Summary:

All articles in Senate section

INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998-- CONFERENCE REPORT
(Senate - July 08, 1998)

Text of this article available as: TXT PDF [Pages S7621-S7643] INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998-- CONFERENCE REPORT The PRESIDING OFFICER. Under the previous order, the Senate will now resume consideration of the conference report accompanying H.R. 2676, which the clerk will report. The assistant legislative clerk read as follows: Conference report to accompany H.R. 2676, an act to amend the Internal Revenue Code of 1986, to restructure and reform the Internal Revenue Service, and for other purposes. The Senate resumed consideration of the conference report. Mr. ROTH addressed the Chair. The PRESIDING OFFICER. The Senator from Delaware. Mr. ROTH. Mr. President, if my colleagues' July Fourth recess was anything like mine, then they heard a great deal from their constituents concerning the bill that we bring to the floor today. The Internal Revenue Service Restructuring and Reform Act of 1998 is legislation that not only has the interests but the support of Americans everywhere, and with good reason. For far too long, the Internal Revenue Service has been allowed to consolidate immense power without the counterbalance of accountability. For far too long, the agency has been allowed to operate in darkness, hiding behind section 6103 authority, using authority granted them by Congress to, in some cases, bludgeon taxpayers. Last summer, the National Commission on Restructuring the IRS, following an extensive review of the IRS, issued a report that called for major changes to the agency. In September, the Finance Committee held 3 days of hearings which identified numerous additional problems and some terrible, even unconscionable taxpayer and IRS-employee abuses within the IRS. Those hearings were followed by others which demonstrated clearly that [[Page S7622]] the Service was in need of serious reform. And we heard from taxpayers, tax collectors, tax practitioners. We heard from small business men and women. We heard from innocent spouses. And we listened to outrageous stories from innocent Americans who, for no valid reason, got caught in the crosshairs of an organization that was driven by quotas and lacking in oversight. Our outrage knew no partisan line. Colleagues on both sides of the aisle were offended by many of the stories. To the witnesses--many of whom testified without knowing what their efforts would bring--we apologized as best we could. We said that we would press forward, and we promised reform. That, Mr. President, is what we are delivering today. This is the bipartisan conference agreement on a plan that will effectively change the way the Internal Revenue Service does business. It represents the most comprehensive overhaul of the IRS ever enacted. It combines the House and Senate bills and incorporates the many good suggestions offered by the Agency's new Commissioner, Charles Rossotti. Let me be clear on just how important Mr. Rossotti has been to our efforts. Following our Finance Committee hearings, he had courage enough to release a report that validated the concerns we raised. Rather than try to throw up a wall or confuse issues, he made a commitment to reform. Every step we have taken he has taken with us. Commissioner Rossotti and I have met on many occasions, and he has testified before our committee. We have attended taxpayer service days together. He has advocated a new management plan that could revolutionize the way the Internal Revenue Service does business. I am also grateful for the taxpayers and the many current and former IRS employees who came before our committee. These were courageous individuals, and without them, there would be no reform. And they represent only a fraction of those who met with us, who wrote to us, who called, and, in the process, moved our investigation forward. Likewise, I am grateful to my colleagues--Senator Moynihan, a defining presence in the Senate, if ever there was one. I am grateful to Senators Charles Grassley and Bob Kerrey and their efforts on the National Restructuring Commission. Working with Congressman Portman, and others, they got the ball rolling early on, and were leaders in this effort. I thank Chairman Bill Archer for the work he did on the Ways and Means Committee, for the spirit of cooperation he brought to the conference, and for the success he had two weeks ago in getting this legislation approved overwhelmingly in the House. Now, the time has come, Mr. President, to pass it here--legislation that will open the door to real restructuring and reform of what can only be considered the most powerful agency in the United States government. This legislation is built on four principles: The first principle is to establish independent oversight of the agency to prevent abuses against taxpayers and against employees. One of the major concerns we heard throughout our oversight initiative was that the taxpayers who get caught in the IRS hall of mirrors have no place to turn that is truly independent and structured to represent their concerns. This legislation requires the agency to establish an independent Office of Appeals--one that may not be influenced by tax collection employees or auditors. Appeals officers will be made available in every state, and they will be better able to work with taxpayers who proceed through the appeals process. Mr. President, agency employees made it clear that there is no dependable and consistent mechanism in place to represent taxpayer interests. Just as this bill will give the appeals process greater independence, it will also make the Office of Taxpayer Advocate as well as local problem resolution officers more independent. In the future, the Secretary of Treasury, rather than the Commissioner will appoint the National Taxpayer Advocate. And the Taxpayer Advocate will be just that. Criteria to fill this position will include that the Advocate must not be an IRS employee two years before and five years after holding this position. In addition, this bill provides the Advocate with greater ability to issue an assistance order to help taxpayers. To ensure that independent review and accountability become part of the IRS culture--top to bottom--our legislation creates a nine-member IRS Oversight Board--a board composed of six experts from various professional fields in the private sector, the Commissioner, the Secretary of Treasury, and a full-time Federal employee, or a representative of employees. This board will be independent of influence from management and the senior executive corps. It will be able to monitor and hold managers and executives accountable for their actions, and the actions of their employees. Under our legislation, the Oversight Board will have broad responsibility and will ensure that the IRS has procedures in place to carry out its mission. I anticipate that the Board will be able to nip problems in the bud so that the IRS will not have to endure embarrassing Congressional hearings that expose systemic problems that should have been identified and addressed. These measures will go a long way toward protecting taxpayers and IRS personnel. To further protect IRS employees, this legislation creates a new Treasury Inspector General for Tax Administration. We heard far too often in our hearings that the current IRS Office of Chief Inspector does not have sufficient independence to adequately fulfill its obligation. Likewise, the current Treasury Inspector General lacks resources and has experienced problems of its own in providing seamless oversight of the agency. The new Treasury IG for Tax Administration will have greater independence than the IRS Chief Inspector. This provision is supported by Secretary Rubin and Commissioner Rossotti, and it will create a structure where the new Treasury IG for Tax Administration will not allow oversight to fall through the cracks. This new Treasury IG for Tax Administration will provide independent investigations of alleged IRS employee misconduct without management interference. The new Treasury IG will also respond in a timely manner to requests to investigate or audit made by the Commissioner or the IRS Oversight Board. Now, these measures will go a long way toward combating the intimidating culture that witnesses testified exists within the agency. They will provide independent protections and promote an agency that the public trusts--an agency that the employees can be proud of. The second principle incorporated in this legislation is to hold IRS employees accountable for their actions and to reward those who treat the taxpayer fairly. One of the problems we discovered in our hearings is that the Commissioner did not have the kind of authority that is necessary to streamline management and remove managers who contaminate the culture of the agency. Additionally, we found that the Commissioner does not have sufficient authority to hire those who will work toward making the kinds of changes that are necessary. This legislation changes that. It provides the Commissioner the tools he needs to hire top-flight managers who are experts in their field. It gives the Commissioner the wherewithal to transform the agency's work force by providing bonuses and other incentives, and to sufficiently discipline employees whose inappropriate actions harm the image and effectiveness of the agency. This bill requires the IRS to terminate an employee if it is proven that the employee willfully failed to obtain required authorization to seize a taxpayer's property, committed perjury material to a taxpayer's matter, or falsified or destroyed documents to conceal the employee's mistakes with respect to a taxpayer's case. It allows terminations to take place if an IRS employee engages in abuses or egregious misconduct. Conditions for which an employee can be dismissed include, but are not limited to, assaulting or battering a taxpayer or other IRS employee, violating the civil rights of a taxpayer or other IRS employee, or breaking the law, regulations, or IRS policies for the purpose of retaliating or harassing a [[Page S7623]] taxpayer or other IRS employee. Our legislation also allows an employee to be fired for willfully misusing section 6103 authority to conceal information from Congress. As I have said before, an environment that allows employees guilty of these kinds of behaviors to continue to work within the system is not acceptable to me, the Finance Committee, or to the American people. We have heard enough excuses. The time has come for change. And this legislation allows needed changes to take place. The third principle advocated by this legislation is to ensure that taxpayers are protected, that they have due process during collections activities. This includes requiring the IRS to obtain court approval before seizing a home. It also ensures that the burden of proof be lifted off the shoulders of the taxpayer when it's appropriate and placed on the agency. It allows necessary and long-overdue reforms to the interest and penalty system. This will guard taxpayers against the outrageous and often overbearing financial liability that occurs when the agency moves too slowly. With this legislation, the burden of proof is shifted to the IRS if the taxpayer maintains records, cooperates with the agency, and provides credible evidence to the court. In addition, the IRS will have the burden of proving a taxpayer's income if it uses arbitrary statistics to determine that income. Another major taxpayer protection in this legislation is our provision to strengthen innocent spouse relief. Some of the most tragic stories our committee heard concerned innocent spouses whose lives have been ruined by the unrelenting pursuit of IRS collections officers. This legislation allows divorced or separated spouses to elect to limit their liability for a tax deficiency to the amount of the tax that is attributable to their income. In this way, they will not be held liable for income earned by their spouse. Beyond expanding innocent spouse relief, this legislation allows the Secretary of the Treasury to provide equitable relief if innocent spouse relief is otherwise unavailable. It makes relief retroactive to help those innocent spouses who are still being hounded by the IRS. Let me say, however, that relief will not be available in cases of fraud, or if the IRS proves the taxpayer claiming innocent spouse relief had actual knowledge of an item giving rise to the tax liability. Beyond this, with this legislation, we make necessary and important changes to how penalties and interest are applied. In order to prevent IRS employees from arbitrarily using penalties as leverage against taxpayers, this bill requires non-computer determined penalties to be approved by management. Furthermore, each notice to taxpayers which includes a penalty or interest must specify how the amount was calculated. If a taxpayer enters into an installment agreement, the monthly failure-to-pay- penalty is cut in half. Under this bill, if the IRS does not provide a notice of deficiency-- or other form of notification of the specific amount of taxes due-- within eighteen months after a return is timely filed, then interest and penalties will be suspended until the taxpayer is actually notified. This eighteen month period will be reduced to twelve months in the year 2004, as the agency improves its ability to notify taxpayers of their deficiencies. In this way it is the IRS, not the taxpayer, who bears the burden of IRS delay. These enhanced rights are meant to protect honest taxpayers. We do not excuse those who evade their responsibility or cheat on their income tax returns. The protections contained in this legislation exclude the failure to file, failure to pay, and penalties related to fraud. Finally, Mr. President, the fourth principle this legislation advances is to provide the Commissioner the tools necessary to take the IRS into the 21st century. It directs Commissioner Rossotti to eliminate the current national office, regional office and district office structure of the IRS. It gives him the authority to replace these antiquated management models with operating units that will directly serve particular groups of taxpayers, better meeting their needs and making the agency much more efficient and user-friendly. As I have said before, Commissioner Rossotti should be complimented on his tremendous work and managerial skills. His plan to restructure the agency is as bold as it is necessary, and this legislation gives him the authority he needs to move forward. And moving forward is what this legislation is all about--to usher the IRS into a new era of accountability--to provide taxpayers with the protections they deserve--to bring efficiency and modern management to an organizational structure that dates back to before the industrial age. With this legislation, we bring a promise of hope to honest taxpayers and hard-working employees who have waited far too long. We bring responsibility and greater openness. We focus on the need for service and fairness. With this legislation, Commissioner Rossotti will be able to transform the IRS, make it more effective and intolerant of corruption and abuse of power. I appreciate all the work that has gone into this bill--for the many hours and weekends given by Senators, Congressmen, and staff. Particularly, I want to thank Frank Polk, Mark Prater, Tom Roesser, Mark Patterson, Nick Giordano, and our committee investigators. I want to thank Lindy Paull, and the staff on the Joint Tax Committee--Barry Wold, Mel Schwarz, Cecily Rock and Mike Udell. Again, I am grateful to Senator Moynihan--for his leadership and dedication to this cause. I am grateful to my colleagues on both sides of the aisle who stood firm for legislation with teeth--who, in seeking change, demanded real change--real reforms. That's what we offer today. I am proud of this bill. Americans have every reason to celebrate. They have let their desire be known, and, Mr. President, they have been heard. Sec. 1101-IRS Oversight Board Mr. President, there has been substantial debate on whether a Treasury employees union representative should have a designated seat on the IRS Oversight Board. I agree with many of my colleagues that a representative of IRS employees should not be provided a position on the IRS Oversight Board because such member would be subject to a substantial conflict of interest. I did not include an IRS employee representative on the IRS Oversight Board in my original chairman's mark. However, the members of the Finance Committee voted to include an IRS employees representative on the board and to waive the criminal conflict of interest laws for this particular board member. Amendments to these provisions were considered by the full Senate and defeated. During conference negotiations, the Department of Justice opined that ``The employee-representative restriction in the bill would impermissiby limit the President's appointment power in violation of the Constitution.'' The Department of Justice suggested alternative language to avoid the Constitutional problem. In response to the Constitutional problems raised by the Department of Justice, the conferees agreed that one member of the IRS Oversight Board shall be a full time Federal employee or a representative of employees. The conferees also incorporated Justice's recommendation that this board member receive the same compensation as other board members who are not government employees. The Department of Justice also recommended that the employee representative should not be exempt from the conflict of interest laws. As a compromise, the conferees agreed to delete the provision which would exempt the employee representative from the conflict of interest laws. However, at the time of nominating this particular board member, the President could seek a waiver of the criminal conflict of interest laws to the extent such waiver is necessary to allow such member to participate in the decisions of the Board. Waiving criminal conflict of interest laws for one person is a very serious matter and should not be taken lightly. As such, the bill requires the President to submit a written intent of waiver along with the actual waiver language to the Senate with the nomination of such member. I anticipate that the President would seriously consider the ramifications of nonminating [[Page S7624]] an individual with inherent conflicts of interests. If, in the President's judgment, such an individual must be on the IRS Oversight Board, the President must submit a written statement of intent to waive the criminal conflict of interest laws. To be effective, the waiver must be provided verbatim with the nomination of such individual. While I would have preferred the language in my original chairman's mark, this conference agreement addresses the competing concerns of my colleagues as well as the Constitutional problems raised by the Administration. In September 1997 and April 1998, the Finance Committee held several days of oversight hearings regarding IRS practices and procedures. These eye-opening hearing revealed improper and inappropriate IRS practices and in some situations violation of the law. I, along with those taxpayers who watched the hearings, was shocked and deeply troubled with the practices of the IRS. I believe that proper oversight by Congress and the Administration should have reduced or even prevented such activity from occurring. One of the most important functions of the IRS Oversight Board is to prevent taxpayer abuse. The Oversight Board must have access to information that will enable the board to reveal problems, bring problems to the attention of the Commissioner to address, and inform Congress if the Commissioner does not address problems. The Oversight Board should have ``big picture'' oversight authority over law enforcement activity, including examinations, collection activity, and criminal investigations. Taxpayers must be protected from improper and/or illegal activity. Hopefully, the Oversight Board, rather than a congressional committee, will nip problems in the bud and keep the IRS on a straight course. Sec. 1102--Commissioner and Other Officials The bill alters the reporting relationship between the IRS Chief Counsel and the Treasury General Counsel. The bill requires the IRS Chief Counsel to report directly to the Commissioner except for the extremely limited situations where an issue relates solely to tax policy. It is intended that ``tax policy'' would be limited to recommendations relating to tax legislation and the drafting of treaties. The Chief Counsel will report to both the Commissioner and to the Treasury General Counsel with respect to tax litigation and legal advice or interpretation of the tax law not relating solely to tax policy. In the rare circumstance where there is a dispute between the Commissioner and the Treasury General Counsel, the matter must be submitted to the Secretary or Deputy Secretary for resolution. The Commissioner, as the client, must be able to make a decision based upon the legal advice provided by the Chief Counsel. Neither the Treasury General Counsel nor any other Treasury official (other than the Secretary or Deputy Secretary) may overrule the Commissioner's decisions. The Secretary or Deputy Secretary may not delegate this authority to someone else. For example, the Commissioner should be able to decide whether to proceed with a litigation matter or recommend that a case be appealed. If the Treasury General Counsel disagrees, then the issue should be resolved only by the Secretary or Deputy Secretary. Furthermore, the Commissioner should have the ability to interpret the tax law and issue guidance in various forms. The Commissioner should be able to expeditiously issue guidance including regulations, revenue ruling and revenue procedures, technical advice and other similar memoranda, private letter rulings and other published guidance. Once again, if there is a disagreement between the Commissioner and the Treasury General Counsel, the issue must be resolved by the Secretary or the Deputy Secretary. sec. 1103--treasury inspector general for tax administration The bill transfers the IRS Office of Chief Inspector's function to a new Treasury Inspector General for Tax Administration which will provide more effective and efficient oversight over the IRS. The current system in which the Treasury Inspector General, with its limited resources and tax expertise, attempted to provide oversight along with the IRS Office of Chief Inspector which some believed lacked sufficient independence from management, simply did not provide adequate and independent oversight. I was appalled with the current system which allowed issues to fall through the cracks, included little or no ability to follow up on issues, or even to timely investigate media allegations of outrageous taxpayer abuse. The time has come to provide a new, credible Treasury Inspector General for Tax Administration which has the resources and expertise to independently audit and investigate problems within the IRS. Coupled with the IRS Oversight Board and a new more independent National Taxpayer Advocate, this provision in the bill will provide yet another check on the bureaucracy within the IRS to ensure that taxpayers and their problems don't slip through the cracks. While the vast majority of IRS employees are honest, hardworking, and law-abiding, enhanced oversight will help ensure that taxpayers are treated properly. Mr. MOYNIHAN addressed the Chair. The PRESIDING OFFICER. The Senator from New York. Mr. MOYNIHAN. Mr. President, I rise in the first instance to thank our revered chairman, Senator Roth, chairman of the Finance Committee, who brings this measure to the floor with the unanimous vote of the Finance Committee. From the first, ours has been, under his direction, a nonpartisan effort to deal with a nonpartisan issue of the first order of consequence. We are equally, in turn, grateful for the work of the National Commission on Restructuring the Internal Revenue Service. Senators Kerrey and Grassley of our committee and Congressmen Portman and Coyne from the House side contributed significantly to shaping the concept of the Internal Revenue Service as a customer-based agency, as they put it. I believe, sir, that we have done this. We have done it with the aid and the cooperation and the participation of Chairman Bill Archer and ranking member Charles B. Rangel of the Committee on Ways and Means in the House, who worked with us on the committee of conference. Senator Roth was chairman. And the result before you is an exceptional piece of legislation--and not an everyday event. The Internal Revenue Service became a permanent part of our government in 1862 as part of the Civil War Income Tax Act, which was signed into law July 1, 1862, by President Abraham Lincoln. That was almost a century and a half ago. Yet it was not until just last September that the full Finance Committee of the Senate exercised its oversight jurisdiction to ask, how is this enterprise working and where is it going? The hearing illustrated the need for changes at the IRS and encouraged the thinking on the subject which has produced the measure we bring before you today. As evidence of the process already underway by the unanimous confirmation of this body, Mr. Charles O. Rossotti became the Commissioner of Internal Revenue. This was a stroke of administrative inspiration by Secretary Rubin, who went out into the private sector looking not for a tax lawyer--an honorable profession; normally the Commissioners of the IRS have been tax lawyers--but instead for an administrator. He found the head of a large company that specialized in information services of a wide variety, and who was prepared to do this as a public service and not to continue in the line that has been of a particular profession, the practice of tax law. We have established an IRS oversight board of six private persons, the Secretary of the Treasury, and the representative of the IRS employees, and finally the Commissioner of the IRS itself. The board will be responsible for setting the strategic direction and goals of the agency, while the Commissioner will continue to manage day-to-day operations. The Finance Committee--and then the Senate--specifically voted to include the Secretary and employee representative on the board. The conference agreement, which maintained this arrangement, passed the House by a vote of 402 to 8. With the Secretary of the Treasury on the board, the board will know things it cannot otherwise learn. The U.S. Secretary of the Treasury is a world figure. His presence on the board gives it stature within the Government and with the public. The fear was that otherwise it would lapse into a sort of advisory mode that would fail to serve the objectives of this ``reform and restructuring'' legislation. [[Page S7625]] We are pleased that the agreement maintains the position on the board for a representative of the IRS employees. The representative will be able to work cooperatively on the inside rather than working in opposition from the outside. An ongoing problem is how to attract top executives to a government activity which has its counterpart in the private sector where compensation--if I may use that term--is often very high, if not indeed exorbitant, because the amounts of money involved are very large. So to recognize the disparity between government and private sector salary structures, the conference agreement adopted the Senate provision authorizing the appointment by the Commissioner of up to 40 persons to critical positions for 4-year terms with an annual compensation equivalent to the pay of the Vice President of the United States; that is to say, currently $175,400. These will be persons chosen for their particular skills. They will be there for a 4-year period. They will be departing the private sector for an interval of public service at something approaching the salaries they normally enjoy. Other provisions will permit the establishment of a new performance management system focused on individual accountability, and allow for the creation of an incentive award system bringing the IRS into contemporary management modes--out of the model of the civil service that was developed a century ago when we set up the Civil Service Commission, again establishing grades for employees with salaries that were low, but careers that were guaranteed for life. That effort was very controversial at that time. I can record that two Senators from New York State resigned from the Senate when the newly elected President appointed a collector of customs in the port of New York of whom they did not approve. One was Roscoe Conkling; the other, Thomas P. Platt. Mr. Conkling was no friend of civil service reform and once observed that when Dr. Johnson declared patriotism to be the last refuge of a scoundrel, he underestimated the potential of reform. And yet reform didn't come about, a century passed, and we found that the system had not the internal energies to change itself, to adapt to new technologies and new management modes. We hope the IRS will with these new arrangements--the infusion of new people, and a clear understanding that we expect the system to be open, innovative, and ``user friendly,'' in the term the chairman frequently used in our hearings. And we shall see. There are several other measures, Mr. President. I should point out that the conferees were heroic in their determination not to include all manner of extraneous or narrowly-applicable provisions, as is often the case in a tax bill but is not the case, with very few exceptions, in ours. There are two provisions in the conference report, however, that are of special interest to the Senator from New York. The first adopts the Senate provision for a complexity analysis requirement. It requires the staff of the Joint Committee on Taxation to provide an analysis of the complexity and administrative issues associated with tax legislation reported by the Finance Committee and Ways and Means Committee. The provision is intended to provide notice, prior to floor consideration, about provisions that have widespread applicability and may be unduly burdensome for taxpayers to understand and comply with, or difficult for the IRS to interpret and administer, or both. I might interject that when this was before us in the Finance Committee, the distinguished chief of staff of the Joint Committee on Taxation said that she looked forward to this, but that she was fearful as to whether the joint committee could begin this complicated effort so long as it was burdened with the task of determining which items in tax legislation were subject to the line-item veto, a detailed and exhaustive analysis of every tax bill, which was a new responsibility for the joint committee. I am happy to say, in the weeks since that exchange took place, the Supreme Court has dutifully and properly declared the line-item veto to be unconstitutional. So