FOR IMMEDIATE RELEASE Press Release #105-310
May 4, 1998

The legislation will:

€ Give the IRS oversight board that was created in the House bill oversight over law enforcement and collection activities with limited 6103 authority to carry out that responsibility.
€ Make the Taxpayer Advocates office independent of the Agency to ensure that they represent the interest of the taxpayer.
€ Give the Commissioner the statutory authority he needs to restructure the agency.
€ Hold IRS employees accountable for their actions by requiring the IRS to terminate employees who commit perjury, falsify documents, or violate the rules to retaliate against a taxpayer.
€ Ensure that innocent spouses are responsible only for their own tax liability.
€ Suspend interest and certain penalties when the IRS does not provide appropriate notice to a taxpayer within one year after a return is filed.
€ Ensure due process in collections activities.

The following is the opening statement of Finance Committee Chairman William V. Roth, Jr. (R-DE):

"Mr. President, the need for this Internal Revenue Service Restructuring legislation is clear. Last summer, the National Commission on Restructuring -- following an extensive review of the IRS -- issued a report to revamp the agency.

"Last September, the Finance Committee held three days of hearings regarding practices and procedures of the Internal Revenue Service, which raised even more startling problems that had been festering within the IRS for years.

"Following those hearings, the agency's new commissioner, Charles Rossotti, released a report that validated the concerns we raised, and he made a commitment to reform the service. Likewise, in response to those hearings, the House considered and passed an IRS restructuring bill in November, and the Finance Committee began the new year with a series of five hearings on restructuring, which included testimony from past IRS Commissioners. Those restructuring hearings were followed with what can only be considered the most in-depth IRS oversight hearings ever, which concluded only last Friday.

"Throughout this extensive effort at oversight and restructuring, my colleagues and I have been working on the legislation before us today. Our staffs have been meeting. There have been countless hours, late nights and early mornings, spent to develop a restructuring bill that is strong, thorough, and workable. I appreciate these efforts. I also compliment the House on its swift action on the earlier version, and recognize the effective leadership of Ways and Means Committee Chairman Bill Archer.

"Their efforts provided a solid foundation for restructuring the agency, and made it clear that Congress was ready to respond to the demands of the American people and reform the IRS. That again became clear with the Senate Finance Committee voted 20 to nothing in support of this legislation -- legislation that takes a major step towards changing the way that the Internal Revenue Service does business with the American people.

"I call this legislation a major step because it provides greater protections and reforms than were included in the House bill.

"It goes much further than the House bill, offering powerful provisions to correct the abuses and inefficiencies our extensive investigation and oversight efforts have uncovered. But I also refer to this effort as a step because I believe reform of the IRS must be an on-going process. It must be a process of continued vigilance, constructive hearings, and cooperation between Congress and the Executive Branch. But anyone who reads all that this legislation proposes will realize that it is a strong product of a collective effort.

"If this legislation were a collegiate athlete it would be considered a blue chip recruit. While it is not perfect, it is ready to play. It includes numerous provisions that strengthen taxpayer protections. It makes IRS employees more accountable, provides enhanced oversight, gives the Commissioner the tools necessary to bring the IRS into the next century, and offers greater due process to taxpayers who are trying to comply with our complex tax laws.

"The legislation we introduce today allows Commissioner Rossotti to eliminate the current national office, regional office and district office structure of the IRS. It gives him the authority to replace these antiquated management models with operating units that will directly serve particular groups of taxpayers, better meeting their needs and making the agency much more efficient and user-friendly. Commissioner Rossotti should be complimented on his tremendous work and managerial skills. His plan to restructure the agency is as bold as it is necessary, and this legislation gives him the authority he needs to move forward.

"One of the major concerns we've listened to throughout our oversight initiative -- a theme that repeated itself over and over again -- was that the taxpayers who get caught in the IRS hall of mirrors have no place to turn that is truly independent and structured to represent their concerns. With this legislation, we require the agency to establish an independent Office of Appeals -- one that may not be influenced by tax collection employees or auditors. Appeals officers will be made available in every state, and they will be better able to work with taxpayers who proceed through the appeals process.

"We heard a lot about the need for independence in our hearings. Agency employees themselves made it clear that there is no dependable and consistent mechanism in place to represent taxpayer interests. Just as this bill will give the appeals process greater independence, it will also make the Office of Taxpayer Advocate as well as local problem resolution officers more independent. In the future, the Secretary of Treasury, rather than the Commissioner will appoint the National Taxpayer Advocate. And the Taxpayer Advocate will be just that.

