FOR IMMEDIATE RELEASE Press Release #105-371

July 8, 1998

SENATE OPENS DEBATE ON IRS REFORM CONFERENCE REPORT

Vote Expected Wednesday Afternoon

WASHINGTON -- The Senate Wednesday rounded a final corner on the IRS Restructuring and Reform Act of 1998, as it opened debate on the conference report. The Senate is expected to approve the conference report on Wednesday afternoon. President Clinton has already said that he will sign the bill, and will likely do so later this month.

Senate Finance Committee Chairman William V. Roth, Jr. (R-DE), one of the main authors of the bill, opened the debate. The text of his statement from the floor follows:

"Mr. President, if my colleagues' July 4th recess was anything like mine, then they heard a great deal from their constituents concerning the bill that we bring to the floor today. The Internal Revenue Service Restructuring and Reform Act of 1998 is legislation that has not only the interest, but the support of Americans everywhere. And with good reason:

"For far too long, the Internal Revenue Service has been allowed to consolidate immense power without the counterbalance of accountability. For far too long, the agency has been allowed to operate in darkness, hiding behind Section 6103 authority, using authority granted them by Congress to, in some cases, bludgeon taxpayers. Last summer, the National Commission on Restructuring the IRS -- following an extensive review of the IRS -- issued a report that called for major changes to the agency.

"In September, the Finance Committee held three days of hearings which identified numerous additional problems and some terrible -- even unconscionable taxpayer and IRS employee abuses -- within the IRS. Those hearings were followed by others which demonstrated clearly that the Service was in need of serious reform. We heard from taxpayers, tax collectors, and tax practitioners. We heard from small businessmen and -women. We heard from innocent spouses.

"We listened to outrageous stories from innocent Americans who, for no valid reason, got caught in the cross-hairs of an organization that was driven by quotas and lacking in oversight. And our outrage knew no partisan line. Colleagues on both sides of the aisle were offended by many of the stories. To the witnesses -- many of whom testified without knowing what their efforts would bring -- we apologized as best we could. We said that we would press forward. And we promised reform.

"That, Mr. President, is what we are delivering today. This is the bipartisan conference agreement on a plan that will effectively change the way the Internal Revenue Service does business. It represents the most comprehensive overhaul of the IRS ever enacted. It combines the House and Senate bills, and incorporates the many good suggestions offered by the agency's new Commissioner, Charles Rossotti.

"And let me be clear on just how important Mr. Rossotti has been to our efforts. Following our Finance Committee hearings, he had courage enough to release a report that validated the concerns we raised. Rather than try to throw up a wall, or confuse issues, he made a commitment to reform. And every step we've taken, he has taken with us. Commissioner Rossotti and I have met on many occasions, and he has testified before our committee. We have attended taxpayer service days together. He has advocated a new management plan that could revolutionize the way the Internal Revenue Service does business.

"I am also grateful for the taxpayers and the many current and former IRS employees who came before our committee. These were courageous individuals, and without them, there would be no reform. And they represent only a fraction of those who met with us, who wrote to us, who called, and, in the process, moved our investigation forward. Likewise, I am grateful to my colleagues -- Senator Moynihan, a defining presence in the Senate, if ever there was one. I am grateful to Senators Charles Grassley and Bob Kerrey and their efforts on the National Restructuring Commission. Working with Congressman Portman, and others, they got the ball rolling early on, and were leaders in this effort. I thank Chairman Bill Archer for the work he did on the Ways and Means Committee, for the spirit of cooperation he brought to the conference, and for the success he had two weeks ago in getting this legislation approved overwhelmingly in the House.

"Now, the time has come, Mr. President, to pass it here -- legislation that will open the door to real restructuring and reform of what can only be considered the most powerful agency in the United States government.

"This legislation is built on four principles:

"The first principle is to establish independent oversight of the agency to prevent abuses against taxpayers and against employees. One of the major concerns we heard throughout our oversight initiative was that the taxpayers who get caught in the IRS hall of mirrors have no place to turn that is truly independent and structured to represent their concerns. This legislation requires the agency to establish an independent Office of Appeals -- one that may not be influenced by tax collection employees or auditors. Appeals officers will be made available in every state, and they will be better able to work with taxpayers who proceed through the appeals process.