one of the unintended consequences--I cannot imagine the Court had this very much in mind--is that the joint committee is now in a position to begin a type of analysis which is new to American legislation. We are in the practice of having an increasingly complex Tax Code. There can surely be no question that we are dealing with the problems that we found in the Internal Revenue Service because the Internal Revenue Service has to administer a Tax Code that is frequently incomprehensible. An almost priestly hierarchy understands its meanings and can work them through the tax courts and such like. But to the public and, too, the Congress, they are often simply incomprehensible. I remember standing on this floor a year and a half ago with an 800- page tax bill, Mr. President, and that was the only copy of the tax bill on the Senate floor, which we were about to vote for 92-8. A copy provided to the distinguished chairman had been promptly appropriated by the Budget Committee to see if there were any budget points of order, and so the one copy was here on this desk, and Senators on both sides of the aisle would come up and ask whether a provision they had an interest in was in the bill, and I would say, ``I hope in good spirit I can find out, but what will you pay me?'' Indeed, there was no other way for the Senator to learn. And this is not an unusual event. I am going to say this not once but twice because we have to start attending to our own behavior in these matters. I was one of the participants in the enactment of the Tax Reform Act of 1986. This was a wonderful, collegial experience led by our good friend and former colleague, Senator Packwood, along with Senator Chafee, Senator Danforth, a ``core group,'' as we called ourselves, of about six of us. We would meet for coffee at 8 o'clock every morning in Senator Packwood's office, and it would be my job, rather as the dean in a cathedral, to provide a reading for the morning. I would make sure I got the Wall Street Journal early, and without a great deal of effort I would find the advertisements where you would see a little classified ad which would say, ``Rocky Mountain sheep, guaranteed losses.'' And the Wall Street Journal would tell you how you would be certain to lose money in such a manner that the code would eventually reward you for your losses, which is an interesting game to play if you are interested in C notes but not a very productive form of economic activity. Well, we cleaned up that Tax Code. We brought the rates down from, oh, half a dozen income tax rates to 28 percent and 15 percent--two rates. We did ``base broadening'' as the term was; more and more income became subject to taxation, so the rates of taxation could be lowered. And when it was all over, to our surprise and rather to the consternation of the tax bar, you might say, we had, indeed, produced a fairly simple and comprehensible Tax Code. That was 1986--1986, Mr. President. What you have before you, sir, what we have in the Senate before us-- and my revered chairman will know this better than anyone else present--we have the 65th public law to amend the Internal Revenue Code since the Tax Reform Act of 1986. We have passed 65 tax bills. That comes to about six a year. If you were assigned that task, you would say it would be impossible to achieve; it would be asking too much of our staffs and our Members. But we have done this heroic, if absurd, task, and it has to be said again that simplification is the essence of justice and efficiency in the code. We are a large, complex economy, an international economy. We are not going to have a simple code, but there is no reason we should have an incomprehensible one, particularly when the complexities often reflect the influence of special interest in the code. In this regard, not many weeks ago we heard testimony from one of our Nation's most distinguished and accomplished economists, Murray Weidenbaum, who had been chairman of the Council of Economic Advisers in the administration of President Reagan. I served with him in the administration of President Nixon. At that time he took it upon himself to explain and popularize the idea of revenue sharing--get Federal revenue out to cities and States, let them decide [[Page S7626]] how to spend it, and reduce the dependency on administrative judgments, decisions, and statutes here in Washington. That was a very fine idea which we lost to the budget deficits of the 1980s. But Murray Weidenbaum made a powerful point, coming from a powerful mind. He said, if you spend all your income, the American Tax Code is simple. You just fill out a one-page form: I made $50,000 last year, spent $50,000; I made $100,000, I made $100 million--God in heaven knows there are some who do--but I spent it all, and my taxes are as follows. It is only when you begin to save that the Tax Code gets complicated. Of course, our largest economic question right now is the rate of savings in the American economy. The fact that we have large trade deficits basically reflects that we are importing capital. We have the lowest savings rate of any industrial country in the world--or any prime industrial country of which I am aware. It is quite striking. I would not argue this is the principal factor, but it is the fact that if you save money you can get in trouble with the Internal Revenue Code. Whatever else, that should not be the case. It is the case. I think the complexity analysis, particularly if it is directed with this kind of issue in mind, has the potential of a very important innovation in the development of tax legislation. Don't expect it to change anything in the next 3 or 4 years, but in 20 years' time we might find that this small provision in this large legislation had large consequences. One other item. In the interval since this legislation was agreed to, the majority and minority leaders have created a special committee on the year 2000 problem, with a hurry-up reporting date. But during the Finance Committee's consideration of the bill, Commissioner Rossotti specifically noted, in a six-page letter, that some of the changes the chairman has described in such admirable detail would overburden the IRS's ongoing efforts to upgrade its computers to allow for the century date change. In time we came to see the need for the effective-date changes he recommended--and Secretary Rubin reinforced this in a typically succinct one-page letter. We have, in the main, accommodated the Commissioner in this regard. I think this is probably the first statutory recognition of the year 2000 problem, which we are going to know a lot more about in very short order. Now, briefly, a few matters of concern. Contrary to the unanimous opposition of the tax profession, this legislation includes a provision that shifts the burden of proof in civil cases from the taxpayer to the IRS. We all live in the real world and no one on the surface would ever think it right that the burden of proof be on a taxpayer, not the Government. But reality can be different. Four former IRS Commissioners, who appeared on a bipartisan panel before the committee, testified that shifting the burden of proof would cause more harm than good to the taxpayer. Similar sentiment was expressed by dozens of professors of tax law. Their concern is that this provision will result in more intrusive IRS audits, create additional complexity and litigation, and create confusion for taxpayers and the IRS as to when an issue needs to be resolved in court and when the burden has shifted. I recognize the political popularity of the provision, but I fear it may actually prove to work against the taxpayer. Be warned--persons who have the best reason to be impartial in their judgment have said this is not going to help, it is going to make things yet more difficult. Another provision certain to cause confusion and to lead to additional litigation with the IRS is the expansion of the privilege of confidentiality to tax advice furnished by accountants. This new privilege may be asserted in noncriminal tax proceedings before the IRS and in Federal courts. However, like the current attorney-client privilege, information disclosed for the purposes of preparing a new tax form is not privileged and the conference agreement precludes application of the expanded privilege to written communications to a corporation ``in connection with the promotion of the direct or indirect participation of such corporations in any tax shelter.'' This is a right that most taxpayers will never be eligible to assert, and many will be surprised to learn about its limitations. One provision that the bill does not include, and should, is the correction of a drafting error in the 1997 act which gives a windfall to the few estates in this country with a value of more than $17 million. It costs nothing to fix, and the joint committee estimates that the failure to correct this error would cost taxpayers $900 million in the next 10 years. The Senate bill fixed it. But somehow the conferees could not reach agreement. Finally, Mr. President, and possibly most important, I direct the Senate's attention to a modest, but hugely significant, semantic triumph that has been included in this legislation. Section 5003 of the conference agreement replaces in U.S. trade law the confusing 17th century phrase ``most-favored nation,'' which begins with the French phrase ``la nation la plus favorisee.'' We now replace that term with the plain American term ``normal trade relations.'' This relieves the President and the Congress of the burden of having to ask, why is this typically not-very-popular country being made a most-favored nation? Why, for example, is there now a dispute about whether Vietnam should be given most-favored-nation status? Of course, it is not most-favored nation; it simply means you get the same treatment that the most- favored nation, some other nation most favored, gets. It is antique usage that immediately confuses everyone involved, and now we will be able to say we propose ``normal trade relations.'' It is plain English and avoids the needless misunderstandings that have accompanied that other term. I do not want to overburden the Senate with detail, but the most- favored-nation concept is well over 700 years old. It has been traced by historians to a clause in the treaty of November 8, 1226, in which Frederick II, Emperor of the Holy Roman Empire, conceded to the city of Marseilles the privileges previously granted to the citizens of Pisa and Genoa. Not greater privileges, but merely the same. The term itself is perhaps a little more recent. The first use that we can come across specifically is in the treaty of 1659 between France and Spain, which guaranteed that the subjects of each sovereign, while in the realm of the other, would be treated as the most-favored nation. Again, the phrase ``le plus favorablement,'' or in modern French, ``la nation la plus favorisee''--having the same rights as were granted the English and the Dutch. In the main, the usage has become counterproductive. It confuses the public as to what is being proposed. I think it is fair to say sometimes it confuses the Congress as well, and we are well to be rid of it. I think it is past time and, if I may say, this is a matter that the Finance Committee has had in mind for some while. The distinguished and revered chairman and I introduced legislation last year for this purpose, and now we see it about to become law. Mr. President, I thank you for your courtesy, and I have said my piece on the matter. I yield the floor. Mr. GREGG addressed the Chair. The PRESIDING OFFICER. The Senator from New Hampshire. Mr. GREGG. Does the Senator from Nebraska wish to speak? Mr. KERREY. I am prepared to proceed. Mr. GREGG. I am going to speak about 10 minutes. Will that be an inconvenience to the Senator, or does he have to get somewhere? Mr. KERREY. One of the things I want to do, and I will be pleased to step aside for 10 minutes, I want to engage in a short colloquy with the distinguished Senator from New York on this bill. I will try to be as brief as possible and then yield back to the Senator. I have a longer statement I will make on this legislation. The PRESIDING OFFICER. The Senator from Nebraska. Mr. KERREY. I thank the Chair, and I thank the distinguished Senator from New Hampshire. One of the things the Senator from New York has referenced--and I will later in my remarks praise both he and the chairman of this committee for what they have done in bringing this legislation to the floor--one of the things the Senator referenced in his comments was the 1986 Tax Reform Act. Indeed, this bill, it should be noted by colleagues, [[Page S7627]] amends that act. So this would be the, I guess, the 65th tax bill we have passed since 1986. I wonder if the Senator from New York can engage briefly in a discussion for the benefit of the Senator from New Hampshire and for those who happen to be watching this debate. One of the things that we struggle to do as citizens is to understand what it is that the government is doing and why. Under our constitutional authorities as a Congress we have a whole range of things we are charged with doing. One of the most difficult things we are charged with doing, once we have decided we are going to have a government of any kind at all, is we have to collect taxes and what to use those taxes for and we then have to decide who is going to pay the taxes, and we write the law accordingly. We then distribute the money to the various agencies of government that we previously created. I wonder if the Senator from New York, with his understanding of the rest of the world, can talk a little bit about how much we take for granted our capacity to voluntarily collect. We have a voluntary system of tax collection, unlike many other nations on Earth. I know right now one of the most difficult problems, for example, that the newly democratic Russia is facing is their capacity to collect tax revenues in sometimes a not-so-voluntary fashion. I wonder if the Senator can talk a little bit about the constitutional issues of us raising the taxes to pay for the government and the importance of our being able to maintain a voluntary system of tax collection. Mr. MOYNIHAN. I certainly will. I will be succinct, because nothing could be more clear. The United States is blessed with a citizenry that pays its taxes on time and in full. There are exceptions, but we do it voluntarily. Technically, we self-assess; we decide ourselves what we owe the government. The rate of compliance is very high. Up until just recently, and it is just beginning to change, for example, in the United Kingdom, which we associate with and we think of as a free society, and it certainly is, the subjects of the queen did not decide how much taxes he or she owed; the queen decided. They were sent a bill. You are free to contest it in court, and you can contest it in court the rest of your life, but you still have to pay the bill. So the idea of complexity in this system, making it so difficult to know what it is you owe jeopardizes a precious institution, which is the faith of the public in the good intentions and performance of the government itself. That, I think, was one of the reasons the Kerrey Commission called for the reforms that are in this legislation of the IRS. You can have an openness and a sense that things are on the level here and government is doing the right thing. Mr. KERREY. I thank the Senator for delaying his exit from the floor. I appreciate very much that reference. Mr. President, I believe this piece of legislation goes to the heart of our capacity to maintain government of, by and for the people. Our republican form of government is at risk if people feel they are not getting a fair shake with this voluntary system of collection. Congressman Portman and I cochaired this restructuring commission. We noted U.S. tax collection is the most efficient in the world. Less than half of a percent of the total revenues collected is in cost. In the face of mounting criticism, problems, it seems to me it is very important to make certain that as we write the laws that will determine how this money is collected, that we not throw the proverbial baby out with the bathwater. We have problems, and this legislation attempts to correct the problems. But underneath these problems is a relatively efficient system of collecting taxes that enables the citizens to fund their Government, and in a relatively efficient fashion. Mr. MOYNIHAN. Indeed. Mr. GREGG addressed the Chair. The PRESIDING OFFICER. The Senator from New Hampshire. Mr. GREGG. Mr. President, I wish to join with what I am sure will be numerous Senators in congratulating the Senator from Delaware and the Senator from New York and the Committee on Finance for bringing forward this exceptionally good bill which is truly timely. Many of us, as we have tried to help folks out in our States, have run into situations where people have been treated in ways which can only be described as abusive by the Internal Revenue Service, where the Internal Revenue Service has gone way beyond the appropriate action for the purposes of collecting the revenues of the country and has treated American citizens in a way that you might expect were they to be living in a police state instead of in a democracy. In my experience, probably one of the worst cases I have ever seen of Government excesses involves a family known as Barron in New Hampshire. That family, unfortunately, got into some tax trouble, failed to pay its taxes, and the IRS, in an appropriate way, attempted to collect those taxes--at least appropriately at the beginning. But then it got carried away. And as a result of getting carried away, it put that family through an extraordinary trauma, to a point where Mr. Barron ended up committing suicide. And his wife, Shirley Barron, who is now responsible for the family, found herself in a situation which was beyond all reason, which was untenable and which was horrible. A lien had been put on her house. Her children's bank accounts had been taken. Her bank accounts had been taken. The IRS was even making it impossible for her to pay her electric fee, her utility fees. This all occurred after a time period when they thought they had reached an agreement with the Internal Revenue Service. They thought an understanding had been reached, and, in fact, an understanding had been reached. Then the IRS, in a manner which can only be called bait and switch, backed out of that agreement and assessed them with even more penalties and interest. And on an original tax bill which was, I believe, somewhere in the vicinity of $20,000 or $40,000, they ended up with an obligation, according to the Internal Revenue Service, of multiple hundreds of thousands of dollars. It was a situation which was so horrendously handled that it literally drove Mr. Barron to commit suicide, destroyed the lives of this family. And it has become a cause celebre in New Hampshire, and to some degree nationally. It would be terrible in and of itself, because there is really nothing we can do as a Government to correct what happened to Mrs. Barron and the treatment she received. Her life has been irreparably harmed, and her family will always suffer as a result of this. It would be terrible enough if it were the only instance of this type of situation occurring, but as we saw from the hearings which the Senate Finance Committee held under Chairman Roth, it was not the only instance. Regrettably, on too many occasions the Internal Revenue Service has acted in this almost malicious but certainly abusive way. This does not mean that the Internal Revenue Service is populated with people who wish to treat American citizens, taxpayers, in a manner that is totally inappropriate. No. In fact, just the opposite. The Internal Revenue Service is filled with good and conscientious people, in my opinion; but there are bad apples. More importantly than that, the Service has created an atmosphere, a way of management, a culture, which has allowed the excesses to proceed in the actions against taxpayers which are beyond the pale of reasonableness to become commonplace, through the lack of management and, in my opinion, due to lack of structure, both legal and managerial. So this bill attempts to correct that. The most important thing it does, or one of the most important things it does, is it shifts the burden of proof, gets us back to where we should have been to begin with, which is to presume that the taxpayer is innocent rather than presuming that the taxpayer is guilty until the taxpayer has proven himself or herself innocent. That is very important, so that the taxpayer goes in at least on some level of a playing field which has some levelness to it versus a playing field which was radically tilted against the taxpayer under the present structure. In addition, the bill protects the innocent spouse. In so many instances, the spouse is a part of the familial activity as being part of a family; signs [[Page S7628]] the return without a great deal of knowledge of what is in that return, sometimes without any great knowledge of what is in that return, but signs it and then finds out later on, as was the case in Mrs. Barron's situation, that action has been taken that was inappropriate and liability exists. And when the spouse who is responsible disappears, as a result of divorce, or in this case as a result of death, the innocent spouse ends up with an obligation which is totally inappropriate. So the protection of the innocent spouse is absolutely critical and a very, very good part of this bill. In addition, the bill takes what I think is a critical step in the area of managing the Internal Revenue Service's procedures because it limits the ability of the Internal Revenue Service to assess interest and penalties in a manner which uses the interest and penalties to basically force settlements on the taxpayer, even when the taxpayer feels they did not owe the obligation. There is no question but that the basic collection process at the Internal Revenue Service proceeds with, in many instances, running up the interest and penalty obligations so when they get into negotiations with the taxpayer, even if the taxpayer knows they do not owe the taxes, the utility of proceeding becomes so expensive, it becomes so impossible to ever want to proceed in a manner which would put you at risk for the interest and penalties which have been run up that you end up paying the underlying tax and negotiating out the interest and penalties. That is a collection process which, regrettably, has become the modus operandi of the Internal Revenue Service. This bill puts some limitation on that by limiting the ability of the Internal Revenue Service to run those interest and penalties up if they have not notified the taxpayer within a timely manner--18 months initially, 12 months as time goes out--that an obligation is due or they perceive that an obligation is due. This is an extremely important change in the collection process. In addition, the bill provides much better services to the taxpayer, which is critical. Thus, I am extremely supportive of this effort. I say this. It does not resolve the problem. The problem goes to the basic law. The fact is that we have created a tax law which is so complex, so convoluted, such a mishmash of regulations and cross-purpose legislation, that it becomes basically unenforceable because it is not comprehendible. After finishing law school, I went back to school for 3 years and got a graduate degree in tax policy with an LL.M. I have to say, I do not fill out my own tax return because it is simply too complex. Now, if I cannot do it, how can somebody who is just working every day and trying to make ends meet be able to do it? Obviously, they cannot. And what we see in the collection atmosphere is that the Internal Revenue agents, regrettably, because of the complexity in many instances, do not understand it because it is not understandable. So the law itself is a basic problem here, and we simply have to reform the law if we really want to correct this problem. We have to go to a much simpler law, a fairer law, something that can be managed in a way that is comprehendible to people who are working every day and trying to fill out their return, who don't happen to be specialists. As an interim step, as an effort to try to correct what is basically a law that is not enforceable effectively but is being enforced in a manner which in many cases is abusive--as an interim step, this bill makes great progress. Thus, I congratulate the committee for their efforts. I hope it will not be looked at as the end of the process but will be looked at as a step in the process to reforming our tax laws so that they can be administered in a way which will regain the confidence of the American people that they are fair and that they are reasonable. I yield the floor. The PRESIDING OFFICER. The Senator from Wyoming. Mr. THOMAS. Mr. President, I come to the floor, as many other Members have, to speak in favor of the IRS reform bill that is before the Senate. As the Senator from New Hampshire indicated, I want to take just a little bit of a different approach. We talk about this as one of the steps in the changes that do need to be made. I do come to the floor to express my support for the package. The agency, of course, has basically run roughshod over American taxpayers for too long. This is the first significant reform in this agency in over four decades. Congress should do more of this kind of oversight. It seems to me in this whole business of funding the Government, this whole business of appropriations, that we need to find a way to have more time for oversight. That is why I am supporting and continue to support a biennial budget in the appropriations process, so we would have off years to do this kind of thing for many other agencies. Basically, I guess my point is that this is an important part of the Republican agenda, of our agenda, to do things about taxes. No. 1, of course, is to have tax reduction. I think American families deserve that. I think it is good for the economy. It has to do with having less Government and a smaller Government. IRS reform is part of it, and this is a great step in that direction. Certainly, the third point is simplification of the Tax Code. I think, also, that is a necessary element before we find satisfaction with our Tax Code. So, reducing taxes, IRS reform, and simplification comprise a three- pronged agenda, one which I support. Last year we made some progress in terms of reducing taxes, reduced them in capital gains, reduced estate taxes, installed a $500-per-child tax credit, expanded IRAs, and passed other important small business tax reductions. I would like to go forward in that area, and I hope we shall. Further reducing capital gains, eliminating estate taxes, reducing and eliminating the marriage tax penalty are areas in which we can make progress. This year we will reform IRS, the Federal agency that has interaction with more Americans than any other agency. I salute Senator Roth and the Senator from New York and members of the Finance Committee for holding fast against the initial White House reluctance and opposition to reforms in this agency. His hearings, the committee's hearings, brought to light many unbelievable abuses of taxpayers by this agency. This reform package, then, increases the oversight on IRS, holds IRS employees more accountable, makes IRS a more service-friendly agency, puts the law on the side of the taxpayer, has some very key provisions: Taxpayer confidentiality, extends the attorney-client privilege to accountants, reverses the burden of proof from the taxpayer to the IRS, guarantees 30 days to request a hearing of disputes, gives new powers to the taxpayers who petition the courts to contest decisions, and reforms the management of the IRS. These are all good things. The third part of our agenda, which is still there and I believe is of paramount importance if we are to really change the tax atmosphere: I think we have to address the basic underlying Tax Code. Hopefully, that will take place in the next year or two. We plan to significantly reform the Tax Code and to eliminate the complexity that is now there. There seems to be some misunderstanding about one of the proposals now which would terminate the current Tax Code in the year 2001. It does not eliminate the Tax Code, it simply gives a time certain in which a new Tax Code needs to be devised. The IRS is responsible for creating many of the problems the taxpayers have, but Congress needs to bear the burden of fixing the current Tax Code. There are 17,000 pages of inherently confusing data that need to be changed. Taxpayers spend $200 billion and 5.4 billion hours to comply with the tax law. The IRS employs over 100,000 people, more than five times the number of the FBI. After 80 years of abuses by lawmakers, lobbyists, and special interests, the tax system is unfair, complex, it is costly and punishes work, savings, and investment. Certainly there is a great opportunity for basic recodification of the Tax Code. I support plans, of course, that have the basic elements of fairness, of simplicity, reducing the overall tax burden. It is interesting, as you go about in your State, my State of Wyoming, and [[Page S7629]] ask how many people like the Tax Code the way it is now, nobody responds, of course. Then you say: What do you want to do about it? Do you like sales tax? Do you like flat tax? Do you like consumption tax? But we haven't come, yet, to a consensus on what the replacement ought to be. That is the challenge before us. I am pleased we are about to pass this historic bill, complete the second part of a three-pronged tax agenda. I hope soon we will move to finish the job and fundamentally reform the Tax Code. I yield the floor. Mr. GRAMM addressed the Chair. The PRESIDING OFFICER. The Senator from Texas. Mr. GRAMM. Mr. President, I rise in support of the conference report on IRS reform. What I would like to do is very briefly give a summary of the two philosophical approaches that were initially embodied in the debate, why I believe we chose the better of the two, and then I will outline the few issues in the bill that I feel very strongly about. First of all, when we started learning of IRS abuses--something that most of our offices heard about from constituents from the very beginning of our congressional service--and then when we saw it in its rawest form in testimony before the Finance Committee, I think there were two basic approaches or responses people had. I think one view was that people at the IRS had become insensitive, that there was something wrong with them, and that what we needed was a massive effort to try to sensitize people in the IRS. I have to say, that is the administration's initial viewpoint. It was as if they thought we could solve the problem simply by hiring every sociologist in the country and have them sit down individually with IRS employees and encourage

