[Congressional Record Volume 144, Number 90 (Thursday, July 9, 1998)]
[Senate]
[Pages S7717-S7723]
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 
vote on the adoption of the conference report to accompany H.R. 2676, 
which the clerk will report.
  The 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. DASCHLE. Mr. President, I would like to express my gratitude to 
all of our colleagues, Democratic and Republican, who have worked so 
hard for so long on the Internal Revenue Service Restructuring Act of 
1998. This bipartisan legislation builds on the recommendations of the 
year-long National Commission on Restructuring of the IRS and addresses 
many of the concerns raised during Congressional hearings. These 
reforms have been a long time coming, and I am pleased to support them 
today on the last leg of their journey through the legislative process.
  We would not be here today, poised to enact the most sweeping 
restructuring of the Internal Revenue Service in living memory, if it 
were not for the vision, diligence, and persistence of the senior 
Senator from Nebraska, Bob Kerrey. Today's vote represents nearly three 
years of concerted effort on the part of Senator Kerrey. He developed 
the legislation to create the commission in 1995, co-chaired its 
proceedings to a successful conclusion in 1997, and has worked 
assiduously since then with Members of Congress and the Administration 
to shepherd the legislation to today's final vote. On behalf of the 
Senate and taxpayers across the country, I thank Senator Kerrey for his 
inspired public service.
  This legislation has two essential goals: to make the IRS more 
accountable to private citizens and to transform its culture into one 
that resembles the customer service orientation of a well-run business.
  Too often lately, South Dakota business owners, farmers and others 
have told me stories that make IRS tax collectors sound a lot more like 
a team of overzealous special prosecutors. With this agreement, we send 
a strong message that the abuse, intimidation, harassment, quota 
systems, and patterns of targeting middle and lower-income people--or 
any segment of the public--will no longer be tolerated. IRS reform will 
ensure that taxpayers receive the fair and equal treatment they 
deserve. It will also pave the way for restoring the public's 
confidence in our Nation's tax collector.
  I support this conference report because it will make the IRS more 
accountable to, and respectful of, taxpayers.
  The extensive public hearings held by the Commission and 
Congressional committees have highlighted management problems within 
the IRS as well as individual cases of abuse and harassment by some IRS 
employees. The new IRS Commissioner, Charles Rossotti, has begun to 
implement significant changes to the structure and culture of the 
agency. By approving the conference report, the Senate can at last give 
him the tools he needs to expedite these necessary changes.
  The bill establishes a new series of taxpayer rights, including one 
that places the burden of proof on the IRS in disputes before the tax 
court. It also permits a taxpayer to sue for civil damages if any IRS 
employee, in connection with any collection activity, negligently 
disregards the law. I am also pleased that the legislation provides a 
number of specific protections for taxpayers subject to audit or 
collection activities and establishes a private board of directors to 
oversee the IRS.

[[Page S7718]]