"Criteria to fill this position will include that the Advocate must not be an IRS employee two years before and five years after holding this position. In addition, this bill provides the Advocate with much greater discretion to issue an assistance order to help taxpayers.

"In an effort to ensure that independent review and accountability become part of the IRS culture -- top to bottom -- our legislation creates a nine-member IRS Oversight Board -- a board composed of six experts from various professional fields in the private sector, the Commissioner, the Secretary of Treasury, and a representative of IRS employees.

"As we heard in our oversight hearings, one of the key elements missing in the current agency is a powerful influence independent enough from management and the senior executive corps that it can monitor and hold managers and executives accountable for their actions, and the actions of their employees. Under our legislation, the Oversight Board will have broad responsibility and will ensure that the IRS has procedures in place to carry out its mission.

"In order to help prevent the types of abuses disclosed in our Finance Committee hearings, the Board will have "big picture" authority over law enforcement and collection activities. While the Board may not intervene in particular taxpayer or employee cases, it will have access to information in order to help prevent the types of abuses that are brought to the Board's attention. If the Commissioner does not respond to issues raised by the Board, the Board may contact the chairmen of the tax writing committees.

"We discovered in our hours and hours of testimony from IRS employees, and in the countless letters we received, that part of the intimidating culture of the agency is sustained by the fact that they feel there are no independent protections for them if they report wrong-doing. I was most disturbed to find in our investigation that there is a dangerous kill-the-messenger syndrome within the agency. Over 50% of employees servicewide believe that management does not communicate honestly with the rank-and-file. Fifty-four percent were adamant that there is distrust between management and employees.

"When asked if there is adequate protection from retaliation against employees who report misconduct, 72% either disagreed, strongly disagreed, or did not care to comment. More than one in four indicated that they believe management fails to treat employees with respect. And 30% strongly disagree that, "Disciplinary actions are applied fairly to employees." If we are to have an agency that the public trusts and that the employees are proud of, these statistics must change.

"In an effort to do this, our legislation eliminates the IRS Office of Chief Inspector. It transfers its full time equivalents to an new Treasury Inspector General for Tax Administration. There have been too many allegations that the current IRS Office of Chief Inspector does not have sufficient independence from the IRS to adequately fulfill its obligation. Likewise, the current Treasury Inspector General, which lacks resources and has experienced problems of its own, does not provide seamless oversight over the IRS.

"This change is one of the most important distinctions between the House bill and the Senate bill, and it is of critical importance.

"Our bill creates a new Treasury IG for Tax Administration which will have greater independence than the IRS Chief Inspector. This provision is supported by Commissioner Rossotti, and will create a structure where the new Treasury IG for Tax Administration will not allow oversight to fall through the cracks, and will provide a seamless check on how tax laws are being administered.

"This new Treasury IG for Tax Administration will provide independent investigations of alleged IRS employee misconduct without management interference. The new Treasury IG will also respond in a timely manner to requests to investigate or audit made by the Commissioner or the IRS Oversight Board.

"I believe that an intimidating edge now exists in the current management structure. The statistics I've just disclosed confirm that this is true.

"One of the problems is that the Commissioner does not have the kind of authority that is necessary to eliminate those managers who contaminate the culture of the agency. And the Commissioner does not have sufficient authority to hire those who will work toward making the kinds of changes that are necessary. This legislation gives the Commissioner the tools he needs to hire top-flight managers who are experts in their field.

"It gives him the wherewithal to transform the agency's workforce by providing bonuses and other incentives, and to sufficiently discipline employees whose inappropriate actions are a plague on the agency.

"As we have seen -- even this past week -- the Finance Committee has disclosed egregious conduct by IRS employees. We have received thousands of letters relating the same.

"They have come from taxpayers and agency employees, alike. The stories we have heard are outrageous, as is the fact that many of those who perpetrate these abuses do so without consequence. This will not stand. Our bill requires the IRS to terminate an employee if it is proven that the employee failed to obtain required authorization to seize a taxpayer's property, committed perjury material to a taxpayer's matter, or falsified or destroyed documents to conceal the employee's mistakes with respect to a taxpayer's case.