Major Actions:

All articles in Senate section

INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998-- CONFERENCE REPORT
(Senate - July 08, 1998)

Text of this article available as: TXT PDF [Pages S7621-S7643] INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998-- CONFERENCE REPORT The PRESIDING OFFICER. Under the previous order, the Senate will now resume consideration of the conference report accompanying H.R. 2676, which the clerk will report. The assistant legislative clerk read as follows: Conference report to accompany H.R. 2676, an act to amend the Internal Revenue Code of 1986, to restructure and reform the Internal Revenue Service, and for other purposes. The Senate resumed consideration of the conference report. Mr. ROTH addressed the Chair. The PRESIDING OFFICER. The Senator from Delaware. Mr. ROTH. Mr. President, if my colleagues' July Fourth recess was anything like mine, then they heard a great deal from their constituents concerning the bill that we bring to the floor today. The Internal Revenue Service Restructuring and Reform Act of 1998 is legislation that not only has the interests but the support of Americans everywhere, and with good reason. For far too long, the Internal Revenue Service has been allowed to consolidate immense power without the counterbalance of accountability. For far too long, the agency has been allowed to operate in darkness, hiding behind section 6103 authority, using authority granted them by Congress to, in some cases, bludgeon taxpayers. Last summer, the National Commission on Restructuring the IRS, following an extensive review of the IRS, issued a report that called for major changes to the agency. In September, the Finance Committee held 3 days of hearings which identified numerous additional problems and some terrible, even unconscionable taxpayer and IRS-employee abuses within the IRS. Those hearings were followed by others which demonstrated clearly that [[Page S7622]] the Service was in need of serious reform. And we heard from taxpayers, tax collectors, tax practitioners. We heard from small business men and women. We heard from innocent spouses. And we listened to outrageous stories from innocent Americans who, for no valid reason, got caught in the crosshairs of an organization that was driven by quotas and lacking in oversight. Our outrage knew no partisan line. Colleagues on both sides of the aisle were offended by many of the stories. To the witnesses--many of whom testified without knowing what their efforts would bring--we apologized as best we could. We said that we would press forward, and we promised reform. That, Mr. President, is what we are delivering today. This is the bipartisan conference agreement on a plan that will effectively change the way the Internal Revenue Service does business. It represents the most comprehensive overhaul of the IRS ever enacted. It combines the House and Senate bills and incorporates the many good suggestions offered by the Agency's new Commissioner, Charles Rossotti. Let me be clear on just how important Mr. Rossotti has been to our efforts. Following our Finance Committee hearings, he had courage enough to release a report that validated the concerns we raised. Rather than try to throw up a wall or confuse issues, he made a commitment to reform. Every step we have taken he has taken with us. Commissioner Rossotti and I have met on many occasions, and he has testified before our committee. We have attended taxpayer service days together. He has advocated a new management plan that could revolutionize the way the Internal Revenue Service does business. I am also grateful for the taxpayers and the many current and former IRS employees who came before our committee. These were courageous individuals, and without them, there would be no reform. And they represent only a fraction of those who met with us, who wrote to us, who called, and, in the process, moved our investigation forward. Likewise, I am grateful to my colleagues--Senator Moynihan, a defining presence in the Senate, if ever there was one. I am grateful to Senators Charles Grassley and Bob Kerrey and their efforts on the National Restructuring Commission. Working with Congressman Portman, and others, they got the ball rolling early on, and were leaders in this effort. I thank Chairman Bill Archer for the work he did on the Ways and Means Committee, for the spirit of cooperation he brought to the conference, and for the success he had two weeks ago in getting this legislation approved overwhelmingly in the House. Now, the time has come, Mr. President, to pass it here--legislation that will open the door to real restructuring and reform of what can only be considered the most powerful agency in the United States government. This legislation is built on four principles: The first principle is to establish independent oversight of the agency to prevent abuses against taxpayers and against employees. One of the major concerns we heard throughout our oversight initiative was that the taxpayers who get caught in the IRS hall of mirrors have no place to turn that is truly independent and structured to represent their concerns. This legislation requires the agency to establish an independent Office of Appeals--one that may not be influenced by tax collection employees or auditors. Appeals officers will be made available in every state, and they will be better able to work with taxpayers who proceed through the appeals process. Mr. President, agency employees made it clear that there is no dependable and consistent mechanism in place to represent taxpayer interests. Just as this bill will give the appeals process greater independence, it will also make the Office of Taxpayer Advocate as well as local problem resolution officers more independent. In the future, the Secretary of Treasury, rather than the Commissioner will appoint the National Taxpayer Advocate. And the Taxpayer Advocate will be just that. Criteria to fill this position will include that the Advocate must not be an IRS employee two years before and five years after holding this position. In addition, this bill provides the Advocate with greater ability to issue an assistance order to help taxpayers. To ensure that independent review and accountability become part of the IRS culture--top to bottom--our legislation creates a nine-member IRS Oversight Board--a board composed of six experts from various professional fields in the private sector, the Commissioner, the Secretary of Treasury, and a full-time Federal employee, or a representative of employees. This board will be independent of influence from management and the senior executive corps. It will be able to monitor and hold managers and executives accountable for their actions, and the actions of their employees. Under our legislation, the Oversight Board will have broad responsibility and will ensure that the IRS has procedures in place to carry out its mission. I anticipate that the Board will be able to nip problems in the bud so that the IRS will not have to endure embarrassing Congressional hearings that expose systemic problems that should have been identified and addressed. These measures will go a long way toward protecting taxpayers and IRS personnel. To further protect IRS employees, this legislation creates a new Treasury Inspector General for Tax Administration. We heard far too often in our hearings that the current IRS Office of Chief Inspector does not have sufficient independence to adequately fulfill its obligation. Likewise, the current Treasury Inspector General lacks resources and has experienced problems of its own in providing seamless oversight of the agency. The new Treasury IG for Tax Administration will have greater independence than the IRS Chief Inspector. This provision is supported by Secretary Rubin and Commissioner Rossotti, and it will create a structure where the new Treasury IG for Tax Administration will not allow oversight to fall through the cracks. This new Treasury IG for Tax Administration will provide independent investigations of alleged IRS employee misconduct without management interference. The new Treasury IG will also respond in a timely manner to requests to investigate or audit made by the Commissioner or the IRS Oversight Board. Now, these measures will go a long way toward combating the intimidating culture that witnesses testified exists within the agency. They will provide independent protections and promote an agency that the public trusts--an agency that the employees can be proud of. The second principle incorporated in this legislation is to hold IRS employees accountable for their actions and to reward those who treat the taxpayer fairly. One of the problems we discovered in our hearings is that the Commissioner did not have the kind of authority that is necessary to streamline management and remove managers who contaminate the culture of the agency. Additionally, we found that the Commissioner does not have sufficient authority to hire those who will work toward making the kinds of changes that are necessary. This legislation changes that. It provides the Commissioner the tools he needs to hire top-flight managers who are experts in their field. It gives the Commissioner the wherewithal to transform the agency's work force by providing bonuses and other incentives, and to sufficiently discipline employees whose inappropriate actions harm the image and effectiveness of the agency. This bill requires the IRS to terminate an employee if it is proven that the employee willfully failed to obtain required authorization to seize a taxpayer's property, committed perjury material to a taxpayer's matter, or falsified or destroyed documents to conceal the employee's mistakes with respect to a taxpayer's case. It allows terminations to take place if an IRS employee engages in abuses or egregious misconduct. Conditions for which an employee can be dismissed include, but are not limited to, assaulting or battering a taxpayer or other IRS employee, violating the civil rights of a taxpayer or other IRS employee, or breaking the law, regulations, or IRS policies for the purpose of retaliating or harassing a [[Page S7623]] taxpayer or other IRS employee. Our legislation also allows an employee to be fired for willfully misusing section 6103 authority to conceal information from Congress. As I have said before, an environment that allows employees guilty of these kinds of behaviors to continue to work within the system is not acceptable to me, the Finance Committee, or to the American people. We have heard enough excuses. The time has come for change. And this legislation allows needed changes to take place. The third principle advocated by this legislation is to ensure that taxpayers are protected, that they have due process during collections activities. This includes requiring the IRS to obtain court approval before seizing a home. It also ensures that the burden of proof be lifted off the shoulders of the taxpayer when it's appropriate and placed on the agency. It allows necessary and long-overdue reforms to the interest and penalty system. This will guard taxpayers against the outrageous and often overbearing financial liability that occurs when the agency moves too slowly. With this legislation, the burden of proof is shifted to the IRS if the taxpayer maintains records, cooperates with the agency, and provides credible evidence to the court. In addition, the IRS will have the burden of proving a taxpayer's income if it uses arbitrary statistics to determine that income. Another major taxpayer protection in this legislation is our provision to strengthen innocent spouse relief. Some of the most tragic stories our committee heard concerned innocent spouses whose lives have been ruined by the unrelenting pursuit of IRS collections officers. This legislation allows divorced or separated spouses to elect to limit their liability for a tax deficiency to the amount of the tax that is attributable to their income. In this way, they will not be held liable for income earned by their spouse. Beyond expanding innocent spouse relief, this legislation allows the Secretary of the Treasury to provide equitable relief if innocent spouse relief is otherwise unavailable. It makes relief retroactive to help those innocent spouses who are still being hounded by the IRS. Let me say, however, that relief will not be available in cases of fraud, or if the IRS proves the taxpayer claiming innocent spouse relief had actual knowledge of an item giving rise to the tax liability. Beyond this, with this legislation, we make necessary and important changes to how penalties and interest are applied. In order to prevent IRS employees from arbitrarily using penalties as leverage against taxpayers, this bill requires non-computer determined penalties to be approved by management. Furthermore, each notice to taxpayers which includes a penalty or interest must specify how the amount was calculated. If a taxpayer enters into an installment agreement, the monthly failure-to-pay- penalty is cut in half. Under this bill, if the IRS does not provide a notice of deficiency-- or other form of notification of the specific amount of taxes due-- within eighteen months after a return is timely filed, then interest and penalties will be suspended until the taxpayer is actually notified. This eighteen month period will be reduced to twelve months in the year 2004, as the agency improves its ability to notify taxpayers of their deficiencies. In this way it is the IRS, not the taxpayer, who bears the burden of IRS delay. These enhanced rights are meant to protect honest taxpayers. We do not excuse those who evade their responsibility or cheat on their income tax returns. The protections contained in this legislation exclude the failure to file, failure to pay, and penalties related to fraud. Finally, Mr. President, the fourth principle this legislation advances is to provide the Commissioner the tools necessary to take the IRS into the 21st century. It directs Commissioner Rossotti to eliminate the current national office, regional office and district office structure of the IRS. It gives him the authority to replace these antiquated management models with operating units that will directly serve particular groups of taxpayers, better meeting their needs and making the agency much more efficient and user-friendly. As I have said before, Commissioner Rossotti should be complimented on his tremendous work and managerial skills. His plan to restructure the agency is as bold as it is necessary, and this legislation gives him the authority he needs to move forward. And moving forward is what this legislation is all about--to usher the IRS into a new era of accountability--to provide taxpayers with the protections they deserve--to bring efficiency and modern management to an organizational structure that dates back to before the industrial age. With this legislation, we bring a promise of hope to honest taxpayers and hard-working employees who have waited far too long. We bring responsibility and greater openness. We focus on the need for service and fairness. With this legislation, Commissioner Rossotti will be able to transform the IRS, make it more effective and intolerant of corruption and abuse of power. I appreciate all the work that has gone into this bill--for the many hours and weekends given by Senators, Congressmen, and staff. Particularly, I want to thank Frank Polk, Mark Prater, Tom Roesser, Mark Patterson, Nick Giordano, and our committee investigators. I want to thank Lindy Paull, and the staff on the Joint Tax Committee--Barry Wold, Mel Schwarz, Cecily Rock and Mike Udell. Again, I am grateful to Senator Moynihan--for his leadership and dedication to this cause. I am grateful to my colleagues on both sides of the aisle who stood firm for legislation with teeth--who, in seeking change, demanded real change--real reforms. That's what we offer today. I am proud of this bill. Americans have every reason to celebrate. They have let their desire be known, and, Mr. President, they have been heard. Sec. 1101-IRS Oversight Board Mr. President, there has been substantial debate on whether a Treasury employees union representative should have a designated seat on the IRS Oversight Board. I agree with many of my colleagues that a representative of IRS employees should not be provided a position on the IRS Oversight Board because such member would be subject to a substantial conflict of interest. I did not include an IRS employee representative on the IRS Oversight Board in my original chairman's mark. However, the members of the Finance Committee voted to include an IRS employees representative on the board and to waive the criminal conflict of interest laws for this particular board member. Amendments to these provisions were considered by the full Senate and defeated. During conference negotiations, the Department of Justice opined that ``The employee-representative restriction in the bill would impermissiby limit the President's appointment power in violation of the Constitution.'' The Department of Justice suggested alternative language to avoid the Constitutional problem. In response to the Constitutional problems raised by the Department of Justice, the conferees agreed that one member of the IRS Oversight Board shall be a full time Federal employee or a representative of employees. The conferees also incorporated Justice's recommendation that this board member receive the same compensation as other board members who are not government employees. The Department of Justice also recommended that the employee representative should not be exempt from the conflict of interest laws. As a compromise, the conferees agreed to delete the provision which would exempt the employee representative from the conflict of interest laws. However, at the time of nominating this particular board member, the President could seek a waiver of the criminal conflict of interest laws to the extent such waiver is necessary to allow such member to participate in the decisions of the Board. Waiving criminal conflict of interest laws for one person is a very serious matter and should not be taken lightly. As such, the bill requires the President to submit a written intent of waiver along with the actual waiver language to the Senate with the nomination of such member. I anticipate that the President would seriously consider the ramifications of nonminating [[Page S7624]] an individual with inherent conflicts of interests. If, in the President's judgment, such an individual must be on the IRS Oversight Board, the President must submit a written statement of intent to waive the criminal conflict of interest laws. To be effective, the waiver must be provided verbatim with the nomination of such individual. While I would have preferred the language in my original chairman's mark, this conference agreement addresses the competing concerns of my colleagues as well as the Constitutional problems raised by the Administration. In September 1997 and April 1998, the Finance Committee held several days of oversight hearings regarding IRS practices and procedures. These eye-opening hearing revealed improper and inappropriate IRS practices and in some situations violation of the law. I, along with those taxpayers who watched the hearings, was shocked and deeply troubled with the practices of the IRS. I believe that proper oversight by Congress and the Administration should have reduced or even prevented such activity from occurring. One of the most important functions of the IRS Oversight Board is to prevent taxpayer abuse. The Oversight Board must have access to information that will enable the board to reveal problems, bring problems to the attention of the Commissioner to address, and inform Congress if the Commissioner does not address problems. The Oversight Board should have ``big picture'' oversight authority over law enforcement activity, including examinations, collection activity, and criminal investigations. Taxpayers must be protected from improper and/or illegal activity. Hopefully, the Oversight Board, rather than a congressional committee, will nip problems in the bud and keep the IRS on a straight course. Sec. 1102--Commissioner and Other Officials The bill alters the reporting relationship between the IRS Chief Counsel and the Treasury General Counsel. The bill requires the IRS Chief Counsel to report directly to the Commissioner except for the extremely limited situations where an issue relates solely to tax policy. It is intended that ``tax policy'' would be limited to recommendations relating to tax legislation and the drafting of treaties. The Chief Counsel will report to both the Commissioner and to the Treasury General Counsel with respect to tax litigation and legal advice or interpretation of the tax law not relating solely to tax policy. In the rare circumstance where there is a dispute between the Commissioner and the Treasury General Counsel, the matter must be submitted to the Secretary or Deputy Secretary for resolution. The Commissioner, as the client, must be able to make a decision based upon the legal advice provided by the Chief Counsel. Neither the Treasury General Counsel nor any other Treasury official (other than the Secretary or Deputy Secretary) may overrule the Commissioner's decisions. The Secretary or Deputy Secretary may not delegate this authority to someone else. For example, the Commissioner should be able to decide whether to proceed with a litigation matter or recommend that a case be appealed. If the Treasury General Counsel disagrees, then the issue should be resolved only by the Secretary or Deputy Secretary. Furthermore, the Commissioner should have the ability to interpret the tax law and issue guidance in various forms. The Commissioner should be able to expeditiously issue guidance including regulations, revenue ruling and revenue procedures, technical advice and other similar memoranda, private letter rulings and other published guidance. Once again, if there is a disagreement between the Commissioner and the Treasury General Counsel, the issue must be resolved by the Secretary or the Deputy Secretary. sec. 1103--treasury inspector general for tax administration The bill transfers the IRS Office of Chief Inspector's function to a new Treasury Inspector General for Tax Administration which will provide more effective and efficient oversight over the IRS. The current system in which the Treasury Inspector General, with its limited resources and tax expertise, attempted to provide oversight along with the IRS Office of Chief Inspector which some believed lacked sufficient independence from management, simply did not provide adequate and independent oversight. I was appalled with the current system which allowed issues to fall through the cracks, included little or no ability to follow up on issues, or even to timely investigate media allegations of outrageous taxpayer abuse. The time has come to provide a new, credible Treasury Inspector General for Tax Administration which has the resources and expertise to independently audit and investigate problems within the IRS. Coupled with the IRS Oversight Board and a new more independent National Taxpayer Advocate, this provision in the bill will provide yet another check on the bureaucracy within the IRS to ensure that taxpayers and their problems don't slip through the cracks. While the vast majority of IRS employees are honest, hardworking, and law-abiding, enhanced oversight will help ensure that taxpayers are treated properly. Mr. MOYNIHAN addressed the Chair. The PRESIDING OFFICER. The Senator from New York. Mr. MOYNIHAN. Mr. President, I rise in the first instance to thank our revered chairman, Senator Roth, chairman of the Finance Committee, who brings this measure to the floor with the unanimous vote of the Finance Committee. From the first, ours has been, under his direction, a nonpartisan effort to deal with a nonpartisan issue of the first order of consequence. We are equally, in turn, grateful for the work of the National Commission on Restructuring the Internal Revenue Service. Senators Kerrey and Grassley of our committee and Congressmen Portman and Coyne from the House side contributed significantly to shaping the concept of the Internal Revenue Service as a customer-based agency, as they put it. I believe, sir, that we have done this. We have done it with the aid and the cooperation and the participation of Chairman Bill Archer and ranking member Charles B. Rangel of the Committee on Ways and Means in the House, who worked with us on the committee of conference. Senator Roth was chairman. And the result before you is an exceptional piece of legislation--and not an everyday event. The Internal Revenue Service became a permanent part of our government in 1862 as part of the Civil War Income Tax Act, which was signed into law July 1, 1862, by President Abraham Lincoln. That was almost a century and a half ago. Yet it was not until just last September that the full Finance Committee of the Senate exercised its oversight jurisdiction to ask, how is this enterprise working and where is it going? The hearing illustrated the need for changes at the IRS and encouraged the thinking on the subject which has produced the measure we bring before you today. As evidence of the process already underway by the unanimous confirmation of this body, Mr. Charles O. Rossotti became the Commissioner of Internal Revenue. This was a stroke of administrative inspiration by Secretary Rubin, who went out into the private sector looking not for a tax lawyer--an honorable profession; normally the Commissioners of the IRS have been tax lawyers--but instead for an administrator. He found the head of a large company that specialized in information services of a wide variety, and who was prepared to do this as a public service and not to continue in the line that has been of a particular profession, the practice of tax law. We have established an IRS oversight board of six private persons, the Secretary of the Treasury, and the representative of the IRS employees, and finally the Commissioner of the IRS itself. The board will be responsible for setting the strategic direction and goals of the agency, while the Commissioner will continue to manage day-to-day operations. The Finance Committee--and then the Senate--specifically voted to include the Secretary and employee representative on the board. The conference agreement, which maintained this arrangement, passed the House by a vote of 402 to 8. With the Secretary of the Treasury on the board, the board will know things it cannot otherwise learn. The U.S. Secretary of the Treasury is a world figure. His presence on the board gives it stature within the Government and with the public. The fear was that otherwise it would lapse into a sort of advisory mode that would fail to serve the objectives of this ``reform and restructuring'' legislation. [[Page S7625]] We are pleased that the agreement maintains the position on the board for a representative of the IRS employees. The representative will be able to work cooperatively on the inside rather than working in opposition from the outside. An ongoing problem is how to attract top executives to a government activity which has its counterpart in the private sector where compensation--if I may use that term--is often very high, if not indeed exorbitant, because the amounts of money involved are very large. So to recognize the disparity between government and private sector salary structures, the conference agreement adopted the Senate provision authorizing the appointment by the Commissioner of up to 40 persons to critical positions for 4-year terms with an annual compensation equivalent to the pay of the Vice President of the United States; that is to say, currently $175,400. These will be persons chosen for their particular skills. They will be there for a 4-year period. They will be departing the private sector for an interval of public service at something approaching the salaries they normally enjoy. Other provisions will permit the establishment of a new performance management system focused on individual accountability, and allow for the creation of an incentive award system bringing the IRS into contemporary management modes--out of the model of the civil service that was developed a century ago when we set up the Civil Service Commission, again establishing grades for employees with salaries that were low, but careers that were guaranteed for life. That effort was very controversial at that time. I can record that two Senators from New York State resigned from the Senate when the newly elected President appointed a collector of customs in the port of New York of whom they did not approve. One was Roscoe Conkling; the other, Thomas P. Platt. Mr. Conkling was no friend of civil service reform and once observed that when Dr. Johnson declared patriotism to be the last refuge of a scoundrel, he underestimated the potential of reform. And yet reform didn't come about, a century passed, and we found that the system had not the internal energies to change itself, to adapt to new technologies and new management modes. We hope the IRS will with these new arrangements--the infusion of new people, and a clear understanding that we expect the system to be open, innovative, and ``user friendly,'' in the term the chairman frequently used in our hearings. And we shall see. There are several other measures, Mr. President. I should point out that the conferees were heroic in their determination not to include all manner of extraneous or narrowly-applicable provisions, as is often the case in a tax bill but is not the case, with very few exceptions, in ours. There are two provisions in the conference report, however, that are of special interest to the Senator from New York. The first adopts the Senate provision for a complexity analysis requirement. It requires the staff of the Joint Committee on Taxation to provide an analysis of the complexity and administrative issues associated with tax legislation reported by the Finance Committee and Ways and Means Committee. The provision is intended to provide notice, prior to floor consideration, about provisions that have widespread applicability and may be unduly burdensome for taxpayers to understand and comply with, or difficult for the IRS to interpret and administer, or both. I might interject that when this was before us in the Finance Committee, the distinguished chief of staff of the Joint Committee on Taxation said that she looked forward to this, but that she was fearful as to whether the joint committee could begin this complicated effort so long as it was burdened with the task of determining which items in tax legislation were subject to the line-item veto, a detailed and exhaustive analysis of every tax bill, which was a new responsibility for the joint committee. I am happy to say, in the weeks since that exchange took place, the Supreme Court has dutifully and properly declared the line-item veto to be