  In addition, the conference agreement begins the important process of 
coming to grips with the complexity of the tax code. Thanks to this 
legislation, in the future, Congress will have an opportunity to hear 
from IRS technical experts concerning the likely compliance 
difficulties posed by individual tax legislation proposals. I am 
hopeful that involving these IRS tax experts early in the drafting 
process will help us attain our ultimate goal of a simpler and less 
burdensome tax law.
  Nevertheless, there is one aspect of this conference agreement I find 
wholly unbecoming of a piece of legislation intended to protect 
taxpayers. Mr. President, we should be paying for this bill just like 
every other tax bill. Regrettably, the conference report fails to 
uphold the spirit of fiscal responsibility that brought us last year's 
historic balanced budget agreement. Our Republican colleagues have 
chosen to employ a blatant gimmick to cover the costs of the bill over 
the 10-year period required by budget rules by pushing the costs out 
beyond that 10-year period. In so doing, they tarnish an otherwise 
important victory for taxpayers.
  Protecting taxpayers is not limited to improving the fairness and 
efficiency of their tax collection system; it also involves maintaining 
discipline in government finances. There is no good reason why these 
two goals could not have been achieved simultaneously.
  Specifically, the Roth IRA revenue offset in the conference report 
raises revenue for only 3 years. Thereafter, it loses more revenue than 
all the other revenue raisers in the bill combined. Indeed, this bill 
will drain more than $30 billion from the Treasury in the second 10 
years following enactment. This burden on the federal government's 
finances will occur at precisely the time baby boomers begin to retire 
in large numbers, Medicare is projected to become insolvent, and the 
Social Security system's finances come under pressure. I will vote for 
the conference report because of the many good things in it. 
Nevertheless, I hope that at the next opportunity Congress will correct 
this serious flaw in the legislation.
  I am also disappointed that the conference report to the IRS reform 
bill includes the technical corrections for the new surface 
transportation law. Like many veterans' advocates, I had hoped the 
Republican leadership would allow the Senate to debate this matter 
separately and reconsider its unwise and unfair decision to use $17 
billion set aside for veterans' disability compensation to pay for new 
transportation projects.
  As I have stated many times, I strongly believe that veterans 
suffering from smoking-related illnesses as a result of their military 
service should be compensated. That is why I voted against efforts to 
eliminate this compensation during consideration of the Republican 
Budget Resolution earlier this year. And that is why I supported the 
point of order that was raised by Senator Patty Murray on this matter 
yesterday. Although both efforts were narrowly defeated, I look forward 
to continuing to work with Senator Murray, Senator Rockefeller, the 
ranking member of the Senate Veterans' Affairs Committee, and others in 
an effort to ensure that veterans receive the disability compensation 
they deserve.
  Mr. President, despite my objections to these particular provisions, 
my vote in favor of this conference agreement comes down to what I 
believe is in the best interests of working families. The American 
people deserve some assurance that, if they work hard and play by the 
rules, they can expect fair treatment from the IRS. I am convinced this 
legislation can make a difference for honest taxpayers who come into 
contact with our tax collectors. We should pass the conference report 
in order to give Commissioner Rossotti the authority he needs to carry 
out his plans to restructure this troubled agency as rapidly as 
possible. I have been attempting to expedite passage of this 
legislation since January, and I believe that American taxpayers should 
not have to wait one day longer.
  Mr. DOMENICI. Mr. President, there are more than 168 ways that this 
bill makes the IRS more service oriented, and taxpayer friendly. It 
cracks down on abuses highlighted in the hearings. It corrects some 
problems called to my attention by constituents. Chairman Roth and the 
Finance Committee should be commended for the fine job they did on this 
bill.
  Often when we pass legislation, I ask the question: Who cares?
  I can assure you that this is one piece of legislation that everyone 
cares about. No agency touches more Americans than the IRS. As I said 
before one out of two Americans said they would rather be mugged than 
be audited by the IRS. This bill should reverse that prevailing view. 
Among the key provisions the bill strives for better management; better 
use of technology; reinstatement of a checks and balances system so 
that the IRS will no longer be the judge, jury and executioner; 
discipline for rogue IRS agents; taxpayer protections including the 
right to a speedier resolution of a dispute with the IRS; fundamental 
due process and a long overdue reorganization. Hopefully, these reforms 
will change the environment and change the culture at the IRS.
  The bill prohibits the IRS from contacting taxpayers directly if they 
are represented by a lawyer or an accountant. The IRS called this 
practice by bypassing the tax professional and visiting the taxpayer at 
work or at dinner ``aggressive collection'' techniques, my constituents 
called it harassment.
  The bill attempts to make the IRS employees more accountable for 
their actions by putting their jobs on the line when they deal 
abusively with taxpayers.
  The bill requires the IRS to terminate an employee if any of the 
following conduct relating to the employees official duties is proven 
in a final administrative or judicial determination:
  Failure to obtain the required approval signatures on documents 
authorizing the seizure of a taxpayer's home, personal belongings, or 
business assets.
  Falsifying or destroying documents to conceal mistakes made by the 
employee with respect to a matter involving a taxpayer.
  Assault or battery on a taxpayer or other IRS employee.
  Under the bill, the IRS will no longer be allowed to send out tax 
bills with huge penalties compounded with interest and cascading 
penalties just because the IRS was years behind in its work.
  If the IRS does not provide a notice of additional taxes due, a 
deficiency, within 18 months after a return is timely filed, then 
interest and penalties will not start to be assessed and compounded 
until 21 days after demand for payment is made by the IRS. This 
excludes penalties for failure to file, failure to pay, and fraud. It 
is not fair for the IRS to wait years before contacting a taxpayer who 
honestly believes he has paid the correct amount, only to deliver to 
him years later a tax bill with interest and penalties that dwarfs the 
original underpayment. I had a constituent who was told he owed an 
additional dollar--one dollar--in taxes but owed more than $2,500 in 
penalties and interest! The IRS agent's response when asked about it 
was, ``Well, I guess we gotch ya good.''
  Small businesses have been the target of some of the worst abusers. I 
will always remember the day a good friend, a restaurant owner in New 
Mexico called my office, justifiably hysterical. The IRS had just 
padlocked her restaurant. What was she to do? What could I do?
  This bill codifies the proposition that all men and women, even if 
they work for the IRS, shall follow fundamental due process 
requirements. Padlocks and raids should be a last resort under this 
bill.
  The bill requires the IRS to provide notice to taxpayers 30 days 
before the IRS files a notice of Federal tax lien, levies, or seizes a 
taxpayer's property.
  The bill gives taxpayers 30 days to request a hearing. No collection 
activity would be allowed until after the hearing.
  The bill requires IRS to notify taxpayers before the IRS contacts or 
summons customers, vendors, and neighbors and other third parties.
  The bill requires the IRS to implement a review process under which 
liens, levies, and seizures would be approved by a supervisor.
  The bill legislates common sense. It prohibits the IRS from seizing a 
personal residence to satisfy unpaid liabilities less than $5,000, and 
provides that a principal residence or business property should be 
seized as a last resort.
  In addition, the bill expands the attorney client privilege to 
accountants and other tax practitioners.

[[Page S7719]]