"This legislation allows terminations to take place if an IRS employee enages in abuses or egregious misconduct. Conditions for which an employee can be dismissed include, but are not limited to, assaulting or battering a taxpayer or other IRS employee, violating the civil rights of a taxpayer or other IRS employee, or breaking the law, regulations, or IRS policies for the purpose of retaliating or harassing a taxpayer or other IRS employee. Our legislation also allows an employee to be fired for willfully misusing section 6103 authority to conceal information from Congress.

"With this legislation, we show that we mean business. An environment that allows employees guilty of these kinds of behaviors to continue to work within the system is not acceptable to me, the Finance Committee, or to the American people. We have heard enough excuses. And Commissioner Rossotti agrees that enough is enough!

"One of the most troubling issues raised in our September hearings was the widespread use of enforcement statistics to evaluate front line IRS employees and their supervisors.

"Subsequent reports by the IRS Chief Inspector substantiated our findings that the agency was, in fact, illegally evaluating employees based on enforcement statistics. Then, in our hearings just last week, we heard that such evaluations continue. In my mind, Mr. President, this mocks Congress. It demonstrates that the IRS believes it is above the law. It is indicative of a culture that believes that if it will simply hold on long enough oversight and accountability will go away and the managers and executives who have made careers out of bending the law can get back to business as usual.

"The bill we introduce today strengthens the law against this. It prohibits the use of enforcement statistics to evaluate any IRS employee, not merely front line collection employees and their supervisors. And the new Treasury IG would be required to report on whether the IRS is abiding by the law.

"Each of the measures I have outlined thus far demonstrates just how serious we are in our effort to change the Internal Revenue Service. Each will go a long way towards protecting the taxpayer and honest employees who are working to make the IRS a true service-oriented agency. But we don't stop here. We offer much more in the way of taxpayer protections. We shift the burden of proof to the IRS if the taxpayer maintains records, cooperates with the agency, and provides credible evidence to the court. In addition, the IRS will have the burden of providing a taxpayer's income if it uses arbitrary statistics to determine that income.

"This legislation also allows taxpayers to recover attorney fees and costs from the date the taxpayer rightfully appeals an audit, and it eliminates the $110 per hour cap on recoverable attorney fees. Taxpayers should not be forced to litigate if the IRS is unreasonable. In order to level the playing field, if the agency forces a taxpayer to litigate and go to trial, our bill allows a taxpayer to recover all attorney fees and costs from the time the taxpayer makes a qualified offer if the amount of the court judgment is equal to or less than the taxpayer's offer.

"Taxpayers should not have to foot the bill if the IRS is unreasonable. Beyond this, our legislation includes various provisions which allow taxpayers and third parties to recover against the IRS for civil damages. It also establishes procedures for third parties to have erroneous liens removed from their property.

"Another major taxpayer protection in this legislation is our provision to strengthen innocent spouse relief. This legislation overhauls the current innocent spouse relief which is wholly inadequate.

"We do this by limiting a spouse's tax liability to the proportion of his or her income reported on the tax return, or returns, in question. As a result of concerns raised by members of the Finance Committee, relief would not be available in cases of fraud, or if the IRS proves the taxpayer claiming innocent spouse relief had actual knowledge of an item giving rise to the tax liability.

"Some of the most tragic stories our committee heard concerned innocent spouses whose economic lives have been ruined by the unrelenting pursuit of IRS collections officers.

"What we propose here are needed changes -- changes that will bring a semblance of sanity to the current system and protect honest spouses who, under no circumstances, should be held accountable for the liabilities of their former spouses just because they are easier to find or more vulnerable to intimidation. Many of the innocent spouses we listened to in our hearings -- and many of the letters I have reviewed since -- told us how they have been placed under terrible burdens because of interest and penalties that continue to grow as their cases age.

"Again, with this legislation, we do something about that. We make necessary and important changes to how penalties and interest are applied. In order to prevent IRS employees from arbitrarily using penalties as leverage against taxpayers, our legislation requires non-computer determined penalties to be approved by management. Furthermore, each notice to taxpayers which includes a penalty or interest must specify how the amount was calculated. Our legislation disallows the imposition of the failure-to-pay penalty while the taxpayer is in an installment agreement.

"It allows the taxpayer to designate deposits for each payroll period rather than using the first-in-first-out ("FIFO") method that results in cascading penalties.

"Under this bill, if the IRS does not provide a notice of deficiency within one year after a return is timely filed, then interest and penalties will be suspended until 21 days after demand for payment. Of course, this increased protection -- as all increased protections -- are meant to protect honest taxpayers.

"We will not excuse those who evade their responsibility or cheat on their income tax returns. These protections exclude the failure to file, failure to pay, and penalties related to fraud.