unconstitutional. So one of the unintended consequences--I cannot imagine the Court had this very much in mind--is that the joint committee is now in a position to begin a type of analysis which is new to American legislation. We are in the practice of having an increasingly complex Tax Code. There can surely be no question that we are dealing with the problems that we found in the Internal Revenue Service because the Internal Revenue Service has to administer a Tax Code that is frequently incomprehensible. An almost priestly hierarchy understands its meanings and can work them through the tax courts and such like. But to the public and, too, the Congress, they are often simply incomprehensible. I remember standing on this floor a year and a half ago with an 800- page tax bill, Mr. President, and that was the only copy of the tax bill on the Senate floor, which we were about to vote for 92-8. A copy provided to the distinguished chairman had been promptly appropriated by the Budget Committee to see if there were any budget points of order, and so the one copy was here on this desk, and Senators on both sides of the aisle would come up and ask whether a provision they had an interest in was in the bill, and I would say, ``I hope in good spirit I can find out, but what will you pay me?'' Indeed, there was no other way for the Senator to learn. And this is not an unusual event. I am going to say this not once but twice because we have to start attending to our own behavior in these matters. I was one of the participants in the enactment of the Tax Reform Act of 1986. This was a wonderful, collegial experience led by our good friend and former colleague, Senator Packwood, along with Senator Chafee, Senator Danforth, a ``core group,'' as we called ourselves, of about six of us. We would meet for coffee at 8 o'clock every morning in Senator Packwood's office, and it would be my job, rather as the dean in a cathedral, to provide a reading for the morning. I would make sure I got the Wall Street Journal early, and without a great deal of effort I would find the advertisements where you would see a little classified ad which would say, ``Rocky Mountain sheep, guaranteed losses.'' And the Wall Street Journal would tell you how you would be certain to lose money in such a manner that the code would eventually reward you for your losses, which is an interesting game to play if you are interested in C notes but not a very productive form of economic activity. Well, we cleaned up that Tax Code. We brought the rates down from, oh, half a dozen income tax rates to 28 percent and 15 percent--two rates. We did ``base broadening'' as the term was; more and more income became subject to taxation, so the rates of taxation could be lowered. And when it was all over, to our surprise and rather to the consternation of the tax bar, you might say, we had, indeed, produced a fairly simple and comprehensible Tax Code. That was 1986--1986, Mr. President. What you have before you, sir, what we have in the Senate before us-- and my revered chairman will know this better than anyone else present--we have the 65th public law to amend the Internal Revenue Code since the Tax Reform Act of 1986. We have passed 65 tax bills. That comes to about six a year. If you were assigned that task, you would say it would be impossible to achieve; it would be asking too much of our staffs and our Members. But we have done this heroic, if absurd, task, and it has to be said again that simplification is the essence of justice and efficiency in the code. We are a large, complex economy, an international economy. We are not going to have a simple code, but there is no reason we should have an incomprehensible one, particularly when the complexities often reflect the influence of special interest in the code. In this regard, not many weeks ago we heard testimony from one of our Nation's most distinguished and accomplished economists, Murray Weidenbaum, who had been chairman of the Council of Economic Advisers in the administration of President Reagan. I served with him in the administration of President Nixon. At that time he took it upon himself to explain and popularize the idea of revenue sharing--get Federal revenue out to cities and States, let them decide [[Page S7626]] how to spend it, and reduce the dependency on administrative judgments, decisions, and statutes here in Washington. That was a very fine idea which we lost to the budget deficits of the 1980s. But Murray Weidenbaum made a powerful point, coming from a powerful mind. He said, if you spend all your income, the American Tax Code is simple. You just fill out a one-page form: I made $50,000 last year, spent $50,000; I made $100,000, I made $100 million--God in heaven knows there are some who do--but I spent it all, and my taxes are as follows. It is only when you begin to save that the Tax Code gets complicated. Of course, our largest economic question right now is the rate of savings in the American economy. The fact that we have large trade deficits basically reflects that we are importing capital. We have the lowest savings rate of any industrial country in the world--or any prime industrial country of which I am aware. It is quite striking. I would not argue this is the principal factor, but it is the fact that if you save money you can get in trouble with the Internal Revenue Code. Whatever else, that should not be the case. It is the case. I think the complexity analysis, particularly if it is directed with this kind of issue in mind, has the potential of a very important innovation in the development of tax legislation. Don't expect it to change anything in the next 3 or 4 years, but in 20 years' time we might find that this small provision in this large legislation had large consequences. One other item. In the interval since this legislation was agreed to, the majority and minority leaders have created a special committee on the year 2000 problem, with a hurry-up reporting date. But during the Finance Committee's consideration of the bill, Commissioner Rossotti specifically noted, in a six-page letter, that some of the changes the chairman has described in such admirable detail would overburden the IRS's ongoing efforts to upgrade its computers to allow for the century date change. In time we came to see the need for the effective-date changes he recommended--and Secretary Rubin reinforced this in a typically succinct one-page letter. We have, in the main, accommodated the Commissioner in this regard. I think this is probably the first statutory recognition of the year 2000 problem, which we are going to know a lot more about in very short order. Now, briefly, a few matters of concern. Contrary to the unanimous opposition of the tax profession, this legislation includes a provision that shifts the burden of proof in civil cases from the taxpayer to the IRS. We all live in the real world and no one on the surface would ever think it right that the burden of proof be on a taxpayer, not the Government. But reality can be different. Four former IRS Commissioners, who appeared on a bipartisan panel before the committee, testified that shifting the burden of proof would cause more harm than good to the taxpayer. Similar sentiment was expressed by dozens of professors of tax law. Their concern is that this provision will result in more intrusive IRS audits, create additional complexity and litigation, and create confusion for taxpayers and the IRS as to when an issue needs to be resolved in court and when the burden has shifted. I recognize the political popularity of the provision, but I fear it may actually prove to work against the taxpayer. Be warned--persons who have the best reason to be impartial in their judgment have said this is not going to help, it is going to make things yet more difficult. Another provision certain to cause confusion and to lead to additional litigation with the IRS is the expansion of the privilege of confidentiality to tax advice furnished by accountants. This new privilege may be asserted in noncriminal tax proceedings before the IRS and in Federal courts. However, like the current attorney-client privilege, information disclosed for the purposes of preparing a new tax form is not privileged and the conference agreement precludes application of the expanded privilege to written communications to a corporation ``in connection with the promotion of the direct or indirect participation of such corporations in any tax shelter.'' This is a right that most taxpayers will never be eligible to assert, and many will be surprised to learn about its limitations. One provision that the bill does not include, and should, is the correction of a drafting error in the 1997 act which gives a windfall to the few estates in this country with a value of more than $17 million. It costs nothing to fix, and the joint committee estimates that the failure to correct this error would cost taxpayers $900 million in the next 10 years. The Senate bill fixed it. But somehow the conferees could not reach agreement. Finally, Mr. President, and possibly most important, I direct the Senate's attention to a modest, but hugely significant, semantic triumph that has been included in this legislation. Section 5003 of the conference agreement replaces in U.S. trade law the confusing 17th century phrase ``most-favored nation,'' which begins with the French phrase ``la nation la plus favorisee.'' We now replace that term with the plain American term ``normal trade relations.'' This relieves the President and the Congress of the burden of having to ask, why is this typically not-very-popular country being made a most-favored nation? Why, for example, is there now a dispute about whether Vietnam should be given most-favored-nation status? Of course, it is not most-favored nation; it simply means you get the same treatment that the most- favored nation, some other nation most favored, gets. It is antique usage that immediately confuses everyone involved, and now we will be able to say we propose ``normal trade relations.'' It is plain English and avoids the needless misunderstandings that have accompanied that other term. I do not want to overburden the Senate with detail, but the most- favored-nation concept is well over 700 years old. It has been traced by historians to a clause in the treaty of November 8, 1226, in which Frederick II, Emperor of the Holy Roman Empire, conceded to the city of Marseilles the privileges previously granted to the citizens of Pisa and Genoa. Not greater privileges, but merely the same. The term itself is perhaps a little more recent. The first use that we can come across specifically is in the treaty of 1659 between France and Spain, which guaranteed that the subjects of each sovereign, while in the realm of the other, would be treated as the most-favored nation. Again, the phrase ``le plus favorablement,'' or in modern French, ``la nation la plus favorisee''--having the same rights as were granted the English and the Dutch. In the main, the usage has become counterproductive. It confuses the public as to what is being proposed. I think it is fair to say sometimes it confuses the Congress as well, and we are well to be rid of it. I think it is past time and, if I may say, this is a matter that the Finance Committee has had in mind for some while. The distinguished and revered chairman and I introduced legislation last year for this purpose, and now we see it about to become law. Mr. President, I thank you for your courtesy, and I have said my piece on the matter. I yield the floor. Mr. GREGG addressed the Chair. The PRESIDING OFFICER. The Senator from New Hampshire. Mr. GREGG. Does the Senator from Nebraska wish to speak? Mr. KERREY. I am prepared to proceed. Mr. GREGG. I am going to speak about 10 minutes. Will that be an inconvenience to the Senator, or does he have to get somewhere? Mr. KERREY. One of the things I want to do, and I will be pleased to step aside for 10 minutes, I want to engage in a short colloquy with the distinguished Senator from New York on this bill. I will try to be as brief as possible and then yield back to the Senator. I have a longer statement I will make on this legislation. The PRESIDING OFFICER. The Senator from Nebraska. Mr. KERREY. I thank the Chair, and I thank the distinguished Senator from New Hampshire. One of the things the Senator from New York has referenced--and I will later in my remarks praise both he and the chairman of this committee for what they have done in bringing this legislation to the floor--one of the things the Senator referenced in his comments was the 1986 Tax Reform Act. Indeed, this bill, it should be noted by colleagues, [[Page S7627]] amends that act. So this would be the, I guess, the 65th tax bill we have passed since 1986. I wonder if the Senator from New York can engage briefly in a discussion for the benefit of the Senator from New Hampshire and for those who happen to be watching this debate. One of the things that we struggle to do as citizens is to understand what it is that the government is doing and why. Under our constitutional authorities as a Congress we have a whole range of things we are charged with doing. One of the most difficult things we are charged with doing, once we have decided we are going to have a government of any kind at all, is we have to collect taxes and what to use those taxes for and we then have to decide who is going to pay the taxes, and we write the law accordingly. We then distribute the money to the various agencies of government that we previously created. I wonder if the Senator from New York, with his understanding of the rest of the world, can talk a little bit about how much we take for granted our capacity to voluntarily collect. We have a voluntary system of tax collection, unlike many other nations on Earth. I know right now one of the most difficult problems, for example, that the newly democratic Russia is facing is their capacity to collect tax revenues in sometimes a not-so-voluntary fashion. I wonder if the Senator can talk a little bit about the constitutional issues of us raising the taxes to pay for the government and the importance of our being able to maintain a voluntary system of tax collection. Mr. MOYNIHAN. I certainly will. I will be succinct, because nothing could be more clear. The United States is blessed with a citizenry that pays its taxes on time and in full. There are exceptions, but we do it voluntarily. Technically, we self-assess; we decide ourselves what we owe the government. The rate of compliance is very high. Up until just recently, and it is just beginning to change, for example, in the United Kingdom, which we associate with and we think of as a free society, and it certainly is, the subjects of the queen did not decide how much taxes he or she owed; the queen decided. They were sent a bill. You are free to contest it in court, and you can contest it in court the rest of your life, but you still have to pay the bill. So the idea of complexity in this system, making it so difficult to know what it is you owe jeopardizes a precious institution, which is the faith of the public in the good intentions and performance of the government itself. That, I think, was one of the reasons the Kerrey Commission called for the reforms that are in this legislation of the IRS. You can have an openness and a sense that things are on the level here and government is doing the right thing. Mr. KERREY. I thank the Senator for delaying his exit from the floor. I appreciate very much that reference. Mr. President, I believe this piece of legislation goes to the heart of our capacity to maintain government of, by and for the people. Our republican form of government is at risk if people feel they are not getting a fair shake with this voluntary system of collection. Congressman Portman and I cochaired this restructuring commission. We noted U.S. tax collection is the most efficient in the world. Less than half of a percent of the total revenues collected is in cost. In the face of mounting criticism, problems, it seems to me it is very important to make certain that as we write the laws that will determine how this money is collected, that we not throw the proverbial baby out with the bathwater. We have problems, and this legislation attempts to correct the problems. But underneath these problems is a relatively efficient system of collecting taxes that enables the citizens to fund their Government, and in a relatively efficient fashion. Mr. MOYNIHAN. Indeed. Mr. GREGG addressed the Chair. The PRESIDING OFFICER. The Senator from New Hampshire. Mr. GREGG. Mr. President, I wish to join with what I am sure will be numerous Senators in congratulating the Senator from Delaware and the Senator from New York and the Committee on Finance for bringing forward this exceptionally good bill which is truly timely. Many of us, as we have tried to help folks out in our States, have run into situations where people have been treated in ways which can only be described as abusive by the Internal Revenue Service, where the Internal Revenue Service has gone way beyond the appropriate action for the purposes of collecting the revenues of the country and has treated American citizens in a way that you might expect were they to be living in a police state instead of in a democracy. In my experience, probably one of the worst cases I have ever seen of Government excesses involves a family known as Barron in New Hampshire. That family, unfortunately, got into some tax trouble, failed to pay its taxes, and the IRS, in an appropriate way, attempted to collect those taxes--at least appropriately at the beginning. But then it got carried away. And as a result of getting carried away, it put that family through an extraordinary trauma, to a point where Mr. Barron ended up committing suicide. And his wife, Shirley Barron, who is now responsible for the family, found herself in a situation which was beyond all reason, which was untenable and which was horrible. A lien had been put on her house. Her children's bank accounts had been taken. Her bank accounts had been taken. The IRS was even making it impossible for her to pay her electric fee, her utility fees. This all occurred after a time period when they thought they had reached an agreement with the Internal Revenue Service. They thought an understanding had been reached, and, in fact, an understanding had been reached. Then the IRS, in a manner which can only be called bait and switch, backed out of that agreement and assessed them with even more penalties and interest. And on an original tax bill which was, I believe, somewhere in the vicinity of $20,000 or $40,000, they ended up with an obligation, according to the Internal Revenue Service, of multiple hundreds of thousands of dollars. It was a situation which was so horrendously handled that it literally drove Mr. Barron to commit suicide, destroyed the lives of this family. And it has become a cause celebre in New Hampshire, and to some degree nationally. It would be terrible in and of itself, because there is really nothing we can do as a Government to correct what happened to Mrs. Barron and the treatment she received. Her life has been irreparably harmed, and her family will always suffer as a result of this. It would be terrible enough if it were the only instance of this type of situation occurring, but as we saw from the hearings which the Senate Finance Committee held under Chairman Roth, it was not the only instance. Regrettably, on too many occasions the Internal Revenue Service has acted in this almost malicious but certainly abusive way. This does not mean that the Internal Revenue Service is populated with people who wish to treat American citizens, taxpayers, in a manner that is totally inappropriate. No. In fact, just the opposite. The Internal Revenue Service is filled with good and conscientious people, in my opinion; but there are bad apples. More importantly than that, the Service has created an atmosphere, a way of management, a culture, which has allowed the excesses to proceed in the actions against taxpayers which are beyond the pale of reasonableness to become commonplace, through the lack of management and, in my opinion, due to lack of structure, both legal and managerial. So this bill attempts to correct that. The most important thing it does, or one of the most important things it does, is it shifts the burden of proof, gets us back to where we should have been to begin with, which is to presume that the taxpayer is innocent rather than presuming that the taxpayer is guilty until the taxpayer has proven himself or herself innocent. That is very important, so that the taxpayer goes in at least on some level of a playing field which has some levelness to it versus a playing field which was radically tilted against the taxpayer under the present structure. In addition, the bill protects the innocent spouse. In so many instances, the spouse is a part of the familial activity as being part of a family; signs [[Page S7628]] the return without a great deal of knowledge of what is in that return, sometimes without any great knowledge of what is in that return, but signs it and then finds out later on, as was the case in Mrs. Barron's situation, that action has been taken that was inappropriate and liability exists. And when the spouse who is responsible disappears, as a result of divorce, or in this case as a result of death, the innocent spouse ends up with an obligation which is totally inappropriate. So the protection of the innocent spouse is absolutely critical and a very, very good part of this bill. In addition, the bill takes what I think is a critical step in the area of managing the Internal Revenue Service's procedures because it limits the ability of the Internal Revenue Service to assess interest and penalties in a manner which uses the interest and penalties to basically force settlements on the taxpayer, even when the taxpayer feels they did not owe the obligation. There is no question but that the basic collection process at the Internal Revenue Service proceeds with, in many instances, running up the interest and penalty obligations so when they get into negotiations with the taxpayer, even if the taxpayer knows they do not owe the taxes, the utility of proceeding becomes so expensive, it becomes so impossible to ever want to proceed in a manner which would put you at risk for the interest and penalties which have been run up that you end up paying the underlying tax and negotiating out the interest and penalties. That is a collection process which, regrettably, has become the modus operandi of the Internal Revenue Service. This bill puts some limitation on that by limiting the ability of the Internal Revenue Service to run those interest and penalties up if they have not notified the taxpayer within a timely manner--18 months initially, 12 months as time goes out--that an obligation is due or they perceive that an obligation is due. This is an extremely important change in the collection process. In addition, the bill provides much better services to the taxpayer, which is critical. Thus, I am extremely supportive of this effort. I say this. It does not resolve the problem. The problem goes to the basic law. The fact is that we have created a tax law which is so complex, so convoluted, such a mishmash of regulations and cross-purpose legislation, that it becomes basically unenforceable because it is not comprehendible. After finishing law school, I went back to school for 3 years and got a graduate degree in tax policy with an LL.M. I have to say, I do not fill out my own tax return because it is simply too complex. Now, if I cannot do it, how can somebody who is just working every day and trying to make ends meet be able to do it? Obviously, they cannot. And what we see in the collection atmosphere is that the Internal Revenue agents, regrettably, because of the complexity in many instances, do not understand it because it is not understandable. So the law itself is a basic problem here, and we simply have to reform the law if we really want to correct this problem. We have to go to a much simpler law, a fairer law, something that can be managed in a way that is comprehendible to people who are working every day and trying to fill out their return, who don't happen to be specialists. As an interim step, as an effort to try to correct what is basically a law that is not enforceable effectively but is being enforced in a manner which in many cases is abusive--as an interim step, this bill makes great progress. Thus, I congratulate the committee for their efforts. I hope it will not be looked at as the end of the process but will be looked at as a step in the process to reforming our tax laws so that they can be administered in a way which will regain the confidence of the American people that they are fair and that they are reasonable. I yield the floor. The PRESIDING OFFICER. The Senator from Wyoming. Mr. THOMAS. Mr. President, I come to the floor, as many other Members have, to speak in favor of the IRS reform bill that is before the Senate. As the Senator from New Hampshire indicated, I want to take just a little bit of a different approach. We talk about this as one of the steps in the changes that do need to be made. I do come to the floor to express my support for the package. The agency, of course, has basically run roughshod over American taxpayers for too long. This is the first significant reform in this agency in over four decades. Congress should do more of this kind of oversight. It seems to me in this whole business of funding the Government, this whole business of appropriations, that we need to find a way to have more time for oversight. That is why I am supporting and continue to support a biennial budget in the appropriations process, so we would have off years to do this kind of thing for many other agencies. Basically, I guess my point is that this is an important part of the Republican agenda, of our agenda, to do things about taxes. No. 1, of course, is to have tax reduction. I think American families deserve that. I think it is good for the economy. It has to do with having less Government and a smaller Government. IRS reform is part of it, and this is a great step in that direction. Certainly, the third point is simplification of the Tax Code. I think, also, that is a necessary element before we find satisfaction with our Tax Code. So, reducing taxes, IRS reform, and simplification comprise a three- pronged agenda, one which I support. Last year we made some progress in terms of reducing taxes, reduced them in capital gains, reduced estate taxes, installed a $500-per-child tax credit, expanded IRAs, and passed other important small business tax reductions. I would like to go forward in that area, and I hope we shall. Further reducing capital gains, eliminating estate taxes, reducing and eliminating the marriage tax penalty are areas in which we can make progress. This year we will reform IRS, the Federal agency that has interaction with more Americans than any other agency. I salute Senator Roth and the Senator from New York and members of the Finance Committee for holding fast against the initial White House reluctance and opposition to reforms in this agency. His hearings, the committee's hearings, brought to light many unbelievable abuses of taxpayers by this agency. This reform package, then, increases the oversight on IRS, holds IRS employees more accountable, makes IRS a more service-friendly agency, puts the law on the side of the taxpayer, has some very key provisions: Taxpayer confidentiality, extends the attorney-client privilege to accountants, reverses the burden of proof from the taxpayer to the IRS, guarantees 30 days to request a hearing of disputes, gives new powers to the taxpayers who petition the courts to contest decisions, and reforms the management of the IRS. These are all good things. The third part of our agenda, which is still there and I believe is of paramount importance if we are to really change the tax atmosphere: I think we have to address the basic underlying Tax Code. Hopefully, that will take place in the next year or two. We plan to significantly reform the Tax Code and to eliminate the complexity that is now there. There seems to be some misunderstanding about one of the proposals now which would terminate the current Tax Code in the year 2001. It does not eliminate the Tax Code, it simply gives a time certain in which a new Tax Code needs to be devised. The IRS is responsible for creating many of the problems the taxpayers have, but Congress needs to bear the burden of fixing the current Tax Code. There are 17,000 pages of inherently confusing data that need to be changed. Taxpayers spend $200 billion and 5.4 billion hours to comply with the tax law. The IRS employs over 100,000 people, more than five times the number of the FBI. After 80 years of abuses by lawmakers, lobbyists, and special interests, the tax system is unfair, complex, it is costly and punishes work, savings, and investment. Certainly there is a great opportunity for basic recodification of the Tax Code. I support plans, of course, that have the basic elements of fairness, of simplicity, reducing the overall tax burden. It is interesting, as you go about in your State, my State of Wyoming, and [[Page S7629]] ask how many people like the Tax Code the way it is now, nobody responds, of course. Then you say: What do you want to do about it? Do you like sales tax? Do you like flat tax? Do you like consumption tax? But we haven't come, yet, to a consensus on what the replacement ought to be. That is the challenge before us. I am pleased we are about to pass this historic bill, complete the second part of a three-pronged tax agenda. I hope soon we will move to finish the job and fundamentally reform the Tax Code. I yield the floor. Mr. GRAMM addressed the Chair. The PRESIDING OFFICER. The Senator from Texas. Mr. GRAMM. Mr. President, I rise in support of the conference report on IRS reform. What I would like to do is very briefly give a summary of the two philosophical approaches that were initially embodied in the debate, why I believe we chose the better of the two, and then I will outline the few issues in the bill that I feel very strongly about. First of all, when we started learning of IRS abuses--something that most of our offices heard about from constituents from the very beginning of our congressional service--and then when we saw it in its rawest form in testimony before the Finance Committee, I think there were two basic approaches or responses people had. I think one view was that people at the IRS had become insensitive, that there was something wrong with them, and that what we needed was a massive effort to try to sensitize people in the IRS. I have to say, that is the administration's initial viewpoint. It was as if they thought we could solve the problem simply by hiring every sociologist in the country and have them sit down individually with IRS employees and