  Under this bill, the IRS could no longer insist that a taxpayer waive 
his rights. In particular, the IRS could no longer insist that a 
taxpayer waive the statute of limitations before the IRS would settle a 
case. The bill requires the IRS to provide taxpayers with a notice of 
their rights regarding the waiver of the statute of limitations on 
assessment.
  If the IRS cannot locate the taxpayer's file, the bill prohibits the 
IRS from rejecting the taxpayer's offer-in-compromise based upon doubt 
as to the taxpayer's liability. I have known constituents who are left 
in an IRS twilight zone because the IRS lost their file. I know of one 
constituent who had his file lost five times. Fortunately, he kept a 
copy of the file himself, and worked next door to a Kinko's copying 
center.
  This bill allows for a prevailing taxpayer to be reimbursed for his 
or her costs and attorney's fees if the IRS is found not to be 
substantially justified. The substantially justified standard is 
consistent with the little-guy-can-fight-the-federal-government-and-win 
philosophy. I am glad this standard is being expanded, and incorporated 
into this bill. Originally, the notion that a citizen should be able to 
recoup attorney's fees and costs when the Federal Government was not 
substantially justified was a concept in the Equal Access to Justice 
Act which I authored in the early 1980's. It is historically 
interesting to note, and perhaps prophetic, that the IRS lobbied very 
hard to be exempt from that law. In fact, the IRS was exempt when the 
bill was first enacted. When the Equal Access to Justice was 
reauthorized 5 years later, Senator Grassley and I worked to include 
the IRS. It was a big fight but Congress prevailed and got the IRS 
under the Equal Access to Justice Act's umbrella. The Federal 
Government with its deep pockets shouldn't be allowed to simply 
``outlast'' the average American taxpayer. That isn't what our justice 
system is about.
  The bill also clarifies that attorney fees may be recovered in a 
civil action in which the United States is a party for unauthorized 
browsing or disclosure of taxpayer information. I have heard a lot 
about this abuse both from constituents and from the witnesses in the 
campaign finance investigation.
  If a taxpayer makes an offer to settle his or her tax bill and the 
IRS rejects it and the IRS ultimately obtains a judgment against the 
taxpayer in the amount equal to, or less than the amount of the 
taxpayer's statutory offer, the IRS must pay the taxpayer's fees and 
costs incurred from the date of the statutory offer. I am pleased this 
provision is included in this bill. The offer and settlement provisions 
are patterned after the securities litigation reform bill which Senator 
Dodd and I authored last Congress.
  I can't believe we have to pass a Federal statute to accomplish this 
next task but apparently we do.
  The bill requires all IRS notices and correspondence to include the 
name, phone number, and address of an IRS employee the taxpayer should 
contact regarding the notice. To the extent practicable and if 
advantageous to the taxpayer, one IRS employee should be assigned to 
handle a matter until resolved.
  In New Mexico, a notice can come from the Albuquerque, Dallas, 
Phoenix, or Ogden IRS center. Taxpayers are often left with no option 
but to contact my office asking for help in simply identifying who they 
should talk to at the IRS to settle their tax matter. The caseworkers 
are experts, but it would take them 2 days to track down the right IRS 
office so that the constituent could try and solve their problem. It 
was so commonly befuddling to constituents that my caseworkers asked 
that this identification provision be included in this bill.
  Movie stars, rock singers, and hermits like, and need unlisted phone 
numbers. The same is not true for Federal agencies. The bill also 
requires the IRS to publish their phone number in the phone book along 
with the address. We have a beautiful new IRS building in Albuquerque, 
but the only phone number for the IRS is the toll free number that is 
too frequently busy. If you did not know the IRS building in 
Albuquerque existed, you would not find a clue of its location in the 