"Increased protections for honest taxpayers will also affect due process. This was one of the glaring issues raised in our IRS hearings. Currently there is a woeful lack of protection in this area, particularly during collection activity, where the IRS is the judge and jury, and where some agency employees take a cavalier approach to issuing a notice of lien, levy, or seizure of a taxpayer's home, personal belongings, or business property. In order to ensure due process to taxpayers, our bill requires the IRS to provide 30-days notice to a taxpayer before it may issue a notice of lien, levy, or seizure.

"If the taxpayer requests a hearing, all collection activity must stop. If the taxpayer disputes the findings of the appeals officer, the taxpayer may petition the tax court for relief.

"Our legislation requires the IRS to implement a review process under which liens, levies, and seizures would be approved by a supervisor who would review the taxpayer's information, verify that a balance is due, and affirm that a lien, levy, or seizure is appropriate under the circumstances (including the amount due and the value of the asset).

"Failure to follow these procedures, under our legislation, would result in disciplinary action against the revenue officer and his or her supervisor. We also require the Treasury Inspector General to collect this information and annually report to the tax writing committees of Congress.

"On those occasions when the IRS makes seizures, the agency will be required to follow certain procedures and provide an accounting to the taxpayers. It is unbelievable that the IRS does not currently provide a receipt to taxpayers when their property is seized and sold.

"Revenue Officers have incredible discretion. As such, this bill requires the IRS to implement a uniform asset disposal system for sales of seized property to prevent revenue officers from conducting sales. It would prohibit the IRS from seizing real property used as a residence if the unpaid tax liability is less than $5,000. Also, a principal residence or business property would only be seized as a last resort.

"In the area of examinations, our bill expands the attorney client privilege to other tax practitioners to the extent such communications would be privileged between an attorney and a client. It limits IRS authority to require the production of computer source code and establishes a number of protections against the disclosure and improper use of trade secrets and confidential information of any computer software program or source code that comes into the possession of the IRS as part of an examination of a taxpayer.

"The legislation allows taxpayers to bring an action to quash all third-party summonses, by informing the taxpayers of such summonses before the IRS contacts the third parties.

"Beyond these important changes, this legislation introduces several other measures to protect the taxpayer. It is surprising how long some IRS cases remain open, and how long some taxpayers remain in the crosshairs of the agency.
"This is accomplished when the IRS pressures taxpayers -- often by threatening them -- to waive the 10 year statute of limitations on collection. Ten years, Mr. President, is long enough, and to protect these taxpayers our bill would prohibit waivers of the collection statute. It would also make it easier for taxpayers who dispute the amount of their tax liability, or can't pay the full amount, to compromise with the IRS or enter into installment agreements.

"The legislation we introduce today also provides taxpayers with an enhanced mechanism to appeal an audit, request early referral to appeals, and request alternative dispute resolution. It includes various notice requirements, including an explanation of the reason for denial of a refund and an annual statement to taxpayers regarding the amount remaining on their installment agreement. The bill also requires IRS notices to include the name and phone number of an IRS employee the taxpayer should contact to resolve any issues on the notice.

"In order to protect innocent taxpayers who are improperly labeled as "illegal tax protestors," this bill will out-and-out prohibit such designation. It will also take an important step toward helping Congress simplify the law by requiring the Joint Tax Committee to prepare a complexity analysis on tax legislation.

"As you can see, Mr. President, this is a very thorough and comprehensive piece of legislation. But it is extremely important. There is no question that it is well worth the wait.

"When our hearing began last September, an agency employee made a comment that lodged itself in my mind -- one that I have not been able to forget. He said, "If the true number of incidents of taxpayer abuse were ever known, the public would be appalled. If the public also ever knew the number of abuses 'covered up' by the IRS, there could be a taxpayer revolt." What we bring with this important legislation is a new era of openness to an agency that for far too long has been able to operate beyond the view of Congress.

"We bring a new era of accountability to an agency marked by a culture that protects even the most lawless employees from the consequences of their actions. We bring a new era of efficiency and modern management to a organizational structure that dates back to before the industrial age. We bring a promise of hope to honest taxpayers and valiant employees who have waited far to long.

"With this legislation, Commissioner Rossotti will be able to transform the IRS, provide accountability, and establish much needed taxpayer protections. And Americans -- perhaps for the first time ever -- will have a tax collection agency marked by a sincere dedication to service."