Summary:

All articles in Senate section

INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998-- CONFERENCE REPORT
(Senate - July 08, 1998)

Text of this article available as: TXT PDF [Pages S7621-S7643] INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998-- CONFERENCE REPORT The PRESIDING OFFICER. Under the previous order, the Senate will now resume consideration of the conference report accompanying H.R. 2676, which the clerk will report. The assistant legislative clerk read as follows: Conference report to accompany H.R. 2676, an act to amend the Internal Revenue Code of 1986, to restructure and reform the Internal Revenue Service, and for other purposes. The Senate resumed consideration of the conference report. Mr. ROTH addressed the Chair. The PRESIDING OFFICER. The Senator from Delaware. Mr. ROTH. Mr. President, if my colleagues' July Fourth recess was anything like mine, then they heard a great deal from their constituents concerning the bill that we bring to the floor today. The Internal Revenue Service Restructuring and Reform Act of 1998 is legislation that not only has the interests but the support of Americans everywhere, and with good reason. For far too long, the Internal Revenue Service has been allowed to consolidate immense power without the counterbalance of accountability. For far too long, the agency has been allowed to operate in darkness, hiding behind section 6103 authority, using authority granted them by Congress to, in some cases, bludgeon taxpayers. Last summer, the National Commission on Restructuring the IRS, following an extensive review of the IRS, issued a report that called for major changes to the agency. In September, the Finance Committee held 3 days of hearings which identified numerous additional problems and some terrible, even unconscionable taxpayer and IRS-employee abuses within the IRS. Those hearings were followed by others which demonstrated clearly that [[Page S7622]] the Service was in need of serious reform. And we heard from taxpayers, tax collectors, tax practitioners. We heard from small business men and women. We heard from innocent spouses. And we listened to outrageous stories from innocent Americans who, for no valid reason, got caught in the crosshairs of an organization that was driven by quotas and lacking in oversight. Our outrage knew no partisan line. Colleagues on both sides of the aisle were offended by many of the stories. To the witnesses--many of whom testified without knowing what their efforts would bring--we apologized as best we could. We said that we would press forward, and we promised reform. That, Mr. President, is what we are delivering today. This is the bipartisan conference agreement on a plan that will effectively change the way the Internal Revenue Service does business. It represents the most comprehensive overhaul of the IRS ever enacted. It combines the House and Senate bills and incorporates the many good suggestions offered by the Agency's new Commissioner, Charles Rossotti. Let me be clear on just how important Mr. Rossotti has been to our efforts. Following our Finance Committee hearings, he had courage enough to release a report that validated the concerns we raised. Rather than try to throw up a wall or confuse issues, he made a commitment to reform. Every step we have taken he has taken with us. Commissioner Rossotti and I have met on many occasions, and he has testified before our committee. We have attended taxpayer service days together. He has advocated a new management plan that could revolutionize the way the Internal Revenue Service does business. I am also grateful for the taxpayers and the many current and former IRS employees who came before our committee. These were courageous individuals, and without them, there would be no reform. And they represent only a fraction of those who met with us, who wrote to us, who called, and, in the process, moved our investigation forward. Likewise, I am grateful to my colleagues--Senator Moynihan, a defining presence in the Senate, if ever there was one. I am grateful to Senators Charles Grassley and Bob Kerrey and their efforts on the National Restructuring Commission. Working with Congressman Portman, and others, they got the ball rolling early on, and were leaders in this effort. I thank Chairman Bill Archer for the work he did on the Ways and Means Committee, for the spirit of cooperation he brought to the conference, and for the success he had two weeks ago in getting this legislation approved overwhelmingly in the House. Now, the time has come, Mr. President, to pass it here--legislation that will open the door to real restructuring and reform of what can only be considered the most powerful agency in the United States government. This legislation is built on four principles: The first principle is to establish independent oversight of the agency to prevent abuses against taxpayers and against employees. One of the major concerns we heard throughout our oversight initiative was that the taxpayers who get caught in the IRS hall of mirrors have no place to turn that is truly independent and structured to represent their concerns. This legislation requires the agency to establish an independent Office of Appeals--one that may not be influenced by tax collection employees or auditors. Appeals officers will be made available in every state, and they will be better able to work with taxpayers who proceed through the appeals process. Mr. President, agency employees made it clear that there is no dependable and consistent mechanism in place to represent taxpayer interests. Just as this bill will give the appeals process greater independence, it will also make the Office of Taxpayer Advocate as well as local problem resolution officers more independent. In the future, the Secretary of Treasury, rather than the Commissioner will appoint the National Taxpayer Advocate. And the Taxpayer Advocate will be just that. Criteria to fill this position will include that the Advocate must not be an IRS employee two years before and five years after holding this position. In addition, this bill provides the Advocate with greater ability to issue an assistance order to help taxpayers. To ensure that independent review and accountability become part of the IRS culture--top to bottom--our legislation creates a nine-member IRS Oversight Board--a board composed of six experts from various professional fields in the private sector, the Commissioner, the Secretary of Treasury, and a full-time Federal employee, or a representative of employees. This board will be independent of influence from management and the senior executive corps. It will be able to monitor and hold managers and executives accountable for their actions, and the actions of their employees. Under our legislation, the Oversight Board will have broad responsibility and will ensure that the IRS has procedures in place to carry out its mission. I anticipate that the Board will be able to nip problems in the bud so that the IRS will not have to endure embarrassing Congressional hearings that expose systemic problems that should have been identified and addressed. These measures will go a long way toward protecting taxpayers and IRS personnel. To further protect IRS employees, this legislation creates a new Treasury Inspector General for Tax Administration. We heard far too often in our hearings that the current IRS Office of Chief Inspector does not have sufficient independence to adequately fulfill its obligation. Likewise, the current Treasury Inspector General lacks resources and has experienced problems of its own in providing seamless oversight of the agency. The new Treasury IG for Tax Administration will have greater independence than the IRS Chief Inspector. This provision is supported by Secretary Rubin and Commissioner Rossotti, and it will create a structure where the new Treasury IG for Tax Administration will not allow oversight to fall through the cracks. This new Treasury IG for Tax Administration will provide independent investigations of alleged IRS employee misconduct without management interference. The new Treasury IG will also respond in a timely manner to requests to investigate or audit made by the Commissioner or the IRS Oversight Board. Now, these measures will go a long way toward combating the intimidating culture that witnesses testified exists within the agency. They will provide independent protections and promote an agency that the public trusts--an agency that the employees can be proud of. The second principle incorporated in this legislation is to hold IRS employees accountable for their actions and to reward those who treat the taxpayer fairly. One of the problems we discovered in our hearings is that the Commissioner did not have the kind of authority that is necessary to streamline management and remove managers who contaminate the culture of the agency. Additionally, we found that the Commissioner does not have sufficient authority to hire those who will work toward making the kinds of changes that are necessary. This legislation changes that. It provides the Commissioner the tools he needs to hire top-flight managers who are experts in their field. It gives the Commissioner the wherewithal to transform the agency's work force by providing bonuses and other incentives, and to sufficiently discipline employees whose inappropriate actions harm the image and effectiveness of the agency. This bill requires the IRS to terminate an employee if it is proven that the employee willfully failed to obtain required authorization to seize a taxpayer's property, committed perjury material to a taxpayer's matter, or falsified or destroyed documents to conceal the employee's mistakes with respect to a taxpayer's case. It allows terminations to take place if an IRS employee engages in abuses or egregious misconduct. Conditions for which an employee can be dismissed include, but are not limited to, assaulting or battering a taxpayer or other IRS employee, violating the civil rights of a taxpayer or other IRS employee, or breaking the law, regulations, or IRS policies for the purpose of retaliating or harassing a [[Page S7623]] taxpayer or other IRS employee. Our legislation also allows an employee to be fired for willfully misusing section 6103 authority to conceal information from Congress. As I have said before, an environment that allows employees guilty of these kinds of behaviors to continue to work within the system is not acceptable to me, the Finance Committee, or to the American people. We have heard enough excuses. The time has come for change. And this legislation allows needed changes to take place. The third principle advocated by this legislation is to ensure that taxpayers are protected, that they have due process during collections activities. This includes requiring the IRS to obtain court approval before seizing a home. It also ensures that the burden of proof be lifted off the shoulders of the taxpayer when it's appropriate and placed on the agency. It allows necessary and long-overdue reforms to the interest and penalty system. This will guard taxpayers against the outrageous and often overbearing financial liability that occurs when the agency moves too slowly. With this legislation, the burden of proof is shifted to the IRS if the taxpayer maintains records, cooperates with the agency, and provides credible evidence to the court. In addition, the IRS will have the burden of proving a taxpayer's income if it uses arbitrary statistics to determine that income. Another major taxpayer protection in this legislation is our provision to strengthen innocent spouse relief. Some of the most tragic stories our committee heard concerned innocent spouses whose lives have been ruined by the unrelenting pursuit of IRS collections officers. This legislation allows divorced or separated spouses to elect to limit their liability for a tax deficiency to the amount of the tax that is attributable to their income. In this way, they will not be held liable for income earned by their spouse. Beyond expanding innocent spouse relief, this legislation allows the Secretary of the Treasury to provide equitable relief if innocent spouse relief is otherwise unavailable. It makes relief retroactive to help those innocent spouses who are still being hounded by the IRS. Let me say, however, that relief will not be available in cases of fraud, or if the IRS proves the taxpayer claiming innocent spouse relief had actual knowledge of an item giving rise to the tax liability. Beyond this, with this legislation, we make necessary and important changes to how penalties and interest are applied. In order to prevent IRS employees from arbitrarily using penalties as leverage against taxpayers, this bill requires non-computer determined penalties to be approved by management. Furthermore, each notice to taxpayers which includes a penalty or interest must specify how the amount was calculated. If a taxpayer enters into an installment agreement, the monthly failure-to-pay- penalty is cut in half. Under this bill, if the IRS does not provide a notice of deficiency-- or other form of notification of the specific amount of taxes due-- within eighteen months after a return is timely filed, then interest and penalties will be suspended until the taxpayer is actually notified. This eighteen month period will be reduced to twelve months in the year 2004, as the agency improves its ability to notify taxpayers of their deficiencies. In this way it is the IRS, not the taxpayer, who bears the burden of IRS delay. These enhanced rights are meant to protect honest taxpayers. We do not excuse those who evade their responsibility or cheat on their income tax returns. The protections contained in this legislation exclude the failure to file, failure to pay, and penalties related to fraud. Finally, Mr. President, the fourth principle this legislation advances is to provide the Commissioner the tools necessary to take the IRS into the 21st century. It directs Commissioner Rossotti to eliminate the current national office, regional office and district office structure of the IRS. It gives him the authority to replace these antiquated management models with operating units that will directly serve particular groups of taxpayers, better meeting their needs and making the agency much more efficient and user-friendly. As I have said before, Commissioner Rossotti should be complimented on his tremendous work and managerial skills. His plan to restructure the agency is as bold as it is necessary, and this legislation gives him the authority he needs to move forward. And moving forward is what this legislation is all about--to usher the IRS into a new era of accountability--to provide taxpayers with the protections they deserve--to bring efficiency and modern management to an organizational structure that dates back to before the industrial age. With this legislation, we bring a promise of hope to honest taxpayers and hard-working employees who have waited far too long. We bring responsibility and greater openness. We focus on the need for service and fairness. With this legislation, Commissioner Rossotti will be able to transform the IRS, make it more effective and intolerant of corruption and abuse of power. I appreciate all the work that has gone into this bill--for the many hours and weekends given by Senators, Congressmen, and staff. Particularly, I want to thank Frank Polk, Mark Prater, Tom Roesser, Mark Patterson, Nick Giordano, and our committee investigators. I want to thank Lindy Paull, and the staff on the Joint Tax Committee--Barry Wold, Mel Schwarz, Cecily Rock and Mike Udell. Again, I am grateful to Senator Moynihan--for his leadership and dedication to this cause. I am grateful to my colleagues on both sides of the aisle who stood firm for legislation with teeth--who, in seeking change, demanded real change--real reforms. That's what we offer today. I am proud of this bill. Americans have every reason to celebrate. They have let their desire be known, and, Mr. President, they have been heard. Sec. 1101-IRS Oversight Board Mr. President, there has been substantial debate on whether a Treasury employees union representative should have a designated seat on the IRS Oversight Board. I agree with many of my colleagues that a representative of IRS employees should not be provided a position on the IRS Oversight Board because such member would be subject to a substantial conflict of interest. I did not include an IRS employee representative on the IRS Oversight Board in my original chairman's mark. However, the members of the Finance Committee voted to include an IRS employees representative on the board and to waive the criminal conflict of interest laws for this particular board member. Amendments to these provisions were considered by the full Senate and defeated. During conference negotiations, the Department of Justice opined that ``The employee-representative restriction in the bill would impermissiby limit the President's appointment power in violation of the Constitution.'' The Department of Justice suggested alternative language to avoid the Constitutional problem. In response to the Constitutional problems raised by the Department of Justice, the conferees agreed that one member of the IRS Oversight Board shall be a full time Federal employee or a representative of employees. The conferees also incorporated Justice's recommendation that this board member receive the same compensation as other board members who are not government employees. The Department of Justice also recommended that the employee representative should not be exempt from the conflict of interest laws. As a compromise, the conferees agreed to delete the provision which would exempt the employee representative from the conflict of interest laws. However, at the time of nominating this particular board member, the President could seek a waiver of the criminal conflict of interest laws to the extent such waiver is necessary to allow such member to participate in the decisions of the Board. Waiving criminal conflict of interest laws for one person is a very serious matter and should not be taken lightly. As such, the bill requires the President to submit a written intent of waiver along with the actual waiver language to the Senate with the nomination of such member. I anticipate that the President would seriously consider the ramifications of nonminating [[Page S7624]] an individual with inherent conflicts of interests. If, in the President's judgment, such an individual must be on the IRS Oversight Board, the President must submit a written statement of intent to waive the criminal conflict of interest laws. To be effective, the waiver must be provided verbatim with the nomination of such individual. While I would have preferred the language in my original chairman's mark, this conference agreement addresses the competing concerns of my colleagues as well as the Constitutional problems raised by the Administration. In September 1997 and April 1998, the Finance Committee held several days of oversight hearings regarding IRS practices and procedures. These eye-opening hearing revealed improper and inappropriate IRS practices and in some situations violation of the law. I, along with those taxpayers who watched the hearings, was shocked and deeply troubled with the practices of the IRS. I believe that proper oversight by Congress and the Administration should have reduced or even prevented such activity from occurring. One of the most important functions of the IRS Oversight Board is to prevent taxpayer abuse. The Oversight Board must have access to information that will enable the board to reveal problems, bring problems to the attention of the Commissioner to address, and inform Congress if the Commissioner does not address problems. The Oversight Board should have ``big picture'' oversight authority over law enforcement activity, including examinations, collection activity, and criminal investigations. Taxpayers must be protected from improper and/or illegal activity. Hopefully, the Oversight Board, rather than a congressional committee, will nip problems in the bud and keep the IRS on a straight course. Sec. 1102--Commissioner and Other Officials The bill alters the reporting relationship between the IRS Chief Counsel and the Treasury General Counsel. The bill requires the IRS Chief Counsel to report directly to the Commissioner except for the extremely limited situations where an issue relates solely to tax policy. It is intended that ``tax policy'' would be limited to recommendations relating to tax legislation and the drafting of treaties. The Chief Counsel will report to both the Commissioner and to the Treasury General Counsel with respect to tax litigation and legal advice or interpretation of the tax law not relating solely to tax policy. In the rare circumstance where there is a dispute between the Commissioner and the Treasury General Counsel, the matter must be submitted to the Secretary or Deputy Secretary for resolution. The Commissioner, as the client, must be able to make a decision based upon the legal advice provided by the Chief Counsel. Neither the Treasury General Counsel nor any other Treasury official (other than the Secretary or Deputy Secretary) may overrule the Commissioner's decisions. The Secretary or Deputy Secretary may not delegate this authority to someone else. For example, the Commissioner should be able to decide whether to proceed with a litigation matter or recommend that a case be appealed. If the Treasury General Counsel disagrees, then the issue should be resolved only by the Secretary or Deputy Secretary. Furthermore, the Commissioner should have the ability to interpret the tax law and issue guidance in various forms. The Commissioner should be able to expeditiously issue guidance including regulations, revenue ruling and revenue procedures, technical advice and other similar memoranda, private letter rulings and other published guidance. Once again, if there is a disagreement between the Commissioner and the Treasury General Counsel, the issue must be resolved by the Secretary or the Deputy Secretary. sec. 1103--treasury inspector general for tax administration The bill transfers the IRS Office of Chief Inspector's function to a new Treasury Inspector General for Tax Administration which will provide more effective and efficient oversight over the IRS. The current system in which the Treasury Inspector General, with its limited resources and tax expertise, attempted to provide oversight along with the IRS Office of Chief Inspector which some believed lacked sufficient independence from management, simply did not provide adequate and independent oversight. I was appalled with the current system which allowed issues to fall through the cracks, included little or no ability to follow up on issues, or even to timely investigate media allegations of outrageous taxpayer abuse. The time has come to provide a new, credible Treasury Inspector General for Tax Administration which has the resources and expertise to independently audit and investigate problems within the IRS. Coupled with the IRS Oversight Board and a new more independent National Taxpayer Advocate, this provision in the bill will provide yet another check on the bureaucracy within the IRS to ensure that taxpayers and their problems don't slip through the cracks. While the vast majority of IRS employees are honest, hardworking, and law-abiding, enhanced oversight will help ensure that taxpayers are treated properly. Mr. MOYNIHAN addressed the Chair. The PRESIDING OFFICER. The Senator from New York. Mr. MOYNIHAN. Mr. President, I rise in the first instance to thank our revered chairman, Senator Roth, chairman of the Finance Committee, who brings this measure to the floor with the unanimous vote of the Finance Committee. From the first, ours has been, under his direction, a nonpartisan effort to deal with a nonpartisan issue of the first order of consequence. We are equally, in turn, grateful for the work of the National Commission on Restructuring the Internal Revenue Service. Senators Kerrey and Grassley of our committee and Congressmen Portman and Coyne from the House side contributed significantly to shaping the concept of the Internal Revenue Service as a customer-based agency, as they put it. I believe, sir, that we have done this. We have done it with the aid and the cooperation and the participation of Chairman Bill Archer and ranking member Charles B. Rangel of the Committee on Ways and Means in the House, who worked with us on the committee of conference. Senator Roth was chairman. And the result before you is an exceptional piece of legislation--and not an everyday event. The Internal Revenue Service became a permanent part of our government in 1862 as part of the Civil War Income Tax Act, which was signed into law July 1, 1862, by President Abraham Lincoln. That was almost a century and a half ago. Yet it was not until just last September that the full Finance Committee of the Senate exercised its oversight jurisdiction to ask, how is this enterprise working and where is it going? The hearing illustrated the need for changes at the IRS and encouraged the thinking on the subject which has produced the measure we bring before you today. As evidence of the process already underway by the unanimous confirmation of this body, Mr. Charles O. Rossotti became the Commissioner of Internal Revenue. This was a stroke of administrative inspiration by Secretary Rubin, who went out into the private sector looking not for a tax lawyer--an honorable profession; normally the Commissioners of the IRS have been tax lawyers--but instead for an administrator. He found the head of a large company that specialized in information services of a wide variety, and who was prepared to do this as a public service and not to continue in the line that has been of a particular profession, the practice of tax law. We have established an IRS oversight board of six private persons, the Secretary of the Treasury, and the representative of the IRS employees, and finally the Commissioner of the IRS itself. The board will be responsible for setting the strategic direction and goals of the agency, while the Commissioner will continue to manage day-to-day operations. The Finance Committee--and then the Senate--specifically voted to include the Secretary and employee representative on the board. The conference agreement, which maintained this arrangement, passed the House by a vote of 402 to 8. With the Secretary of the Treasury on the board, the board will know things it cannot otherwise learn. The U.S. Secretary of the Treasury is a world figure. His presence on the board gives it stature within the Government and with the public. The fear was that otherwise it would lapse into a sort of advisory mode that would fail to serve the objectives of this ``reform and restructuring'' legislation. [[Page S7625]] We are pleased that the agreement maintains the position on the board for a representative of the IRS employees. The representative will be able to work cooperatively on the inside rather than working in opposition from the outside. An ongoing problem is how to attract top executives to a government activity which has its counterpart in the private sector where compensation--if I may use that term--is often very high, if not indeed exorbitant, because the amounts of money involved are very large. So to recognize the disparity between government and private sector salary structures, the conference agreement adopted the Senate provision authorizing the appointment by the Commissioner of up to 40 persons to critical positions for 4-year terms with an annual compensation equivalent to the pay of the Vice President of the United States; that is to say, currently $175,400. These will be persons chosen for their particular skills. They will be there for a 4-year period. They will be departing the private sector for an interval of public service at something approaching the salaries they normally enjoy. Other provisions will permit the establishment of a new performance management system focused on individual accountability, and allow for the creation of an incentive award system bringing the IRS into contemporary management modes--out of the model of the civil service that was developed a century ago when we set up the Civil Service Commission, again establishing grades for employees with salaries that were low, but careers that were guaranteed for life. That effort was very controversial at that time. I can record that two Senators from New York State resigned from the Senate when the newly elected President appointed a collector of customs in the port of New York of whom they did not approve. One was Roscoe Conkling; the other, Thomas P. Platt. Mr. Conkling was no friend of civil service reform and once observed that when Dr. Johnson declared patriotism to be the last refuge of a scoundrel, he underestimated the potential of reform. And yet reform didn't come about, a century passed, and we found that the system had not the internal energies to change itself, to adapt to new technologies and new management modes. We hope the IRS will with these new arrangements--the infusion of new people, and a clear understanding that we expect the system to be open, innovative, and ``user friendly,'' in the term the chairman frequently used in our hearings. And we shall see. There are several other measures, Mr. President. I should point out that the conferees were heroic in their determination not to include all manner of extraneous or narrowly-applicable provisions, as is often the case in a tax bill but is not the case, with very few exceptions, in ours. There are two provisions in the conference report, however, that are of special interest to the Senator from New York. The first adopts the Senate provision for a complexity analysis requirement. It requires the staff of the Joint Committee on Taxation to provide an analysis of the complexity and administrative issues associated with tax legislation reported by the Finance Committee and Ways and Means Committee. The provision is intended to provide notice, prior to floor consideration, about provisions that have widespread applicability and may be unduly burdensome for taxpayers to understand and comply with, or difficult for the IRS to interpret and administer, or both. I might interject that when this was before us in the Finance Committee, the distinguished chief of staff of the Joint Committee on Taxation said that she looked forward to this, but that she was fearful as to whether the joint committee could begin this complicated effort so long as it was burdened with the task of determining which items in tax legislation were subject to the line-item veto, a detailed and exhaustive analysis of every tax bill, which was a new responsibility for the joint committee. I am happy to say, in the weeks since that exchange took place, the Supreme Court has dutifully and properly declared the line-item veto to be unconstitutional. So