telephone book.
  I am pleased that the Senate was willing to accept a Domenici 
amendment, cosponsored by Senators D'Amato, and McCain that requires 
IRS helpslines to include the capability for taxpayers to have their 
questions answered in Spanish.
  In addition, the bill establishes a toll free number for taxpayers to 
register complaints of misconduct by IRS employees and publish the 
number.
  The bill requires the IRS to place a priority on employee training 
and adequately fund employee training programs. The IRS is making 
progress. The accuracy of the advice that taxpayers received when they 
called the IRS was very bad. For example, in 1989, the advice was 
correct only 67 percent of the time. The accuracy has fortunately 
improved. Training is the key.
  The bill requires the Treasury to make matching grants for the 
development expansion or continuation of certain low-income taxpayer 
clinics.
  The bill requires at least one local taxpayer advocate in each state 
who has the authority to issue a ``Taxpayer Assistance Order'' when the 
taxpayer advocate believes it is appropriate.
  Mr. President, many, in fact most, IRS employees work very hard and 
do a good job. Perhaps the best way to reform the IRS is to reform the 
code to make it simpler. The doubling from $100 billion to $195 billion 
of the tax gap--the difference between the amount of taxes owed and the 
amount actually paid--is evidence that the system is breaking down.
  I am also pleased that the bill simplifies the capital gains holding 
period and makes it easier for taxpayers to calculate their capital 
gains.
  Mr. LEVIN. Mr. President, I support the IRS Restructuring Act of 
1998.
  Ten years ago, I worked with former Senator Pryor on the Taxpayer 
Bill of Rights. That legislation grew out of hearings before the 
Governmental Affairs Committee which highlighted abuses by IRS 
employees against the taxpayers they are hired to serve. The Taxpayer 
Bill of Rights was landmark legislation that outlined the rights 
taxpayers have when dealing with the IRS including the right of the 
taxpayer to legal representation and the right to recover civil damages 
and attorneys fees from the IRS where they have engaged in abusive 
practices.
  While that legislation and the subsequent Taxpayer Bill of Rights II 
addressed some of the most egregious abuses, some abuses continue. The 
Finance Committee hearings have again shed light on abuses of taxpayer 
by some overzealous employees. While all of us want the IRS to be 
diligent in their collection of taxes owed to the federal government, 
we don't want the IRS to abuse its authority. This legislation is 
another step in the right direction.
  The bill contains an IRS Oversight Board which is intended to bring 
some private sector management and customer service expertise to the 
IRS. This Board is made up of nine members, six of whom are from the 
private sector and have an expertise in management of large 
organizations, tax laws, information technology and the concerns of 
taxpayers. The Board will review and approve strategic plans, 
operational functions and plans for major reorganization. In addition 
they will review operations at the IRS to monitor the Agency's 
treatment of taxpayers in general.
  The Taxpayers Bill of Rights II contained an office of Taxpayer 
Advocate. The Taxpayer Advocate has the responsibility of aiding 
taxpayer in their disputes with the IRS and reporting to Congress 
annually with suggestions outlining the most serious problems faced in 
working with IRS. Taxpayers can request that the taxpayer advocate 
issue a taxpayer assistance order if the taxpayer is suffering or about 
to suffer a significant hardship as a result of the manner in which the 
tax laws are being administered. A taxpayer assistance order may 
require the IRS to release property, cease any action or refrain from 
taking action. The bill before us expands the circumstances when a 
taxpayer assistance order may be issued.
  Currently, the direct point of contact for taxpayers seeking taxpayer 
assistance orders is a problem resolution officer appointed by a 
District Director. This bill replaces the present law problem 
resolution system with a system of local Taxpayer Advocates who report