"Mr. President, agency employees made it clear that there is no dependable and consistent mechanism in place to represent taxpayer interests. Just as this bill will give the appeals process greater independence, it will also make the Office of Taxpayer Advocate as well as local problem resolution officers more independent. In the future, the Secretary of Treasury, rather than the Commissioner will appoint the National Taxpayer Advocate. And the Taxpayer Advocate will be just that. Criteria to fill this position will include that the Advocate must not be an IRS employee two years before and five years after holding this position. In addition, this bill provides the Advocate with greater ability to issue an assistance order to help taxpayers.

"To ensure that independent review and accountability become part of the IRS culture -- top to bottom -- our legislation creates a nine-member IRS Oversight Board -- a board composed of six experts from various professional fields in the private sector, the Commissioner, the Secretary of Treasury, and a full-time Federal employee, or a representative of employees. This board will be independent of influence from management and the senior executive corps. It will be able to monitor and hold managers and executives accountable for their actions, and the actions of their employees. Under our legislation, the Oversight Board will have broad responsibility and will ensure that the IRS has procedures in place to carry out its mission. I anticipate that the Board will be able to nip problems in the bud so that the IRS will not have to endure embarrassing Congressional hearings that expose systemic problems that should have been identified and addressed.

"These measures will go a long way toward protecting taxpayers and IRS personnel. To further protect IRS employees, this legislation creates a new Treasury Inspector General for Tax Administration. We heard far too often in our hearings that the current IRS Office of Chief Inspector does not have sufficient independence to adequately fulfill its obligation. Likewise, the current Treasury Inspector General lacks resources and has experienced problems of its own in providing seamless oversight of the agency. The new Treasury IG for Tax Administration will have greater independence than the IRS Chief Inspector.

"This provision is supported by Secretary Rubin and Commissioner Rossotti, and it will create a structure where the new Treasury IG for Tax Administration will not allow oversight to fall through the cracks. This new Treasury IG for Tax Administration will provide independent investigations of alleged IRS employee misconduct without management interference. The new Treasury IG will also respond in a timely manner to requests to investigate or audit made by the Commissioner or the IRS Oversight Board.

"These measures will go a long way toward combating the intimidating culture that witnesses testified exists within the agency. They will provide independent protections and promote an agency that the public trusts -- an agency that the employees can be proud of.

"The second principle incorporated in this legislation is to hold IRS employees accountable for their actions and to reward those who treat the taxpayer fairly. One of the problems we discovered in our hearings is that the Commissioner did not have the kind of authority that is necessary to streamline management and remove managers who contaminate the culture of the agency. Additionally, we found that the Commissioner does not have sufficient authority to hire those who will work toward making the kinds of changes that are necessary.

"This legislation changes that. It provides the Commissioner the tools he needs to hire top-flight managers who are experts in their field. It gives the Commissioner the wherewithal to transform the agency's work force by providing bonuses and other incentives, and to sufficiently discipline employees whose inappropriate actions harm the image and effectiveness of the agency.

"This bill requires the IRS to terminate an employee if it is proven that the employee willfully failed to obtain required authorization to seize a taxpayer's property, committed perjury material to a taxpayer's matter, or falsified or destroyed documents to conceal the employee's mistakes with respect to a taxpayer's case. It allows terminations to take place if an IRS employee engages in abuses or egregious misconduct.

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

"As I have said before, an environment that allows employees guilty of these kinds of behaviors to continue to work within the system is not acceptable to me, the Finance Committee, or to the American people. We have heard enough excuses. The time has come for change. And this legislation allows needed changes to take place.

"The third principle advocated by this legislation is to ensure that taxpayers are protected, that they have due process during collections activities. This includes requiring the IRS to obtain court approval before seizing a home. It also ensures that the burden of proof be lifted off the shoulders of the taxpayer when it's appropriate and placed on the agency. It allows necessary and long-overdue reforms to the interest and penalty system. This will guard taxpayers against the outrageous and often overbearing financial liability that occurs when the agency moves too slowly.