one of the unintended consequences--I cannot imagine the Court had this very much in mind--is that the joint committee is now in a position to begin a type of analysis which is new to American legislation. We are in the practice of having an increasingly complex Tax Code. There can surely be no question that we are dealing with the problems that we found in the Internal Revenue Service because the Internal Revenue Service has to administer a Tax Code that is frequently incomprehensible. An almost priestly hierarchy understands its meanings and can work them through the tax courts and such like. But to the public and, too, the Congress, they are often simply incomprehensible. I remember standing on this floor a year and a half ago with an 800- page tax bill, Mr. President, and that was the only copy of the tax bill on the Senate floor, which we were about to vote for 92-8. A copy provided to the distinguished chairman had been promptly appropriated by the Budget Committee to see if there were any budget points of order, and so the one copy was here on this desk, and Senators on both sides of the aisle would come up and ask whether a provision they had an interest in was in the bill, and I would say, ``I hope in good spirit I can find out, but what will you pay me?'' Indeed, there was no other way for the Senator to learn. And this is not an unusual event. I am going to say this not once but twice because we have to start attending to our own behavior in these matters. I was one of the participants in the enactment of the Tax Reform Act of 1986. This was a wonderful, collegial experience led by our good friend and former colleague, Senator Packwood, along with Senator Chafee, Senator Danforth, a ``core group,'' as we called ourselves, of about six of us. We would meet for coffee at 8 o'clock every morning in Senator Packwood's office, and it would be my job, rather as the dean in a cathedral, to provide a reading for the morning. I would make sure I got the Wall Street Journal early, and without a great deal of effort I would find the advertisements where you would see a little classified ad which would say, ``Rocky Mountain sheep, guaranteed losses.'' And the Wall Street Journal would tell you how you would be certain to lose money in such a manner that the code would eventually reward you for your losses, which is an interesting game to play if you are interested in C notes but not a very productive form of economic activity. Well, we cleaned up that Tax Code. We brought the rates down from, oh, half a dozen income tax rates to 28 percent and 15 percent--two rates. We did ``base broadening'' as the term was; more and more income became subject to taxation, so the rates of taxation could be lowered. And when it was all over, to our surprise and rather to the consternation of the tax bar, you might say, we had, indeed, produced a fairly simple and comprehensible Tax Code. That was 1986--1986, Mr. President. What you have before you, sir, what we have in the Senate before us-- and my revered chairman will know this better than anyone else present--we have the 65th public law to amend the Internal Revenue Code since the Tax Reform Act of 1986. We have passed 65 tax bills. That comes to about six a year. If you were assigned that task, you would say it would be impossible to achieve; it would be asking too much of our staffs and our Members. But we have done this heroic, if absurd, task, and it has to be said again that simplification is the essence of justice and efficiency in the code. We are a large, complex economy, an international economy. We are not going to have a simple code, but there is no reason we should have an incomprehensible one, particularly when the complexities often reflect the influence of special interest in the code. In this regard, not many weeks ago we heard testimony from one of our Nation's most distinguished and accomplished economists, Murray Weidenbaum, who had been chairman of the Council of Economic Advisers in the administration of President Reagan. I served with him in the administration of President Nixon. At that time he took it upon himself to explain and popularize the idea of revenue sharing--get Federal revenue out to cities and States, let them decide [[Page S7626]] how to spend it, and reduce the dependency on administrative judgments, decisions, and statutes here in Washington. That was a very fine idea which we lost to the budget deficits of the 1980s. But Murray Weidenbaum made a powerful point, coming from a powerful mind. He said, if you spend all your income, the American Tax Code is simple. You just fill out a one-page form: I made $50,000 last year, spent $50,000; I made $100,000, I made $100 million--God in heaven knows there are some who do--but I spent it all, and my taxes are as follows. It is only when you begin to save that the Tax Code gets complicated. Of course, our largest economic question right now is the rate of savings in the American economy. The fact that we have large trade deficits basically reflects that we are importing capital. We have the lowest savings rate of any industrial country in the world--or any prime industrial country of which I am aware. It is quite striking. I would not argue this is the principal factor, but it is the fact that if you save money you can get in trouble with the Internal Revenue Code. Whatever else, that should not be the case. It is the case. I think the complexity analysis, particularly if it is directed with this kind of issue in mind, has the potential of a very important innovation in the development of tax legislation. Don't expect it to change anything in the next 3 or 4 years, but in 20 years' time we might find that this small provision in this large legislation had large consequences. One other item. In the interval since this legislation was agreed to, the majority and minority leaders have created a special committee on the year 2000 problem, with a hurry-up reporting date. But during the Finance Committee's consideration of the bill, Commissioner Rossotti specifically noted, in a six-page letter, that some of the changes the chairman has described in such admirable detail would overburden the IRS's ongoing efforts to upgrade its computers to allow for the century date change. In time we came to see the need for the effective-date changes he recommended--and Secretary Rubin reinforced this in a typically succinct one-page letter. We have, in the main, accommodated the Commissioner in this regard. I think this is probably the first statutory recognition of the year 2000 problem, which we are going to know a lot more about in very short order. Now, briefly, a few matters of concern. Contrary to the unanimous opposition of the tax profession, this legislation includes a provision that shifts the burden of proof in civil cases from the taxpayer to the IRS. We all live in the real world and no one on the surface would ever think it right that the burden of proof be on a taxpayer, not the Government. But reality can be different. Four former IRS Commissioners, who appeared on a bipartisan panel before the committee, testified that shifting the burden of proof would cause more harm than good to the taxpayer. Similar sentiment was expressed by dozens of professors of tax law. Their concern is that this provision will result in more intrusive IRS audits, create additional complexity and litigation, and create confusion for taxpayers and the IRS as to when an issue needs to be resolved in court and when the burden has shifted. I recognize the political popularity of the provision, but I fear it may actually prove to work against the taxpayer. Be warned--persons who have the best reason to be impartial in their judgment have said this is not going to help, it is going to make things yet more difficult. Another provision certain to cause confusion and to lead to additional litigation with the IRS is the expansion of the privilege of confidentiality to tax advice furnished by accountants. This new privilege may be asserted in noncriminal tax proceedings before the IRS and in Federal courts. However, like the current attorney-client privilege, information disclosed for the purposes of preparing a new tax form is not privileged and the conference agreement precludes application of the expanded privilege to written communications to a corporation ``in connection with the promotion of the direct or indirect participation of such corporations in any tax shelter.'' This is a right that most taxpayers will never be eligible to assert, and many will be surprised to learn about its limitations. One provision that the bill does not include, and should, is the correction of a drafting error in the 1997 act which gives a windfall to the few estates in this country with a value of more than $17 million. It costs nothing to fix, and the joint committee estimates that the failure to correct this error would cost taxpayers $900 million in the next 10 years. The Senate bill fixed it. But somehow the conferees could not reach agreement. Finally, Mr. President, and possibly most important, I direct the Senate's attention to a modest, but hugely significant, semantic triumph that has been included in this legislation. Section 5003 of the conference agreement replaces in U.S. trade law the confusing 17th century phrase ``most-favored nation,'' which begins with the French phrase ``la nation la plus favorisee.'' We now replace that term with the plain American term ``normal trade relations.'' This relieves the President and the Congress of the burden of having to ask, why is this typically not-very-popular country being made a most-favored nation? Why, for example, is there now a dispute about whether Vietnam should be given most-favored-nation status? Of course, it is not most-favored nation; it simply means you get the same treatment that the most- favored nation, some other nation most favored, gets. It is antique usage that immediately confuses everyone involved, and now we will be able to say we propose ``normal trade relations.'' It is plain English and avoids the needless misunderstandings that have accompanied that other term. I do not want to overburden the Senate with detail, but the most- favored-nation concept is well over 700 years old. It has been traced by historians to a clause in the treaty of November 8, 1226, in which Frederick II, Emperor of the Holy Roman Empire, conceded to the city of Marseilles the privileges previously granted to the citizens of Pisa and Genoa. Not greater privileges, but merely the same. The term itself is perhaps a little more recent. The first use that we can come across specifically is in the treaty of 1659 between France and Spain, which guaranteed that the subjects of each sovereign, while in the realm of the other, would be treated as the most-favored nation. Again, the phrase ``le plus favorablement,'' or in modern French, ``la nation la plus favorisee''--having the same rights as were granted the English and the Dutch. In the main, the usage has become counterproductive. It confuses the public as to what is being proposed. I think it is fair to say sometimes it confuses the Congress as well, and we are well to be rid of it. I think it is past time and, if I may say, this is a matter that the Finance Committee has had in mind for some while. The distinguished and revered chairman and I introduced legislation last year for this purpose, and now we see it about to become law. Mr. President, I thank you for your courtesy, and I have said my piece on the matter. I yield the floor. Mr. GREGG addressed the Chair. The PRESIDING OFFICER. The Senator from New Hampshire. Mr. GREGG. Does the Senator from Nebraska wish to speak? Mr. KERREY. I am prepared to proceed. Mr. GREGG. I am going to speak about 10 minutes. Will that be an inconvenience to the Senator, or does he have to get somewhere? Mr. KERREY. One of the things I want to do, and I will be pleased to step aside for 10 minutes, I want to engage in a short colloquy with the distinguished Senator from New York on this bill. I will try to be as brief as possible and then yield back to the Senator. I have a longer statement I will make on this legislation. The PRESIDING OFFICER. The Senator from Nebraska. Mr. KERREY. I thank the Chair, and I thank the distinguished Senator from New Hampshire. One of the things the Senator from New York has referenced--and I will later in my remarks praise both he and the chairman of this committee for what they have done in bringing this legislation to the floor--one of the things the Senator referenced in his comments was the 1986 Tax Reform Act. Indeed, this bill, it should be noted by colleagues, [[Page S7627]] amends that act. So this would be the, I guess, the 65th tax bill we have passed since 1986. I wonder if the Senator from New York can engage briefly in a discussion for the benefit of the Senator from New Hampshire and for those who happen to be watching this debate. One of the things that we struggle to do as citizens is to understand what it is that the government is doing and why. Under our constitutional authorities as a Congress we have a whole range of things we are charged with doing. One of the most difficult things we are charged with doing, once we have decided we are going to have a government of any kind at all, is we have to collect taxes and what to use those taxes for and we then have to decide who is going to pay the taxes, and we write the law accordingly. We then distribute the money to the various agencies of government that we previously created. I wonder if the Senator from New York, with his understanding of the rest of the world, can talk a little bit about how much we take for granted our capacity to voluntarily collect. We have a voluntary system of tax collection, unlike many other nations on Earth. I know right now one of the most difficult problems, for example, that the newly democratic Russia is facing is their capacity to collect tax revenues in sometimes a not-so-voluntary fashion. I wonder if the Senator can talk a little bit about the constitutional issues of us raising the taxes to pay for the government and the importance of our being able to maintain a voluntary system of tax collection. Mr. MOYNIHAN. I certainly will. I will be succinct, because nothing could be more clear. The United States is blessed with a citizenry that pays its taxes on time and in full. There are exceptions, but we do it voluntarily. Technically, we self-assess; we decide ourselves what we owe the government. The rate of compliance is very high. Up until just recently, and it is just beginning to change, for example, in the United Kingdom, which we associate with and we think of as a free society, and it certainly is, the subjects of the queen did not decide how much taxes he or she owed; the queen decided. They were sent a bill. You are free to contest it in court, and you can contest it in court the rest of your life, but you still have to pay the bill. So the idea of complexity in this system, making it so difficult to know what it is you owe jeopardizes a precious institution, which is the faith of the public in the good intentions and performance of the government itself. That, I think, was one of the reasons the Kerrey Commission called for the reforms that are in this legislation of the IRS. You can have an openness and a sense that things are on the level here and government is doing the right thing. Mr. KERREY. I thank the Senator for delaying his exit from the floor. I appreciate very much that reference. Mr. President, I believe this piece of legislation goes to the heart of our capacity to maintain government of, by and for the people. Our republican form of government is at risk if people feel they are not getting a fair shake with this voluntary system of collection. Congressman Portman and I cochaired this restructuring commission. We noted U.S. tax collection is the most efficient in the world. Less than half of a percent of the total revenues collected is in cost. In the face of mounting criticism, problems, it seems to me it is very important to make certain that as we write the laws that will determine how this money is collected, that we not throw the proverbial baby out with the bathwater. We have problems, and this legislation attempts to correct the problems. But underneath these problems is a relatively efficient system of collecting taxes that enables the citizens to fund their Government, and in a relatively efficient fashion. Mr. MOYNIHAN. Indeed. Mr. GREGG addressed the Chair. The PRESIDING OFFICER. The Senator from New Hampshire. Mr. GREGG. Mr. President, I wish to join with what I am sure will be numerous Senators in congratulating the Senator from Delaware and the Senator from New York and the Committee on Finance for bringing forward this exceptionally good bill which is truly timely. Many of us, as we have tried to help folks out in our States, have run into situations where people have been treated in ways which can only be described as abusive by the Internal Revenue Service, where the Internal Revenue Service has gone way beyond the appropriate action for the purposes of collecting the revenues of the country and has treated American citizens in a way that you might expect were they to be living in a police state instead of in a democracy. In my experience, probably one of the worst cases I have ever seen of Government excesses involves a family known as Barron in New Hampshire. That family, unfortunately, got into some tax trouble, failed to pay its taxes, and the IRS, in an appropriate way, attempted to collect those taxes--at least appropriately at the beginning. But then it got carried away. And as a result of getting carried away, it put that family through an extraordinary trauma, to a point where Mr. Barron ended up committing suicide. And his wife, Shirley Barron, who is now responsible for the family, found herself in a situation which was beyond all reason, which was untenable and which was horrible. A lien had been put on her house. Her children's bank accounts had been taken. Her bank accounts had been taken. The IRS was even making it impossible for her to pay her electric fee, her utility fees. This all occurred after a time period when they thought they had reached an agreement with the Internal Revenue Service. They thought an understanding had been reached, and, in fact, an understanding had been reached. Then the IRS, in a manner which can only be called bait and switch, backed out of that agreement and assessed them with even more penalties and interest. And on an original tax bill which was, I believe, somewhere in the vicinity of $20,000 or $40,000, they ended up with an obligation, according to the Internal Revenue Service, of multiple hundreds of thousands of dollars. It was a situation which was so horrendously handled that it literally drove Mr. Barron to commit suicide, destroyed the lives of this family. And it has become a cause celebre in New Hampshire, and to some degree nationally. It would be terrible in and of itself, because there is really nothing we can do as a Government to correct what happened to Mrs. Barron and the treatment she received. Her life has been irreparably harmed, and her family will always suffer as a result of this. It would be terrible enough if it were the only instance of this type of situation occurring, but as we saw from the hearings which the Senate Finance Committee held under Chairman Roth, it was not the only instance. Regrettably, on too many occasions the Internal Revenue Service has acted in this almost malicious but certainly abusive way. This does not mean that the Internal Revenue Service is populated with people who wish to treat American citizens, taxpayers, in a manner that is totally inappropriate. No. In fact, just the opposite. The Internal Revenue Service is filled with good and conscientious people, in my opinion; but there are bad apples. More importantly than that, the Service has created an atmosphere, a way of management, a culture, which has allowed the excesses to proceed in the actions against taxpayers which are beyond the pale of reasonableness to become commonplace, through the lack of management and, in my opinion, due to lack of structure, both legal and managerial. So this bill attempts to correct that. The most important thing it does, or one of the most important things it does, is it shifts the burden of proof, gets us back to where we should have been to begin with, which is to presume that the taxpayer is innocent rather than presuming that the taxpayer is guilty until the taxpayer has proven himself or herself innocent. That is very important, so that the taxpayer goes in at least on some level of a playing field which has some levelness to it versus a playing field which was radically tilted against the taxpayer under the present structure. In addition, the bill protects the innocent spouse. In so many instances, the spouse is a part of the familial activity as being part of a family; signs [[Page S7628]] the return without a great deal of knowledge of what is in that return, sometimes without any great knowledge of what is in that return, but signs it and then finds out later on, as was the case in Mrs. Barron's situation, that action has been taken that was inappropriate and liability exists. And when the spouse who is responsible disappears, as a result of divorce, or in this case as a result of death, the innocent spouse ends up with an obligation which is totally inappropriate. So the protection of the innocent spouse is absolutely critical and a very, very good part of this bill. In addition, the bill takes what I think is a critical step in the area of managing the Internal Revenue Service's procedures because it limits the ability of the Internal Revenue Service to assess interest and penalties in a manner which uses the interest and penalties to basically force settlements on the taxpayer, even when the taxpayer feels they did not owe the obligation. There is no question but that the basic collection process at the Internal Revenue Service proceeds with, in many instances, running up the interest and penalty obligations so when they get into negotiations with the taxpayer, even if the taxpayer knows they do not owe the taxes, the utility of proceeding becomes so expensive, it becomes so impossible to ever want to proceed in a manner which would put you at risk for the interest and penalties which have been run up that you end up paying the underlying tax and negotiating out the interest and penalties. That is a collection process which, regrettably, has become the modus operandi of the Internal Revenue Service. This bill puts some limitation on that by limiting the ability of the Internal Revenue Service to run those interest and penalties up if they have not notified the taxpayer within a timely manner--18 months initially, 12 months as time goes out--that an obligation is due or they perceive that an obligation is due. This is an extremely important change in the collection process. In addition, the bill provides much better services to the taxpayer, which is critical. Thus, I am extremely supportive of this effort. I say this. It does not resolve the problem. The problem goes to the basic law. The fact is that we have created a tax law which is so complex, so convoluted, such a mishmash of regulations and cross-purpose legislation, that it becomes basically unenforceable because it is not comprehendible. After finishing law school, I went back to school for 3 years and got a graduate degree in tax policy with an LL.M. I have to say, I do not fill out my own tax return because it is simply too complex. Now, if I cannot do it, how can somebody who is just working every day and trying to make ends meet be able to do it? Obviously, they cannot. And what we see in the collection atmosphere is that the Internal Revenue agents, regrettably, because of the complexity in many instances, do not understand it because it is not understandable. So the law itself is a basic problem here, and we simply have to reform the law if we really want to correct this problem. We have to go to a much simpler law, a fairer law, something that can be managed in a way that is comprehendible to people who are working every day and trying to fill out their return, who don't happen to be specialists. As an interim step, as an effort to try to correct what is basically a law that is not enforceable effectively but is being enforced in a manner which in many cases is abusive--as an interim step, this bill makes great progress. Thus, I congratulate the committee for their efforts. I hope it will not be looked at as the end of the process but will be looked at as a step in the process to reforming our tax laws so that they can be administered in a way which will regain the confidence of the American people that they are fair and that they are reasonable. I yield the floor. The PRESIDING OFFICER. The Senator from Wyoming. Mr. THOMAS. Mr. President, I come to the floor, as many other Members have, to speak in favor of the IRS reform bill that is before the Senate. As the Senator from New Hampshire indicated, I want to take just a little bit of a different approach. We talk about this as one of the steps in the changes that do need to be made. I do come to the floor to express my support for the package. The agency, of course, has basically run roughshod over American taxpayers for too long. This is the first significant reform in this agency in over four decades. Congress should do more of this kind of oversight. It seems to me in this whole business of funding the Government, this whole business of appropriations, that we need to find a way to have more time for oversight. That is why I am supporting and continue to support a biennial budget in the appropriations process, so we would have off years to do this kind of thing for many other agencies. Basically, I guess my point is that this is an important part of the Republican agenda, of our agenda, to do things about taxes. No. 1, of course, is to have tax reduction. I think American families deserve that. I think it is good for the economy. It has to do with having less Government and a smaller Government. IRS reform is part of it, and this is a great step in that direction. Certainly, the third point is simplification of the Tax Code. I think, also, that is a necessary element before we find satisfaction with our Tax Code. So, reducing taxes, IRS reform, and simplification comprise a three- pronged agenda, one which I support. Last year we made some progress in terms of reducing taxes, reduced them in capital gains, reduced estate taxes, installed a $500-per-child tax credit, expanded IRAs, and passed other important small business tax reductions. I would like to go forward in that area, and I hope we shall. Further reducing capital gains, eliminating estate taxes, reducing and eliminating the marriage tax penalty are areas in which we can make progress. This year we will reform IRS, the Federal agency that has interaction with more Americans than any other agency. I salute Senator Roth and the Senator from New York and members of the Finance Committee for holding fast against the initial White House reluctance and opposition to reforms in this agency. His hearings, the committee's hearings, brought to light many unbelievable abuses of taxpayers by this agency. This reform package, then, increases the oversight on IRS, holds IRS employees more accountable, makes IRS a more service-friendly agency, puts the law on the side of the taxpayer, has some very key provisions: Taxpayer confidentiality, extends the attorney-client privilege to accountants, reverses the burden of proof from the taxpayer to the IRS, guarantees 30 days to request a hearing of disputes, gives new powers to the taxpayers who petition the courts to contest decisions, and reforms the management of the IRS. These are all good things. The third part of our agenda, which is still there and I believe is of paramount importance if we are to really change the tax atmosphere: I think we have to address the basic underlying Tax Code. Hopefully, that will take place in the next year or two. We plan to significantly reform the Tax Code and to eliminate the complexity that is now there. There seems to be some misunderstanding about one of the proposals now which would terminate the current Tax Code in the year 2001. It does not eliminate the Tax Code, it simply gives a time certain in which a new Tax Code needs to be devised. The IRS is responsible for creating many of the problems the taxpayers have, but Congress needs to bear the burden of fixing the current Tax Code. There are 17,000 pages of inherently confusing data that need to be changed. Taxpayers spend $200 billion and 5.4 billion hours to comply with the tax law. The IRS employs over 100,000 people, more than five times the number of the FBI. After 80 years of abuses by lawmakers, lobbyists, and special interests, the tax system is unfair, complex, it is costly and punishes work, savings, and investment. Certainly there is a great opportunity for basic recodification of the Tax Code. I support plans, of course, that have the basic elements of fairness, of simplicity, reducing the overall tax burden. It is interesting, as you go about in your State, my State of Wyoming, and [[Page S7629]] ask how many people like the Tax Code the way it is now, nobody responds, of course. Then you say: What do you want to do about it? Do you like sales tax? Do you like flat tax? Do you like consumption tax? But we haven't come, yet, to a consensus on what the replacement ought to be. That is the challenge before us. I am pleased we are about to pass this historic bill, complete the second part of a three-pronged tax agenda. I hope soon we will move to finish the job and fundamentally reform the Tax Code. I yield the floor. Mr. GRAMM addressed the Chair. The PRESIDING OFFICER. The Senator from Texas. Mr. GRAMM. Mr. President, I rise in support of the conference report on IRS reform. What I would like to do is very briefly give a summary of the two philosophical approaches that were initially embodied in the debate, why I believe we chose the better of the two, and then I will outline the few issues in the bill that I feel very strongly about. First of all, when we started learning of IRS abuses--something that most of our offices heard about from constituents from the very beginning of our congressional service--and then when we saw it in its rawest form in testimony before the Finance Committee, I think there were two basic approaches or responses people had. I think one view was that people at the IRS had become insensitive, that there was something wrong with them, and that what we needed was a massive effort to try to sensitize people in the IRS. I have to say, that is the administration's initial viewpoint. It was as if they thought we could solve the problem simply by hiring every sociologist in the country and have them sit down individually with IRS employees and encourage