[[Page S7720]]

directly to the National Taxpayer Advocate. Under the bill, the local 
Taxpayer Advocate will have a phone number published and available to 
taxpayers, they must tell taxpayers that they are operated 
independently of any IRS office, and they are required to tell 
taxpayers that they do not disclose any information from the taxpayer 
to the IRS. In addition, the IRS is required to publish the right to 
contact the local Taxpayer Advocate on the statutory notice of 
deficiency.
  The Taxpayer Advocate will be required to publish an annual report to 
identify areas of the tax law that impose significant compliance 
burdens on taxpayers and the IRS, including recommendations and 
identify the ten most litigated issues for each category of taxpayer 
including recommendations on how to mitigate those problems.
  The bill contains other provisions that will improve the management 
of the agency. It also includes innocent spouse relief for those 
spouses who find themselves liable for taxes, interest or penalties due 
to the actions of their spouse. There's increased protections for 
taxpayers in the area of interest and penalty charges as well as in 
audit and collections. I am also especially encouraged by the stronger 
requirements imposed on the IRS to provide taxpayers with better 
information in regards to taxpayers rights, the appeals and collection 
process and potential liabilities when filing joint returns.
  While all of these reforms are steps in the right direction, there is 
nothing in this bill to simplify the tax code. Since the 1986 Tax 
Reform Act, Congress has amended the tax code 63 times. Just this past 
year, Congress passed and the President signed a tax bill which 
contained over 800 changes to the Internal Revenue Code. Now that this 
legislation is prepared to move to the President's desk for signature, 
it is time that we set our sights on tax simplification.


                           tefra partnership

  Mr. LEVIN. Mr. President, I'm glad to see Section 3507 regarding tax 
matters partners in the conference report. It strikes me as unfair that 
the IRS has not been notifying partners of a TEFRA partnership when the 
IRS appoints a successor tax matters partner. Under the effective date 
provision, Section 3507 applies to selections of tax matters partners 
made by the IRS after the date of enactment. Does the enactment of 
Section 3507 create any inference that the IRS is not required to give 
such notice to partners of TEFRA partnerships under the due process 
clause of the United States Constitution?
  Mr. BAUCUS. The effective date provision creates no such inference.
  Ms. MIKULSKI. Mr. President, I rise to support the Internal Revenue 
Service Restructuring and Reform Act conference report that is before 
us today. I supported the Senate bill in May and, although this report 
has unrelated items that should be debated on their own merits, I will 
support this conference report because it will change the culture of 
the IRS by focusing on customer service. This new culture will improve 
the way the IRS interacts with individual taxpayers, IRS employees, and 
tax-exempt groups.
  As we know from our constituents, the IRS has engaged in some 
horrible management practices. It has been rightfully described as an 
agency out of control. I am particularly furious about the documented 
harassment of taxpayers. In my state of Maryland, I have heard from 
many Veterans groups across the state and a volunteer fire company in 
Western Maryland about harassment at the hands of the IRS.
  Let me give you some examples. The Veterans of Foreign Wars and the 
American Legion Posts in my state have been systematically audited over 
the past five to six years because they sell drinks and food to 
members' guests. The Veterans groups tell me that their sign-in book 
was confiscated, people were subpoenaed, and IRS agents threatened to 
lock them up. Amazingly, the American Legion was told by the IRS that 
they could not hire an attorney or a CPA out of Post funds to help them 
with the audits!
  These Posts offer our vets fellowship, entertainment, and a place to 
bring their families for an affordable meal. Yet, their very existence 
has been put in doubt by the actions of the IRS. What is their crime? 
They sell drinks and food to their post members and their guests, a 
little beer and a little bingo and a lot of the IRS. Let me tell you, 
this has got to end.
  In Frederick County, the Emmitsburg volunteer fire company used ``tip 
jars'' to raise money to purchase a fire truck. The Frederick County 
Commissioners passed a local gaming law that makes it legal and less 
bureaucratic for non-profits like the fire company to place ``tips 
jars'' in local taverns by eliminating the need for county tax 
processors to get involved. However, the fire company was audited by 
the IRS and was told it owes close to $29,000 in back federal taxes 
because the money raised was not funneled through the local county tax 
authority in the customary manner.
  I find it very troubling that any of our government agencies would 
accuse the men and women who protected our country of being tax evaders 
and tax cheaters. I take much satisfaction that these methods will not 
be tolerated in the new IRS. After we pass this legislation, the IRS 
will be a more customer focused organization and will have a separate 
division dedicated solely to working with members of the tax-exempt 
sector, like our veterans groups and volunteer fire companies.
  Mr. President, I also want to recognize the hard work of many at the 
Internal Revenue Service. We need to recognize that most IRS workers 
are good, faithful employees, doing their best to serve the public. 
Many employees at the IRS are my constituents. I know that every day 
they go to work, do a good job, and then return to their families, 
their neighborhoods and their communities throughout Maryland.
  In light of all the negative talk about the IRS recently, I want them 
to know that I value their work as faithful employees and I thank them. 
I realize that the front-line employees of the IRS often receive little 
recognition and little thanks. It pleases me that this legislation will 
help the employees at the IRS make their voices heard, and to receive 
the updated technology they need to allow the cultural and 
technological changes to succeed at the new IRS.
  Finally, I wish to address what I consider to be a major abuse of the 
legislative process that I mentioned before. As we all know and are 
suppose to respect, the purpose of a House-Senate conference is to 
produce a report that irons out the differences between similar 
legislation passed by the two houses of Congress. It is not intended to 
be a backdoor, behind-the-scenes, under-the-table method of getting 
controversial items passed on popular bills. There are two such 
provisions included in this conference report today and that's why I 
supported Senators Dorgan and Murray in their efforts to recommit the 
conference report back to conference.
  The first goes against one of my principles for maintaining our 
robust economy. I believe that we should reward patient capital. We 
should discourage the two-hour investments in hot IPOs and encourage 
the two-year or longer investments in start-up biotech firms that are 
important for our new global economy. That's why I was pleased that the 
1997 Taxpayer Relief Act included a lower capital gains rate for assets 
held for 18 months or longer. I am disappointed that this IRS reform 
conference report includes language that will remove that important 
economic incentive.
  The other provision that was inserted in the legislative darkness was 
a backdoor way of preventing serious debate on technical corrections to 
the ISTEA legislation. Many of us in the Senate are concerned because 
the ISTEA bill deprived our Veterans of important benefits. It was 
agreed that these benefits should be restored in a corrections bill. 
However, the leadership thought it would be best to include these 
``corrections'' in this conference report, where they can't be amended. 
But our veterans will be harmed by this backdoor strategy and I will 
join with my colleagues to restore these benefits to our honored 
veterans who served their country.
  Mr. President, I am very pleased this conference report to 
restructure the Internal Revenue Service has arrived. I urge my 
colleagues to support this legislation so that every American taxpayer 
is treated with respect and dignity when dealing with the Internal 
Revenue Service.