"With this legislation, the burden of proof is shifted to the IRS if the taxpayer maintains records, cooperates with the agency, and provides credible evidence to the court. In addition, the IRS will have the burden of providing a taxpayer's income if it uses arbitrary statistics to determine that income.

"Another major taxpayer protection in this legislation is our provision to strengthen innocent spouse relief. Some of the most tragic stories our committee heard concerned innocent spouses whose lives have been ruined by the unrelenting pursuit of IRS collections officers.

"This legislation allows divorced or separated spouses to elect to limit their liability for a tax deficiency to the amount of the tax that is attributable to their income. In this way, they will not be held liable for income earned by their spouse. Beyond expanding innocent spouse relief, this legislation allows the Secretary of the Treasury to provide equitable relief if innocent spouse relief is otherwise unavailable. It makes relief retroactive to help those innocent spouses who are still being hounded by the IRS.

"Let me say, however, that relief will not be available in cases of fraud, or if the IRS proves the taxpayer claiming innocent spouse relief had actual knowledge of an item giving rise to the tax liability.

"Beyond this, with this legislation, we make necessary and important changes to how penalties and interest are applied. In order to prevent IRS employees from arbitrarily using penalties as leverage against taxpayers, this bill requires non-computer determined penalties to be approved by management. Furthermore, each notice to taxpayers which includes a penalty or interest must specify how the amount was calculated. If a taxpayer enters into an installment agreement, the monthly failure-to-pay-penalty is cut in half.

"Under this bill, if the IRS does not provide a notice of deficiency -- or other form of notification of the specific amount of taxes due -- within eighteen months after a return is timely filed, then interest and penalties will be suspended until the taxpayer is actually notified. This eighteen month period will be reduced to twelve months in the year 2004, as the agency improves its ability to notify taxpayers of their deficiencies. In this way it is the IRS, not the taxpayer, who bears the burden of IRS delay.

"These enhanced rights are meant to protect honest taxpayers. We do not excuse those who evade their responsibility or cheat on their income tax returns. The protections contained in this legislation exclude the failure to file, failure to pay, and penalties related to fraud.

"Finally, Mr. President, the fourth principle this legislation advances is to provide the Commissioner the tools necessary to take the IRS into the 21st century. It directs Commissioner Rossotti to eliminate the current national office, regional office and district office structure of the IRS. It gives him the authority to replace these antiquated management models with operating units that will directly serve particular groups of taxpayers, better meeting their needs and making the agency much more efficient and user-friendly. As I have said before, Commissioner Rossotti should be complimented on his tremendous work and managerial skills. His plan to restructure the agency is as bold as it is necessary, and this legislation gives him the authority he needs to move forward.

"And moving forward is what this legislation is all about -- to usher the IRS into a new era of accountability -- to provide taxpayers with the protections they deserve -- to bring efficiency and modern management to an organizational structure that dates back to before the industrial age. With this legislation, we bring a promise of hope to honest taxpayers and hard-working employees who have waited far too long. We bring responsibility and greater openness. We focus on the need for service and fairness. With this legislation, Commissioner Rossotti will be able to transform the IRS, make it more effective and intolerant of corruption and abuse of power.

"I appreciate all the work that has gone into this bill -- for the many hours and weekends given by Senators, Congressmen, and staff. Particularly, I want to thank Frank Polk, Mark Prater, Tom Roesser, Mark Patterson, Nick Giordano, and our committee investigators. I want to thank Lindy Paull, and the staff on the Joint Tax Committee -- Barry Wold, Mel Schwarz, Cecily Rock and Mike Udell. Again, I am grateful to Senator Moynihan -- for his leadership and dedication to this cause. I am grateful to my colleagues on both sides of the aisle who stood firm for legislation with teeth -- who, in seeking change, demanded real change... real reforms. That's what we offer today. I am proud of this bill. Americans have every reason to celebrate. They have let their desire be known, and, Mr. President, they have been heard."

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