[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.
____________________