[[Page S7721]]

  Mr. THOMPSON. Mr. President, I rise to express my support for Senate 
approval of the conference report on the Internal Revenue Service 
Restructuring and Reform Act. This landmark legislation, which is the 
product of years of hard work by many parties, will make long-overdue 
reforms to the IRS. As a member of the Conference Committee responsible 
for crafting this agreement, I believe we have made great strides in 
developing a statutory framework to increase the accountability of the 
IRS and to protect the rights of taxpayers in their dealings with the 
IRS.
  There have been numerous congressional hearings over the past year 
that have clearly highlighted the need to overhaul IRS operations. In 
the course of these hearings, Congress has reviewed all aspects of the 
Service's operations and found an agency in serious need of reform and 
repair, especially in the area of taxpayer service.
  As the Chairman of the Committee on Governmental Affairs, I had a 
particular interest in how the IRS's management structure could be 
improved to better serve the American public. To that end, I am pleased 
that this conference agreement will overhaul the structure of the IRS 
and provide significant new management and personnel tools to assist 
the IRS Commissioner in restructuring the Service. Commissioner 
Rossotti has demonstrated his commitment to working with Congress to 
meet this mandate.
  The conference agreement creates a new Oversight Board for the IRS to 
direct these reform initiatives. The Board is composed primarily of 
private individuals with expertise in the areas of management, customer 
service, information technology and taxpayer compliance, and it has 
been granted wide-ranging authority to oversee management of the IRS 
and the administration of tax laws.
  Of great interest to me have been the issues surrounding membership 
on the Oversight Board of an IRS employee or employee representative. 
The conference agreement does provide for an IRS employee or employee 
representative to serve on the Oversight Board, and I am pleased that 
the conferees adopted my proposal to eliminate the Senate bill's 
blanket waiver of criminal conflict of interest ethics laws as they 
applied to the employee representative on the Board. However, I still 
oppose Congress giving the President the authority to waive these 
criminal laws for the employee board member. There are many individuals 
qualified to be an effective employee representative who would not need 
to be exempted from federal ethics laws in order to serve on the Board. 
Waiving criminal laws in order to accommodate one member of the Board 
establishes a troubling and dangerous precedent.
  The conference agreement also grants significant new personnel 
authorities to the IRS. These new authorities are intended to help 
Commissioner Rossotti bring in high-quality private sector 
professional, administrative and technical personnel to address the 
many management problems facing the agency. These authorities break new 
ground in terms of federal personnel pay and management policies. By 
granting these authorities to the IRS, Congress will have high 
expectations that the reform agenda is indeed carried through.
  Mr. President, the provisions I have noted are only a part of the 
important reforms contained in this restructuring bill. The conference 
agreement also contains many changes that will directly affect the 
relationship between the IRS and taxpayer to provide greater 
protections of the rights of taxpayers. For example, this legislation 
will shift the burden of proof in tax disputes from the taxpayer to the 
IRS, and it will increase penalties against the IRS for violations of 
these rights. The conference agreement would provide relief to so-
called ``innocent spouses'' who, under current law, can be held 
responsible for huge tax bills incurred by a former spouse. The 
agreement also provides significant relief to taxpayers with regard to 
interest and penalties that are applied by the IRS.
  Finally, it should be noted that this legislation provides further 
tax relief for Americans. The conference agreement will eliminate the 
18 month holding period that was included in the Taxpayer Relief Act of 
1997 for assets in order to qualify for the lowest tax rate on capital 
gains. Under this agreement, any gain realized on the sale of assets 
held for at least one year will be taxed at a rate of 10 percent for 
taxpayers in the 15 percent tax bracket, and at a rate of 20 percent 
for all other taxpayers. In addition to reducing the tax burden on 
Americans, this provision will simplify the unnecessarily complex 
capital gains provision that was included in the 1997 bill.
  Mr. President, enacting these far-reaching reforms is only one step 
Congress can take to provide relief to taxpayers. Next, we need to do 
away with the current complex tax code and replace it with one that is 
simpler and fairer. In approving these reforms, we should also keep in 
mind that our ultimate goal is to reduce the tax burden on hard-working 
American families.
  Mr. REED. Mr. President, I rise to express my support for the 
conference report on the IRS reform legislation, but also to raise 
concerns about several provisions in the bill.
  Mr. President, I believe this legislation goes a long way in making a 
number of important organizational and management reforms at the IRS 
that will enable the agency to become more efficient and taxpayer-
friendly. Such steps are welcome and should help to address the 
concerns of millions of taxpayers. In addition, the bill includes 
provisions to encourage electronic filing and promote the use of 
digital signatures--advances which will substantially improve tax 
administration for filers and the IRS.
  However, Mr. President, I am concerned about the long-term cost of 
provisions in the bill that will make it easier for the wealthiest 
Americans to convert traditional IRAs to Roth IRAs which allow tax-free 
withdrawals. Under last year's budget agreement, individuals with an 
annual adjusted gross income of less than $100,000 are permitted to 
convert traditional IRAs into Roth IRAs. Currently, individuals over 
the age of 70\1/2\ must withdraw a minimum amount from an IRA each year 
and these withdrawals count toward the income threshold for conversion 
to a Roth IRA. Provisions in the conference report, however, would 
exclude required annual withdrawals when determining an individual's 
eligibility to convert a traditional IRA into a Roth IRA. As a result, 
some of America's wealthiest will be able to rollover large IRA 
balances into Roth IRAs, thus exempting themselves and their heirs from 
future taxes.
  While the Roth IRA provisions will raise tax revenues initially 
because they will encourage taxable conversions, the long-term costs 
resulting from foregone revenue will be significant. In fact, in 
recognition of this issue, the conferees delayed implementation of the 
conversion provision until 2005, thereby putting the revenue losses 
outside of the 10-year budget scoring window.
  Mr. President, I am also concerned about provisions that reduce the 
holding period for investments from 18 months to 12 months to qualify 
for a lower capital gains rate. In the Taxpayer Relief Act passed in 
1997, Congress reduced the capital gains tax rate, but lengthened the 
holding period necessary to take advantage of the new lower rate. It 
was thought that lengthening the holding period would discourage 
churning, and encourage long-term savings and investment. By reducing 
the holding period, we are abandoning one important condition of last 
year's capital gains reduction, and we may be encouraging short-term 
profit-taking at the expense of long-term investment. I believe such a 
provision is unwise and costly in view of the dismally low savings rate 
which currently exists in the U.S.
  Finally, I am concerned that the conferees knowingly failed to close 
a loophole accidentally created in the Taxpayer Relief Act which 
benefits several hundred of the wealthiest Americans. Specifically, the 
loophole benefits the heirs of individuals whose estates are worth more 
than $17 million, saving each estate approximately $200,000 in taxes. 
The cost of this loophole is $880 million over 10 years. In view of its 
significant cost and limited benefit, I believe the conferees should 
have used the IRS reform legislation as an opportunity to close this 
loophole, not affirm it.
  Again, Mr. President, on balance I believe this is a good bill. 
However, I would hope that my colleagues consider the concerns I have 
raised when

[[Page S7722]]