Major Actions:

All articles in Senate section

INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998-- CONFERENCE REPORT
(Senate - July 08, 1998)

Text of this article available as: TXT PDF [Pages S7621-S7643] INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998-- CONFERENCE REPORT The PRESIDING OFFICER. Under the previous order, the Senate will now resume consideration of the conference report accompanying H.R. 2676, which the clerk will report. The assistant legislative clerk read as follows: Conference report to accompany H.R. 2676, an act to amend the Internal Revenue Code of 1986, to restructure and reform the Internal Revenue Service, and for other purposes. The Senate resumed consideration of the conference report. Mr. ROTH addressed the Chair. The PRESIDING OFFICER. The Senator from Delaware. Mr. ROTH. Mr. President, if my colleagues' July Fourth recess was anything like mine, then they heard a great deal from their constituents concerning the bill that we bring to the floor today. The Internal Revenue Service Restructuring and Reform Act of 1998 is legislation that not only has the interests but the support of Americans everywhere, and with good reason. For far too long, the Internal Revenue Service has been allowed to consolidate immense power without the counterbalance of accountability. For far too long, the agency has been allowed to operate in darkness, hiding behind section 6103 authority, using authority granted them by Congress to, in some cases, bludgeon taxpayers. Last summer, the National Commission on Restructuring the IRS, following an extensive review of the IRS, issued a report that called for major changes to the agency. In September, the Finance Committee held 3 days of hearings which identified numerous additional problems and some terrible, even unconscionable taxpayer and IRS-employee abuses within the IRS. Those hearings were followed by others which demonstrated clearly that [[Page S7622]] the Service was in need of serious reform. And we heard from taxpayers, tax collectors, tax practitioners. We heard from small business men and women. We heard from innocent spouses. And we listened to outrageous stories from innocent Americans who, for no valid reason, got caught in the crosshairs of an organization that was driven by quotas and lacking in oversight. Our outrage knew no partisan line. Colleagues on both sides of the aisle were offended by many of the stories. To the witnesses--many of whom testified without knowing what their efforts would bring--we apologized as best we could. We said that we would press forward, and we promised reform. That, Mr. President, is what we are delivering today. This is the bipartisan conference agreement on a plan that will effectively change the way the Internal Revenue Service does business. It represents the most comprehensive overhaul of the IRS ever enacted. It combines the House and Senate bills and incorporates the many good suggestions offered by the Agency's new Commissioner, Charles Rossotti. Let me be clear on just how important Mr. Rossotti has been to our efforts. Following our Finance Committee hearings, he had courage enough to release a report that validated the concerns we raised. Rather than try to throw up a wall or confuse issues, he made a commitment to reform. Every step we have taken he has taken with us. Commissioner Rossotti and I have met on many occasions, and he has testified before our committee. We have attended taxpayer service days together. He has advocated a new management plan that could revolutionize the way the Internal Revenue Service does business. I am also grateful for the taxpayers and the many current and former IRS employees who came before our committee. These were courageous individuals, and without them, there would be no reform. And they represent only a fraction of those who met with us, who wrote to us, who called, and, in the process, moved our investigation forward. Likewise, I am grateful to my colleagues--Senator Moynihan, a defining presence in the Senate, if ever there was one. I am grateful to Senators Charles Grassley and Bob Kerrey and their efforts on the National Restructuring Commission. Working with Congressman Portman, and others, they got the ball rolling early on, and were leaders in this effort. I thank Chairman Bill Archer for the work he did on the Ways and Means Committee, for the spirit of cooperation he brought to the conference, and for the success he had two weeks ago in getting this legislation approved overwhelmingly in the House. Now, the time has come, Mr. President, to pass it here--legislation that will open the door to real restructuring and reform of what can only be considered the most powerful agency in the United States government. This legislation is built on four principles: The first principle is to establish independent oversight of the agency to prevent abuses against taxpayers and against employees. One of the major concerns we heard throughout our oversight initiative was that the taxpayers who get caught in the IRS hall of mirrors have no place to turn that is truly independent and structured to represent their concerns. This legislation requires the agency to establish an independent Office of Appeals--one that may not be influenced by tax collection employees or auditors. Appeals officers will be made available in every state, and they will be better able to work with taxpayers who proceed through the appeals process. Mr. President, agency employees made it clear that there is no dependable and consistent mechanism in place to represent taxpayer interests. Just as this bill will give the appeals process greater independence, it will also make the Office of Taxpayer Advocate as well as local problem resolution officers more independent. In the future, the Secretary of Treasury, rather than the Commissioner will appoint the National Taxpayer Advocate. And the Taxpayer Advocate will be just that. Criteria to fill this position will include that the Advocate must not be an IRS employee two years before and five years after holding this position. In addition, this bill provides the Advocate with greater ability to issue an assistance order to help taxpayers. To ensure that independent review and accountability become part of the IRS culture--top to bottom--our legislation creates a nine-member IRS Oversight Board--a board composed of six experts from various professional fields in the private sector, the Commissioner, the Secretary of Treasury, and a full-time Federal employee, or a representative of employees. This board will be independent of influence from management and the senior executive corps. It will be able to monitor and hold managers and executives accountable for their actions, and the actions of their employees. Under our legislation, the Oversight Board will have broad responsibility and will ensure that the IRS has procedures in place to carry out its mission. I anticipate that the Board will be able to nip problems in the bud so that the IRS will not have to endure embarrassing Congressional hearings that expose systemic problems that should have been identified and addressed. These measures will go a long way toward protecting taxpayers and IRS personnel. To further protect IRS employees, this legislation creates a new Treasury Inspector General for Tax Administration. We heard far too often in our hearings that the current IRS Office of Chief Inspector does not have sufficient independence to adequately fulfill its obligation. Likewise, the current Treasury Inspector General lacks resources and has experienced problems of its own in providing seamless oversight of the agency. The new Treasury IG for Tax Administration will have greater independence than the IRS Chief Inspector. This provision is supported by Secretary Rubin and Commissioner Rossotti, and it will create a structure where the new Treasury IG for Tax Administration will not allow oversight to fall through the cracks. This new Treasury IG for Tax Administration will provide independent investigations of alleged IRS employee misconduct without management interference. The new Treasury IG will also respond in a timely manner to requests to investigate or audit made by the Commissioner or the IRS Oversight Board. Now, these measures will go a long way toward combating the intimidating culture that witnesses testified exists within the agency. They will provide independent protections and promote an agency that the public trusts--an agency that the employees can be proud of. The second principle incorporated in this legislation is to hold IRS employees accountable for their actions and to reward those who treat the taxpayer fairly. One of the problems we discovered in our hearings is that the Commissioner did not have the kind of authority that is necessary to streamline management and remove managers who contaminate the culture of the agency. Additionally, we found that the Commissioner does not have sufficient authority to hire those who will work toward making the kinds of changes that are necessary. This legislation changes that. It provides the Commissioner the tools he needs to hire top-flight managers who are experts in their field. It gives the Commissioner the wherewithal to transform the agency's work force by providing bonuses and other incentives, and to sufficiently discipline employees whose inappropriate actions harm the image and effectiveness of the agency. This bill requires the IRS to terminate an employee if it is proven that the employee willfully failed to obtain required authorization to seize a taxpayer's property, committed perjury material to a taxpayer's matter, or falsified or destroyed documents to conceal the employee's mistakes with respect to a taxpayer's case. It allows terminations to take place if an IRS employee engages in abuses or egregious misconduct. Conditions for which an employee can be dismissed include, but are not limited to, assaulting or battering a taxpayer or other IRS employee, violating the civil rights of a taxpayer or other IRS employee, or breaking the law, regulations, or IRS policies for the purpose of retaliating or harassing a [[Page S7623]] taxpayer or other IRS employee. Our legislation also allows an employee to be fired for willfully misusing section 6103 authority to conceal information from Congress. As I have said before, an environment that allows employees guilty of these kinds of behaviors to continue to work within the system is not acceptable to me, the Finance Committee, or to the American people. We have heard enough excuses. The time has come for change. And this legislation allows needed changes to take place. The third principle advocated by this legislation is to ensure that taxpayers are protected, that they have due process during collections activities. This includes requiring the IRS to obtain court approval before seizing a home. It also ensures that the burden of proof be lifted off the shoulders of the taxpayer when it's appropriate and placed on the agency. It allows necessary and long-overdue reforms to the interest and penalty system. This will guard taxpayers against the outrageous and often overbearing financial liability that occurs when the agency moves too slowly. With this legislation, the burden of proof is shifted to the IRS if the taxpayer maintains records, cooperates with the agency, and provides credible evidence to the court. In addition, the IRS will have the burden of proving a taxpayer's income if it uses arbitrary statistics to determine that income. Another major taxpayer protection in this legislation is our provision to strengthen innocent spouse relief. Some of the most tragic stories our committee heard concerned innocent spouses whose lives have been ruined by the unrelenting pursuit of IRS collections officers. This legislation allows divorced or separated spouses to elect to limit their liability for a tax deficiency to the amount of the tax that is attributable to their income. In this way, they will not be held liable for income earned by their spouse. Beyond expanding innocent spouse relief, this legislation allows the Secretary of the Treasury to provide equitable relief if innocent spouse relief is otherwise unavailable. It makes relief retroactive to help those innocent spouses who are still being hounded by the IRS. Let me say, however, that relief will not be available in cases of fraud, or if the IRS proves the taxpayer claiming innocent spouse relief had actual knowledge of an item giving rise to the tax liability. Beyond this, with this legislation, we make necessary and important changes to how penalties and interest are applied. In order to prevent IRS employees from arbitrarily using penalties as leverage against taxpayers, this bill requires non-computer determined penalties to be approved by management. Furthermore, each notice to taxpayers which includes a penalty or interest must specify how the amount was calculated. If a taxpayer enters into an installment agreement, the monthly failure-to-pay- penalty is cut in half. Under this bill, if the IRS does not provide a notice of deficiency-- or other form of notification of the specific amount of taxes due-- within eighteen months after a return is timely filed, then interest and penalties will be suspended until the taxpayer is actually notified. This eighteen month period will be reduced to twelve months in the year 2004, as the agency improves its ability to notify taxpayers of their deficiencies. In this way it is the IRS, not the taxpayer, who bears the burden of IRS delay. These enhanced rights are meant to protect honest taxpayers. We do not excuse those who evade their responsibility or cheat on their income tax returns. The protections contained in this legislation exclude the failure to file, failure to pay, and penalties related to fraud. Finally, Mr. President, the fourth principle this legislation advances is to provide the Commissioner the tools necessary to take the IRS into the 21st century. It directs Commissioner Rossotti to eliminate the current national office, regional office and district office structure of the IRS. It gives him the authority to replace these antiquated management models with operating units that will directly serve particular groups of taxpayers, better meeting their needs and making the agency much more efficient and user-friendly. As I have said before, Commissioner Rossotti should be complimented on his tremendous work and managerial skills. His plan to restructure the agency is as bold as it is necessary, and this legislation gives him the authority he needs to move forward. And moving forward is what this legislation is all about--to usher the IRS into a new era of accountability--to provide taxpayers with the protections they deserve--to bring efficiency and modern management to an organizational structure that dates back to before the industrial age. With this legislation, we bring a promise of hope to honest taxpayers and hard-working employees who have waited far too long. We bring responsibility and greater openness. We focus on the need for service and fairness. With this legislation, Commissioner Rossotti will be able to transform the IRS, make it more effective and intolerant of corruption and abuse of power. I appreciate all the work that has gone into this bill--for the many hours and weekends given by Senators, Congressmen, and staff. Particularly, I want to thank Frank Polk, Mark Prater, Tom Roesser, Mark Patterson, Nick Giordano, and our committee investigators. I want to thank Lindy Paull, and the staff on the Joint Tax Committee--Barry Wold, Mel Schwarz, Cecily Rock and Mike Udell. Again, I am grateful to Senator Moynihan--for his leadership and dedication to this cause. I am grateful to my colleagues on both sides of the aisle who stood firm for legislation with teeth--who, in seeking change, demanded real change--real reforms. That's what we offer today. I am proud of this bill. Americans have every reason to celebrate. They have let their desire be known, and, Mr. President, they have been heard. Sec. 1101-IRS Oversight Board Mr. President, there has been substantial debate on whether a Treasury employees union representative should have a designated seat on the IRS Oversight Board. I agree with many of my colleagues that a representative of IRS employees should not be provided a position on the IRS Oversight Board because such member would be subject to a substantial conflict of interest. I did not include an IRS employee representative on the IRS Oversight Board in my original chairman's mark. However, the members of the Finance Committee voted to include an IRS employees representative on the board and to waive the criminal conflict of interest laws for this particular board member. Amendments to these provisions were considered by the full Senate and defeated. During conference negotiations, the Department of Justice opined that ``The employee-representative restriction in the bill would impermissiby limit the President's appointment power in violation of the Constitution.'' The Department of Justice suggested alternative language to avoid the Constitutional problem. In response to the Constitutional problems raised by the Department of Justice, the conferees agreed that one member of the IRS Oversight Board shall be a full time Federal employee or a representative of employees. The conferees also incorporated Justice's recommendation that this board member receive the same compensation as other board members who are not government employees. The Department of Justice also recommended that the employee representative should not be exempt from the conflict of interest laws. As a compromise, the conferees agreed to delete the provision which would exempt the employee representative from the conflict of interest laws. However, at the time of nominating this particular board member, the President could seek a waiver of the criminal conflict of interest laws to the extent such waiver is necessary to allow such member to participate in the decisions of the Board. Waiving criminal conflict of interest laws for one person is a very serious matter and should not be taken lightly. As such, the bill requires the President to submit a written intent of waiver along with the actual waiver language to the Senate with the nomination of such member. I anticipate that the President would seriously consider the ramifications of nonminating [[Page S7624]] an individual with inherent conflicts of interests. If, in the President's judgment, such an individual must be on the IRS Oversight Board, the President must submit a written statement of intent to waive the criminal conflict of interest laws. To be effective, the waiver must be provided verbatim with the nomination of such individual. While I would have preferred the language in my original chairman's mark, this conference agreement addresses the competing concerns of my colleagues as well as the Constitutional problems raised by the Administration. In September 1997 and April 1998, the Finance Committee held several days of oversight hearings regarding IRS practices and procedures. These eye-opening hearing revealed improper and inappropriate IRS practices and in some situations violation of the law. I, along with those taxpayers who watched the hearings, was shocked and deeply troubled with the practices of the IRS. I believe that proper oversight by Congress and the Administration should have reduced or even prevented such activity from occurring. One of the most important functions of the IRS Oversight Board is to prevent taxpayer abuse. The Oversight Board must have access to information that will enable the board to reveal problems, bring problems to the attention of the Commissioner to address, and inform Congress if the Commissioner does not address problems. The Oversight Board should have ``big picture'' oversight authority over law enforcement activity, including examinations, collection activity, and criminal investigations. Taxpayers must be protected from improper and/or illegal activity. Hopefully, the Oversight Board, rather than a congressional committee, will nip problems in the bud and keep the IRS on a straight course. Sec. 1102--Commissioner and Other Officials The bill alters the reporting relationship between the IRS Chief Counsel and the Treasury General Counsel. The bill requires the IRS Chief Counsel to report directly to the Commissioner except for the extremely limited situations where an issue relates solely to tax policy. It is intended that ``tax policy'' would be limited to recommendations relating to tax legislation and the drafting of treaties. The Chief Counsel will report to both the Commissioner and to the Treasury General Counsel with respect to tax litigation and legal advice or interpretation of the tax law not relating solely to tax policy. In the rare circumstance where there is a dispute between the Commissioner and the Treasury General Counsel, the matter must be submitted to the Secretary or Deputy Secretary for resolution. The Commissioner, as the client, must be able to make a decision based upon the legal advice provided by the Chief Counsel. Neither the Treasury General Counsel nor any other Treasury official (other than the Secretary or Deputy Secretary) may overrule the Commissioner's decisions. The Secretary or Deputy Secretary may not delegate this authority to someone else. For example, the Commissioner should be able to decide whether to proceed with a litigation matter or recommend that a case be appealed. If the Treasury General Counsel disagrees, then the issue should be resolved only by the Secretary or Deputy Secretary. Furthermore, the Commissioner should have the ability to interpret the tax law and issue guidance in various forms. The Commissioner should be able to expeditiously issue guidance including regulations, revenue ruling and revenue procedures, technical advice and other similar memoranda, private letter rulings and other published guidance. Once again, if there is a disagreement between the Commissioner and the Treasury General Counsel, the issue must be resolved by the Secretary or the Deputy Secretary. sec. 1103--treasury inspector general for tax administration The bill transfers the IRS Office of Chief Inspector's function to a new Treasury Inspector General for Tax Administration which will provide more effective and efficient oversight over the IRS. The current system in which the Treasury Inspector General, with its limited resources and tax expertise, attempted to provide oversight along with the IRS Office of Chief Inspector which some believed lacked sufficient independence from management, simply did not provide adequate and independent oversight. I was appalled with the current system which allowed issues to fall through the cracks, included little or no ability to follow up on issues, or even to timely investigate media allegations of outrageous taxpayer abuse. The time has come to provide a new, credible Treasury Inspector General for Tax Administration which has the resources and expertise to independently audit and investigate problems within the IRS. Coupled with the IRS Oversight Board and a new more independent National Taxpayer Advocate, this provision in the bill will provide yet another check on the bureaucracy within the IRS to ensure that taxpayers and their problems don't slip through the cracks. While the vast majority of IRS employees are honest, hardworking, and law-abiding, enhanced oversight will help ensure that taxpayers are treated properly. Mr. MOYNIHAN addressed the Chair. The PRESIDING OFFICER. The Senator from New York. Mr. MOYNIHAN. Mr. President, I rise in the first instance to thank our revered chairman, Senator Roth, chairman of the Finance Committee, who brings this measure to the floor with the unanimous vote of the Finance Committee. From the first, ours has been, under his direction, a nonpartisan effort to deal with a nonpartisan issue of the first order of consequence. We are equally, in turn, grateful for the work of the National Commission on Restructuring the Internal Revenue Service. Senators Kerrey and Grassley of our committee and Congressmen Portman and Coyne from the House side contributed significantly to shaping the concept of the Internal Revenue Service as a customer-based agency, as they put it. I believe, sir, that we have done this. We have done it with the aid and the cooperation and the participation of Chairman Bill Archer and ranking member Charles B. Rangel of the Committee on Ways and Means in the House, who worked with us on the committee of conference. Senator Roth was chairman. And the result before you is an exceptional piece of legislation--and not an everyday event. The Internal Revenue Service became a permanent part of our government in 1862 as part of the Civil War Income Tax Act, which was signed into law July 1, 1862, by President Abraham Lincoln. That was almost a century and a half ago. Yet it was not until just last September that the full Finance Committee of the Senate exercised its oversight jurisdiction to ask, how is this enterprise working and where is it going? The hearing illustrated the need for changes at the IRS and encouraged the thinking on the subject which has produced the measure we bring before you today. As evidence of the process already underway by the unanimous confirmation of this body, Mr. Charles O. Rossotti became the Commissioner of Internal Revenue. This was a stroke of administrative inspiration by Secretary Rubin, who went out into the private sector looking not for a tax lawyer--an honorable profession; normally the Commissioners of the IRS have been tax lawyers--but instead for an administrator. He found the head of a large company that specialized in information services of a wide variety, and who was prepared to do this as a public service and not to continue in the line that has been of a particular profession, the practice of tax law. We have established an IRS oversight board of six private persons, the Secretary of the Treasury, and the representative of the IRS employees, and finally the Commissioner of the IRS itself. The board will be responsible for setting the strategic direction and goals of the agency, while the Commissioner will continue to manage day-to-day operations. The Finance Committee--and then the Senate--specifically voted to include the Secretary and employee representative on the board. The conference agreement, which maintained this arrangement, passed the House by a vote of 402 to 8. With the Secretary of the Treasury on the board, the board will know things it cannot otherwise learn. The U.S. Secretary of the Treasury is a world figure. His presence on the board gives it stature within the Government and with the public. The fear was that otherwise it would lapse into a sort of advisory mode that would fail to serve the objectives of this ``reform and restructuring'' legislation. [[Page S7625]] We are pleased that the agreement maintains the position on the board for a representative of the IRS employees. The representative will be able to work cooperatively on the inside rather than working in opposition from the outside. An ongoing problem is how to attract top executives to a government activity which has its counterpart in the private sector where compensation--if I may use that term--is often very high, if not indeed exorbitant, because the amounts of money involved are very large. So to recognize the disparity between government and private sector salary structures, the conference agreement adopted the Senate provision authorizing the appointment by the Commissioner of up to 40 persons to critical positions for 4-year terms with an annual compensation equivalent to the pay of the Vice President of the United States; that