and 1994. She then found that the IRS, having 
launched its case against her ex-husband, swiftly turned its attention 
to her. Tax liens were placed on her home; the bank holding her 
mortgage threatened her with foreclosure.
  A separation or divorce is painful enough for both of the parties and 
the children and others who are affected, without suddenly realizing--
like Karen Andreasen, a spouse who had placed confidence in her ex-
husband and signed joint returns--they are subject to a deficit of 
thousands of dollars in back taxes on income they never earned and on 
tax returns that they never understood.
  Congress has now recognized the problem of Karen Andreasen and, in 
this legislation, we have provided that divorced or separated spouses 
can elect to be responsible for only their proportionate share of the 
taxes.
  We have also liberalized the circumstances under which other 
taxpayers may obtain innocent-spouse relief, and we have made this 
retroactive to currently opened cases so that Karen Andreasen and 
thousands of other spouses like her will be able to get the benefit of 
these new provisions.
  Thomas Jones was a decorated Naval veteran from Clearwater, FL. His 
business partner absconded with the company's payroll taxes. Mr. Jones 
did what a responsible citizen should do: He notified the authorities. 
IRS initially thanked him for his assistance, then proceeded to hold 
him 100 percent responsible for the partnership debt. Under pressure 
and unable to afford legal representation, Mr. Jones elected a monthly 
payment plan.
  When I met with him at an IRS reform hearing in Orlando, he told me 
that he was bankrupt. Interest and penalties were piling up at a 
staggering $2,000 a month. Twice during his 13-year-long fight, Thomas 
had offered to compromise with the IRS, but was summarily rejected by 
the same collection agent who a few days earlier had been bugging him 
for additional money.
  Good news. Thomas Jones may be the last taxpayer to suffer from such 
unfair conflict of interest, because this reform legislation expands 
the authority of the IRS to accept offers of compromise and guarantees 
to Americans an independent third party review of their offers and 
compromise. This will prevent the same IRS division from serving as 
prosecutor, judge, jury and executioner.
  Mr. President, those are just two examples of Americans with specific 
problems who now have contributed to relief for themselves and for 
thousands of current and future taxpayers.
  There are some lessons in this experience which I think we in 
Congress need to understand, appreciate and absorb into our future 
actions.
  First, much of our success, in addition to taking advantage of the 
experiences of individual Americans, was the result of an IRS reform 
commission which was established 2 years ago. I applaud Senator 
Grassley, who is with us this afternoon, and Senator Bob Kerrey, for 
the work they did on that IRS reform commission. That gave to us the 
basis of thoughtful recommendations and analyses which substantially 
accelerated the work of the Congress and the effectiveness of that 
work.

  This indicates to me that we need to commit ourselves as a Congress 
to ongoing oversight of the IRS; that we can't wait until there is an 
occasional commission formed to review this matter; that we must have 
an ongoing responsibility to see that this agency does not slip back 
into the patterns of conduct that necessitated the legislation that we 
will be adopting later today.
  Second, we must recognize that this is but a chapter in the larger 
book of how to make the Internal Revenue Code more understandable, more 
appropriate, more taxpayer friendly. I suggest that the next chapter, 
which will be simplification of the Tax Code, use some of these lessons 
that we have just learned. That it, too, take advantage of the 
experience of individual Americans in what they would like to see, 
based on their own experience, in a more simplified tax structure for 
America; that we look to the use of expert panels, such as the IRS 
reform commission, to help give us indepth advice and advance our 
ability to engage in this next step of simplification of the Tax Code.
  My own sense is that a third lesson learned is that Congress can make 
substantial steps if it does it in digestible increments. I suggest 
that as we look at the Internal Revenue Code we ask the question: What 
are the building blocks of the Internal Revenue Code? How can we take 
each of these blocks in turn and systematically have it reviewed based 
on taxpayer experience, based on expert review and then, finally, 
congressional hearings and congressional action?
  I believe if we take that digestible, incremental approach, in a 
reasonable period of time we will be able to say to the American people 
that we have reformed not only the administration, but also the Tax 
Code itself, and reformed it in a way that will make it more 
understandable and more acceptable to the American taxpayer.
  I conclude by applauding Senator Roth for his great leadership and 
Senator Moynihan in holding the hearings that first exposed the 
problems of the IRS. I urge that we continue our active involvement as 
we see that this legislation achieves its intended result and

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move to the next chapter of simplification of the Internal Revenue 
Code.
  Mr. President, this is a happy day. I will, with enthusiasm, join 
what I am confident will be a large majority of my colleagues in voting 
for this conference report which will move us substantially towards the 
goal of an IRS Code that all Americans, that all those affected by its 
administration, will feel prouder about as citizens and will make their 
task of compliance with their tax responsibilities somewhat easier. 
Thank you, Mr. President.
  Mr. LOTT addressed the Chair.
  The PRESIDING OFFICER. The majority leader, Senator Lott, is 
recognized.
  Mr. LOTT. Mr. President, will the Senator from Montana allow me to 
make a brief statement before he proceeds?
  Mr. BAUCUS. The Senator from Montana is absolutely delighted to allow 
the majority leader to proceed.

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