the Senate debates tax legislation in the future.
  Mr. DODD. Mr. President, I rise today in support of the conference 
report for H.R. 2676, the Internal Revenue Service Restructuring and 
Reform Act of 1998. I commend my colleagues on the Senate Finance 
Committee, namely Chairman Roth and Senator Moynihan for crafting a 
bill that takes an important step forward in the effort to protect the 
rights of our nation's taxpayers.
  The IRS is an agency that has earned widespread, deeply felt, and 
entirely justified criticism. For too long the IRS has permitted 
practices that harass rather than help taxpayers. In my view, a full-
scale, top-to-bottom overhaul of this agency is long overdue.
  Recent Congressional hearings have chronicled a litany of official 
neglect, heavy-handed threats, and outright abuse of innocent citizens. 
Clearly, Mr. President, no one likes to pay taxes. But that duty should 
not be made even more difficult by the unacceptable behavior of the 
agency responsible for collecting those taxes.
  Many of my constituents in Connecticut have sought assistance from my 
office in their efforts to remedy what they feel is unhelpful, 
unpleasant, and at times unfair treatment by officers of the IRS.
  I heard from one gentleman who went to the IRS to pay several hundred 
dollars he owed in back taxes--only to be handed a tax bill that, with 
penalties and interest, totaled upwards of $30,000. Other Connecticut 
residents have told me stories of the IRS losing their tax payments--
and then charging them interest and penalties on the very funds that 
the agency lost. They have told of calling the IRS and finding it 
impossible to locate a person who will simply answer their questions.
  The list goes on and on, Mr. President, and the more people you talk 
to, the more nightmares you hear. The problems at the IRS, however, go 
far beyond the actions of a few agents at the IRS. For years, the 
agency has fostered a climate where taxpayers feel scorned rather than 
served, and that is why the IRS reform legislation before us today is 
so important.
  This legislation contains more than 50 new taxpayer rights and 
protections. Most importantly, it will shift the burden of proof away 
from the taxpayer and onto the IRS. Today, when someone is accused of a 
crime like bank robbery, they're presumed to be innocent until proven 
guilty. Yet, if the IRS says you didn't pay enough taxes, you're 
presumed guilty until proven innocent. That, Mr. President, is wrong.
  For too long we've seen a ``shoot first, ask questions later'' 
approach to enforcement by the IRS. By shifting the burden of proof, 
this bill will require that the IRS prove its allegations with 
evidence. It will help ensure that the IRS exercises appropriate 
caution and consideration prior to commencing an enforcement action 
against any taxpayer.
  This reform bill also protects people from paying penalties and 
interest that they should never have been required to pay. Under 
current law, taxpayers must pay penalties and interest whether or not 
they knew that back taxes are due. As a result, some taxpayers were 
assessed hundreds, if not thousands, of dollars in fines without ever 
having actually been told by the IRS that money was owed. This bill 
suspends penalties if the taxpayer has not been appropriately notified 
of the debt. It also requires that each penalty notice include a 
computation itemizing the penalties or interest due. It's only fair 
that a taxpayer should have adequate notice of any financial liability 
and know exactly why he or she is paying a fine.
  The bill also offers relief to an innocent spouse who would otherwise 
become liable for his or her ex-spouse's tax obligations. I'm sure that 
many of my colleagues have heard stories similar to those I've heard in 
Connecticut, about people who have become financially wiped out when 
they find themselves liable for taxes, interest, and penalties because 
of actions by their then-spouse of which they were unaware. The 
innocent spouse provisions of the bill would help prevent such 
scenarios from occurring in the future. It's a matter of simple 
fairness: a spouse who did not know of an ex-spouse's misdeeds should 
not be held liable for them.
  In addition, this legislation requires the IRS Commissioner to fire 
employees for certain egregious violations--especially those that 
mistreat taxpayers. This provision will send a clear message to agency 
employees that neglect and abuse of taxpayers will simply not be 
tolerated.
  Lastly, the bill contains a modest tax cut for people who own stocks, 
bonds, and other assets. I don't object to this provision itself. I do, 
however, wish that the Congress had considered additional tax relief 
targeted to working families--such as expanding the child care tax 
credit. I hope that such relief will be on the Congressional agenda in 
the future.
  I would be remiss if I did not comment about the fact that the 
conferees added a title to this conference report containing the 
technical corrections to the Transportation Equity Act for the 21st 
Century, which was signed into law several weeks ago.
  That law contains a provision affecting Veterans Administration 
benefits for veterans with smoking-related illnesses. I was concerned 
that by adopting these technical corrections in the IRS conference 
report, we would lose a valuable opportunity to restore some or all of 
these benefits for deserving veterans.
  It is well known that during their time of active service, many of 
these individuals received free cigarettes from the federal government 
and were thereby encouraged to smoke. As a result, many of these 
individuals developed smoking-related illnesses. For that reason, I 
supported Senator Murray's motion to remove this extraneous title from 
the legislation we considered today. Unfortunately, this motion was 
tabled by a vote of 50 to 48. It is my hope, however, that the Senate 
will continue to seek ways to ensure that the government fulfills its 
obligation to help veterans with smoking-related ailments.
  Overall, Mr. President, I am very pleased to support the legislation 
before us today which enjoys broad, bipartisan support. In my view, it 
is a tremendous step forward in our effort to protect the rights of our 
nation's taxpayers. Our nation's taxpayers deserve an IRS that meets 
the highest standards of efficiency, competence, and courtesy. This 
legislation takes a major step forward in achieving that goal.
  Mr. KOHL. Mr. President, I want to make just a brief statement to 
emphasize my strong support for the IRS Reform bill which passed the 
Senate earlier today. Many thanks to Senators Roth and Moynihan and the 
Finance Committee members for their efforts, and especially Senator Bob 
Kerrey, whose year long effort on the Restructuring Commission made 
this reform package possible.
  The IRS Reform bill contains significant measures that will improve 
the life of every American by improving an agency that touches the 
lives of every American. The bill will reform IRS management by 
enhancing private sector input through the creation of the Oversight 
Board. It will also strengthen internal IRS management by providing 
increased flexibility to hire the best people, recognize those IRS 
employees who do their jobs well and fire those who do not.
  Perhaps most importantly, the IRS Reform Bill is grounded in the 
principles of consumer protection and accountability. We all agree that 
the IRS should run more like a business, focusing on management 
efficiency and high standards of performance. But businesses answer to 
shareholders and the bottom line. The IRS must answer to the American 
people. And for too long, the agency has operated as if it answered to 
no one.
  We have witnessed this regrettable circumstance in my home state of 
Wisconsin where for two and a half years we have worked to address 
allegations of misconduct and discrimination at the Milwaukee-Waukesha 
IRS Offices. These allegations were so serious that some IRS employees 
felt the need to sneak into my office in Milwaukee to report on abuses. 
I am pleased that the debate on IRS reform allowed us to move forward 
in our attempts to address the Milwaukee situation and am convinced 
that in approving this historic legislation, we will be taking 
significant steps to prevent similar incidences from occurring in the 
future.
  Mr. President, I do want to mention my regret at the decision to 
include

[[Page S7723]]

the tax policy change involving Roth IRA conversion rules. While I 
support the IRS reform bill, I disagreed with the policy decision to 
loosen the conversion rules so that it will be easier for wealthy 
retirees to convert from traditional IRAs to Roth IRAs. This may cover 
the cost of the IRS bill and generate income for the Treasury in the 
short term, but it will cost the Treasury and the American taxpayer 
dearly in the long run. This change, which is really just an accounting 
gimmick, will benefit those who do not need help and may undermine our 
efforts to maintain the progress we've made in balancing the budget. In 
addition, it may jeopardize other pressing long term issues such as 
making sure that social security is available to needy retirees in 
years to come.
  That said, however, I am still pleased to have been part of the 
creation of a more consumer-friendly, efficient and responsible IRS.
  The PRESIDING OFFICER. The question is on agreeing to the conference 
report. The yeas and nays have been ordered. The clerk will call the 
roll.
  The bill clerk called the roll.
  Mr. NICKLES. I announce that the Senator from Texas (Mrs. Hutchison) 
and the Senator from Arizona (Mr. Kyl) are necessarily absent.
  I further announce that, if present and voting, the Senator from 
Texas (Mrs. Hutchison) and the Senator from Arizona (Mr. Kyl) would 
each vote ``yes.''
  The result was announced--yeas 96, nays 2, as follows:

                      [Rollcall Vote No. 189 Leg.]

                                YEAS--96

     Abraham
     Akaka
     Allard
     Ashcroft
     Baucus
     Bennett
     Biden
     Bingaman
     Bond
     Boxer
     Breaux
     Brownback
     Bryan
     Bumpers
     Burns
     Byrd
     Campbell
     Chafee
     Cleland
     Coats
     Cochran
     Collins
     Conrad
     Coverdell
     Craig
     D'Amato
     Daschle
     DeWine
     Dodd
     Domenici
     Dorgan
     Durbin
     Enzi
     Faircloth
     Feingold
     Feinstein
     Ford
     Frist
     Glenn
     Gorton
     Graham
     Gramm
     Grams
     Grassley
     Gregg
     Hagel
     Harkin
     Hatch
     Helms
     Hollings
     Hutchinson
     Inhofe
     Inouye
     Jeffords
     Johnson
     Kempthorne
     Kennedy
     Kerrey
     Kerry
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lott
     Lugar
     Mack
     McCain
     McConnell
     Mikulski
     Moseley-Braun
     Moynihan
     Murkowski
     Murray
     Nickles
     Reed
     Reid
     Robb
     Roberts
     Roth
     Santorum
     Sarbanes
     Sessions
     Shelby
     Smith (NH)
     Smith (OR)
     Snowe
     Specter
     Stevens
     Thomas
     Thompson
     Thurmond
     Torricelli
     Warner
     Wyden

                                NAYS--2

     Rockefeller
     Wellstone
       

                             NOT VOTING--2

     Hutchison
     Kyl
       
  The conference report was agreed to.
  Mr. ROTH. Mr. President, I move to reconsider the vote.
  Mr. MOYNIHAN. I move to lay that on the table.
  The motion to lay on the table was agreed to.
  Mr. ROTH addressed the Chair.
  The PRESIDING OFFICER. The Senator from Delaware is recognized.
  Mr. ROTH. Mr. President, I want to just take a few seconds to thank 
my colleagues for their support in this most important initiative. It 
has been less than a year that we have really been dealing with this 
problem. Today, we have seen the enactment of truly historic 
legislation.
  It is my firm conviction that because of this reform legislation, it 
will mean a new day for the American taxpayer. And the reason I think 
this legislation has had such broad support is that it is not only good 
for the American taxpayer, but it is good for the agency itself, it is 
good for the employees who work there. All we seek is an agency that 
provides service, stability, and fairness to the American people.
  I can tell you that we would not have succeeded in this effort if we 
had not had bipartisan support.
  I particularly want to pay my respect and thanks to the ranking 
member, Pat Moynihan, who is a joy to work with, and who always is able 
to help move along desirable legislation. It was not only due to his 
efforts, but to many others too many to enumerate. But I particularly 
want to thank the staff of the Finance Committee, both Republican and 
Democrat, and of the Joint Committee on Taxation for their 
contribution. I can tell you that much of the staff worked day in and 
day out, night after night, and on weekends to make this possible 
today.
  I, again, want to thank all those who contributed so much. We look 
forward to seeing an agency that is reformed become service-oriented.
  I believe, I say to Senator Moynihan, that we have given the tools to 
the new Commissioner, Rossotti, that will enable him to make the 
changes we all seek in a bipartisan fashion.
  Mr. MOYNIHAN addressed the Chair.
  The PRESIDING OFFICER (Mr. Santorum). The Senator from New York.
  Mr. MOYNIHAN. Mr. President, may I first thank our esteemed chairman 
for his characteristically generous remarks, and all involved--to agree 
with him; to point out that this is the first such legislation since 
the Internal Revenue Service was established under Abraham Lincoln in 
1862. Our purpose was to renew the 19th century agency, to invigorate 
it, and to give to the employees, the public servants, the respect to 
which they are entitled as public servants. Respect is one of the 
principal rewards for public service. I hope we have done that with the 
overwhelming support here on the floor, and the unanimous vote in the 
Finance Committee.
  Once again, our chairman has managed to bring us together and produce 
yet another major legislation out of the Finance Committee unanimously, 
which presents itself so clearly to the entire Senate floor.
  I would not want to close without mentioning again the role of 
Senators Kerrey and Grassley in the commission that preceded our work, 
and the staff that did heroic work. I would particularly mention on our 
side Mark Patterson, and Nick Giordano, whose encyclopedic knowledge, 
in fact, made our contribution hopefully of substance.
  So concludes a long year's work. I say well done to the chairman. I 
thank the chairman.

                          ____________________