is to say, currently $175,400. These will be persons chosen for their particular skills. They will be there for a 4-year period. They will be departing the private sector for an interval of public service at something approaching the salaries they normally enjoy. Other provisions will permit the establishment of a new performance management system focused on individual accountability, and allow for the creation of an incentive award system bringing the IRS into contemporary management modes--out of the model of the civil service that was developed a century ago when we set up the Civil Service Commission, again establishing grades for employees with salaries that were low, but careers that were guaranteed for life. That effort was very controversial at that time. I can record that two Senators from New York State resigned from the Senate when the newly elected President appointed a collector of customs in the port of New York of whom they did not approve. One was Roscoe Conkling; the other, Thomas P. Platt. Mr. Conkling was no friend of civil service reform and once observed that when Dr. Johnson declared patriotism to be the last refuge of a scoundrel, he underestimated the potential of reform. And yet reform didn't come about, a century passed, and we found that the system had not the internal energies to change itself, to adapt to new technologies and new management modes. We hope the IRS will with these new arrangements--the infusion of new people, and a clear understanding that we expect the system to be open, innovative, and ``user friendly,'' in the term the chairman frequently used in our hearings. And we shall see. There are several other measures, Mr. President. I should point out that the conferees were heroic in their determination not to include all manner of extraneous or narrowly-applicable provisions, as is often the case in a tax bill but is not the case, with very few exceptions, in ours. There are two provisions in the conference report, however, that are of special interest to the Senator from New York. The first adopts the Senate provision for a complexity analysis requirement. It requires the staff of the Joint Committee on Taxation to provide an analysis of the complexity and administrative issues associated with tax legislation reported by the Finance Committee and Ways and Means Committee. The provision is intended to provide notice, prior to floor consideration, about provisions that have widespread applicability and may be unduly burdensome for taxpayers to understand and comply with, or difficult for the IRS to interpret and administer, or both. I might interject that when this was before us in the Finance Committee, the distinguished chief of staff of the Joint Committee on Taxation said that she looked forward to this, but that she was fearful as to whether the joint committee could begin this complicated effort so long as it was burdened with the task of determining which items in tax legislation were subject to the line-item veto, a detailed and exhaustive analysis of every tax bill, which was a new responsibility for the joint committee. I am happy to say, in the weeks since that exchange took place, the Supreme Court has dutifully and properly declared the line-item veto to be unconstitutional. So one of the unintended consequences--I cannot imagine the Court had this very much in mind--is that the joint committee is now in a position to begin a type of analysis which is new to American legislation. We are in the practice of having an increasingly complex Tax Code. There can surely be no question that we are dealing with the problems that we found in the Internal Revenue Service because the Internal Revenue Service has to administer a Tax Code that is frequently incomprehensible. An almost priestly hierarchy understands its meanings and can work them through the tax courts and such like. But to the public and, too, the Congress, they are often simply incomprehensible. I remember standing on this floor a year and a half ago with an 800- page tax bill, Mr. President, and that was the only copy of the tax bill on the Senate floor, which we were about to vote for 92-8. A copy provided to the distinguished chairman had been promptly appropriated by the Budget Committee to see if there were any budget points of order, and so the one copy was here on this desk, and Senators on both sides of the aisle would come up and ask whether a provision they had an interest in was in the bill, and I would say, ``I hope in good spirit I can find out, but what will you pay me?'' Indeed, there was no other way for the Senator to learn. And this is not an unusual event. I am going to say this not once but twice because we have to start attending to our own behavior in these matters. I was one of the participants in the enactment of the Tax Reform Act of 1986. This was a wonderful, collegial experience led by our good friend and former colleague, Senator Packwood, along with Senator Chafee, Senator Danforth, a ``core group,'' as we called ourselves, of about six of us. We would meet for coffee at 8 o'clock every morning in Senator Packwood's office, and it would be my job, rather as the dean in a cathedral, to provide a reading for the morning. I would make sure I got the Wall Street Journal early, and without a great deal of effort I would find the advertisements where you would see a little classified ad which would say, ``Rocky Mountain sheep, guaranteed losses.'' And the Wall Street Journal would tell you how you would be certain to lose money in such a manner that the code would eventually reward you for your losses, which is an interesting game to play if you are interested in C notes but not a very productive form of economic activity. Well, we cleaned up that Tax Code. We brought the rates down from, oh, half a dozen income tax rates to 28 percent and 15 percent--two rates. We did ``base broadening'' as the term was; more and more income became subject to taxation, so the rates of taxation could be lowered. And when it was all over, to our surprise and rather to the consternation of the tax bar, you might say, we had, indeed, produced a fairly simple and comprehensible Tax Code. That was 1986--1986, Mr. President. What you have before you, sir, what we have in the Senate before us-- and my revered chairman will know this better than anyone else present--we have the 65th public law to amend the Internal Revenue Code since the Tax Reform Act of 1986. We have passed 65 tax bills. That comes to about six a year. If you were assigned that task, you would say it would be impossible to achieve; it would be asking too much of our staffs and our Members. But we have done this heroic, if absurd, task, and it has to be said again that simplification is the essence of justice and efficiency in the code. We are a large, complex economy, an international economy. We are not going to have a simple code, but there is no reason we should have an incomprehensible one, particularly when the complexities often reflect the influence of special interest in the code. In this regard, not many weeks ago we heard testimony from one of our Nation's most distinguished and accomplished economists, Murray Weidenbaum, who had been chairman of the Council of Economic Advisers in the administration of President Reagan. I served with him in the administration of President Nixon. At that time he took it upon himself to explain and popularize the idea of revenue sharing--get Federal revenue out to cities and States, let them decide [[Page S7626]] how to spend it, and reduce the dependency on administrative judgments, decisions, and statutes here in Washington. That was a very fine idea which we lost to the budget deficits of the 1980s. But Murray Weidenbaum made a powerful point, coming from a powerful mind. He said, if you spend all your income, the American Tax Code is simple. You just fill out a one-page form: I made $50,000 last year, spent $50,000; I made $100,000, I made $100 million--God in heaven knows there are some who do--but I spent it all, and my taxes are as follows. It is only when you begin to save that the Tax Code gets complicated. Of course, our largest economic question right now is the rate of savings in the American economy. The fact that we have large trade deficits basically reflects that we are importing capital. We have the lowest savings rate of any industrial country in the world--or any prime industrial country of which I am aware. It is quite striking. I would not argue this is the principal factor, but it is the fact that if you save money you can get in trouble with the Internal Revenue Code. Whatever else, that should not be the case. It is the case. I think the complexity analysis, particularly if it is directed with this kind of issue in mind, has the potential of a very important innovation in the development of tax legislation. Don't expect it to change anything in the next 3 or 4 years, but in 20 years' time we might find that this small provision in this large legislation had large consequences. One other item. In the interval since this legislation was agreed to, the majority and minority leaders have created a special committee on the year 2000 problem, with a hurry-up reporting date. But during the Finance Committee's consideration of the bill, Commissioner Rossotti specifically noted, in a six-page letter, that some of the changes the chairman has described in such admirable detail would overburden the IRS's ongoing efforts to upgrade its computers to allow for the century date change. In time we came to see the need for the effective-date changes he recommended--and Secretary Rubin reinforced this in a typically succinct one-page letter. We have, in the main, accommodated the Commissioner in this regard. I think this is probably the first statutory recognition of the year 2000 problem, which we are going to know a lot more about in very short order. Now, briefly, a few matters of concern. Contrary to the unanimous opposition of the tax profession, this legislation includes a provision that shifts the burden of proof in civil cases from the taxpayer to the IRS. We all live in the real world and no one on the surface would ever think it right that the burden of proof be on a taxpayer, not the Government. But reality can be different. Four former IRS Commissioners, who appeared on a bipartisan panel before the committee, testified that shifting the burden of proof would cause more harm than good to the taxpayer. Similar sentiment was expressed by dozens of professors of tax law. Their concern is that this provision will result in more intrusive IRS audits, create additional complexity and litigation, and create confusion for taxpayers and the IRS as to when an issue needs to be resolved in court and when the burden has shifted. I recognize the political popularity of the provision, but I fear it may actually prove to work against the taxpayer. Be warned--persons who have the best reason to be impartial in their judgment have said this is not going to help, it is going to make things yet more difficult. Another provision certain to cause confusion and to lead to additional litigation with the IRS is the expansion of the privilege of confidentiality to tax advice furnished by accountants. This new privilege may be asserted in noncriminal tax proceedings before the IRS and in Federal courts. However, like the current attorney-client privilege, information disclosed for the purposes of preparing a new tax form is not privileged and the conference agreement precludes application of the expanded privilege to written communications to a corporation ``in connection with the promotion of the direct or indirect participation of such corporations in any tax shelter.'' This is a right that most taxpayers will never be eligible to assert, and many will be surprised to learn about its limitations. One provision that the bill does not include, and should, is the correction of a drafting error in the 1997 act which gives a windfall to the few estates in this country with a value of more than $17 million. It costs nothing to fix, and the joint committee estimates that the failure to correct this error would cost taxpayers $900 million in the next 10 years. The Senate bill fixed it. But somehow the conferees could not reach agreement. Finally, Mr. President, and possibly most important, I direct the Senate's attention to a modest, but hugely significant, semantic triumph that has been included in this legislation. Section 5003 of the conference agreement replaces in U.S. trade law the confusing 17th century phrase ``most-favored nation,'' which begins with the French phrase ``la nation la plus favorisee.'' We now replace that term with the plain American term ``normal trade relations.'' This relieves the President and the Congress of the burden of having to ask, why is this typically not-very-popular country being made a most-favored nation? Why, for example, is there now a dispute about whether Vietnam should be given most-favored-nation status? Of course, it is not most-favored nation; it simply means you get the same treatment that the most- favored nation, some other nation most favored, gets. It is antique usage that immediately confuses everyone involved, and now we will be able to say we propose ``normal trade relations.'' It is plain English and avoids the needless misunderstandings that have accompanied that other term. I do not want to overburden the Senate with detail, but the most- favored-nation concept is well over 700 years old. It has been traced by historians to a clause in the treaty of November 8, 1226, in which Frederick II, Emperor of the Holy Roman Empire, conceded to the city of Marseilles the privileges previously granted to the citizens of Pisa and Genoa. Not greater privileges, but merely the same. The term itself is perhaps a little more recent. The first use that we can come across specifically is in the treaty of 1659 between France and Spain, which guaranteed that the subjects of each sovereign, while in the realm of the other, would be treated as the most-favored nation. Again, the phrase ``le plus favorablement,'' or in modern French, ``la nation la plus favorisee''--having the same rights as were granted the English and the Dutch. In the main, the usage has become counterproductive. It confuses the public as to what is being proposed. I think it is fair to say sometimes it confuses the Congress as well, and we are well to be rid of it. I think it is past time and, if I may say, this is a matter that the Finance Committee has had in mind for some while. The distinguished and revered chairman and I introduced legislation last year for this purpose, and now we see it about to become law. Mr. President, I thank you for your courtesy, and I have said my piece on the matter. I yield the floor. Mr. GREGG addressed the Chair. The PRESIDING OFFICER. The Senator from New Hampshire. Mr. GREGG. Does the Senator from Nebraska wish to speak? Mr. KERREY. I am prepared to proceed. Mr. GREGG. I am going to speak about 10 minutes. Will that be an inconvenience to the Senator, or does he have to get somewhere? Mr. KERREY. One of the things I want to do, and I will be pleased to step aside for 10 minutes, I want to engage in a short colloquy with the distinguished Senator from New York on this bill. I will try to be as brief as possible and then yield back to the Senator. I have a longer statement I will make on this legislation. The PRESIDING OFFICER. The Senator from Nebraska. Mr. KERREY. I thank the Chair, and I thank the distinguished Senator from New Hampshire. One of the things the Senator from New York has referenced--and I will later in my remarks praise both he and the chairman of this committee for what they have done in bringing this legislation to the floor--one of the things the Senator referenced in his comments was the 1986 Tax Reform Act. Indeed, this bill, it should be noted by colleagues, [[Page S7627]] amends that act. So this would be the, I guess, the 65th tax bill we have passed since 1986. I wonder if the Senator from New York can engage briefly in a discussion for the benefit of the Senator from New Hampshire and for those who happen to be watching this debate. One of the things that we struggle to do as citizens is to understand what it is that the government is doing and why. Under our constitutional authorities as a Congress we have a whole range of things we are charged with doing. One of the most difficult things we are charged with doing, once we have decided we are going to have a government of any kind at all, is we have to collect taxes and what to use those taxes for and we then have to decide who is going to pay the taxes, and we write the law accordingly. We then distribute the money to the various agencies of government that we previously created. I wonder if the Senator from New York, with his understanding of the rest of the world, can talk a little bit about how much we take for granted our capacity to voluntarily collect. We have a voluntary system of tax collection, unlike many other nations on Earth. I know right now one of the most difficult problems, for example, that the newly democratic Russia is facing is their capacity to collect tax revenues in sometimes a not-so-voluntary fashion. I wonder if the Senator can talk a little bit about the constitutional issues of us raising the taxes to pay for the government and the importance of our being able to maintain a voluntary system of tax collection. Mr. MOYNIHAN. I certainly will. I will be succinct, because nothing could be more clear. The United States is blessed with a citizenry that pays its taxes on time and in full. There are exceptions, but we do it voluntarily. Technically, we self-assess; we decide ourselves what we owe the government. The rate of compliance is very high. Up until just recently, and it is just beginning to change, for example, in the United Kingdom, which we associate with and we think of as a free society, and it certainly is, the subjects of the queen did not decide how much taxes he or she owed; the queen decided. They were sent a bill. You are free to contest it in court, and you can contest it in court the rest of your life, but you still have to pay the bill. So the idea of complexity in this system, making it so difficult to know what it is you owe jeopardizes a precious institution, which is the faith of the public in the good intentions and performance of the government itself. That, I think, was one of the reasons the Kerrey Commission called for the reforms that are in this legislation of the IRS. You can have an openness and a sense that things are on the level here and government is doing the right thing. Mr. KERREY. I thank the Senator for delaying his exit from the floor. I appreciate very much that reference. Mr. President, I believe this piece of legislation goes to the heart of our capacity to maintain government of, by and for the people. Our republican form of government is at risk if people feel they are not getting a fair shake with this voluntary system of collection. Congressman Portman and I cochaired this restructuring commission. We noted U.S. tax collection is the most efficient in the world. Less than half of a percent of the total revenues collected is in cost. In the face of mounting criticism, problems, it seems to me it is very important to make certain that as we write the laws that will determine how this money is collected, that we not throw the proverbial baby out with the bathwater. We have problems, and this legislation attempts to correct the problems. But underneath these problems is a relatively efficient system of collecting taxes that enables the citizens to fund their Government, and in a relatively efficient fashion. Mr. MOYNIHAN. Indeed. Mr. GREGG addressed the Chair. The PRESIDING OFFICER. The Senator from New Hampshire. Mr. GREGG. Mr. President, I wish to join with what I am sure will be numerous Senators in congratulating the Senator from Delaware and the Senator from New York and the Committee on Finance for bringing forward this exceptionally good bill which is truly timely. Many of us, as we have tried to help folks out in our States, have run into situations where people have been treated in ways which can only be described as abusive by the Internal Revenue Service, where the Internal Revenue Service has gone way beyond the appropriate action for the purposes of collecting the revenues of the country and has treated American citizens in a way that you might expect were they to be living in a police state instead of in a democracy. In my experience, probably one of the worst cases I have ever seen of Government excesses involves a family known as Barron in New Hampshire. That family, unfortunately, got into some tax trouble, failed to pay its taxes, and the IRS, in an appropriate way, attempted to collect those taxes--at least appropriately at the beginning. But then it got carried away. And as a result of getting carried away, it put that family through an extraordinary trauma, to a point where Mr. Barron ended up committing suicide. And his wife, Shirley Barron, who is now responsible for the family, found herself in a situation which was beyond all reason, which was untenable and which was horrible. A lien had been put on her house. Her children's bank accounts had been taken. Her bank accounts had been taken. The IRS was even making it impossible for her to pay her electric fee, her utility fees. This all occurred after a time period when they thought they had reached an agreement with the Internal Revenue Service. They thought an understanding had been reached, and, in fact, an understanding had been reached. Then the IRS, in a manner which can only be called bait and switch, backed out of that agreement and assessed them with even more penalties and interest. And on an original tax bill which was, I believe, somewhere in the vicinity of $20,000 or $40,000, they ended up with an obligation, according to the Internal Revenue Service, of multiple hundreds of thousands of dollars. It was a situation which was so horrendously handled that it literally drove Mr. Barron to commit suicide, destroyed the lives of this family. And it has become a cause celebre in New Hampshire, and to some degree nationally. It would be terrible in and of itself, because there is really nothing we can do as a Government to correct what happened to Mrs. Barron and the treatment she received. Her life has been irreparably harmed, and her family will always suffer as a result of this. It would be terrible enough if it were the only instance of this type of situation occurring, but as we saw from the hearings which the Senate Finance Committee held under Chairman Roth, it was not the only instance. Regrettably, on too many occasions the Internal Revenue Service has acted in this almost malicious but certainly abusive way. This does not mean that the Internal Revenue Service is populated with people who wish to treat American citizens, taxpayers, in a manner that is totally inappropriate. No. In fact, just the opposite. The Internal Revenue Service is filled with good and conscientious people, in my opinion; but there are bad apples. More importantly than that, the Service has created an atmosphere, a way of management, a culture, which has allowed the excesses to proceed in the actions against taxpayers which are beyond the pale of reasonableness to become commonplace, through the lack of management and, in my opinion, due to lack of structure, both legal and managerial. So this bill attempts to correct that. The most important thing it does, or one of the most important things it does, is it shifts the burden of proof, gets us back to where we should have been to begin with, which is to presume that the taxpayer is innocent rather than presuming that the taxpayer is guilty until the taxpayer has proven himself or herself innocent. That is very important, so that the taxpayer goes in at least on some level of a playing field which has some levelness to it versus a playing field which was radically tilted against the taxpayer under the present structure. In addition, the bill protects the innocent spouse. In so many instances, the spouse is a part of the familial activity as being part of a family; signs [[Page S7628]] the return without a great deal of knowledge of what is in that return, sometimes without any great knowledge of what is in that return, but signs it and then finds out later on, as was the case in Mrs. Barron's situation, that action has been taken that was inappropriate and liability exists. And when the spouse who is responsible disappears, as a result of divorce, or in this case as a result of death, the innocent spouse ends up with an obligation which is totally inappropriate. So the protection of the innocent spouse is absolutely critical and a very, very good part of this bill. In addition, the bill takes what I think is a critical step in the area of managing the Internal Revenue Service's procedures because it limits the ability of the Internal Revenue Service to assess interest and penalties in a manner which uses the interest and penalties to basically force settlements on the taxpayer, even when the taxpayer feels they did not owe the obligation. There is no question but that the basic collection process at the Internal Revenue Service proceeds with, in many instances, running up the interest and penalty obligations so when they get into negotiations with the taxpayer, even if the taxpayer knows they do not owe the taxes, the utility of proceeding becomes so expensive, it becomes so impossible to ever want to proceed in a manner which would put you at risk for the interest and penalties which have been run up that you end up paying the underlying tax and negotiating out the interest and penalties. That is a collection process which, regrettably, has become the modus operandi of the Internal Revenue Service. This bill puts some limitation on that by limiting the ability of the Internal Revenue Service to run those interest and penalties up if they have not notified the taxpayer within a timely manner--18 months initially, 12 months as time goes out--that an obligation is due or they perceive that an obligation is due. This is an extremely important change in the collection process. In addition, the bill provides much better services to the taxpayer, which is critical. Thus, I am extremely supportive of this effort. I say this. It does not resolve the problem. The problem goes to the basic law. The fact is that we have created a tax law which is so complex, so convoluted, such a mishmash of regulations and cross-purpose legislation, that it becomes basically unenforceable because it is not comprehendible. After finishing law school, I went back to school for 3 years and got a graduate degree in tax policy with an LL.M. I have to say, I do not fill out my own tax return because it is simply too complex. Now, if I cannot do it, how can somebody who is just working every day and trying to make ends meet be able to do it? Obviously, they cannot. And what we see in the collection atmosphere is that the Internal Revenue agents, regrettably, because of the complexity in many instances, do not understand it because it is not understandable. So the law itself is a basic problem here, and we simply have to reform the law if we really want to correct this problem. We have to go to a much simpler law, a fairer law, something that can be managed in a way that is comprehendible to people who are working every day and trying to fill out their return, who don't happen to be specialists. As an interim step, as an effort to try to correct what is basically a law that is not enforceable effectively but is being enforced in a manner which in many cases is abusive--as an interim step, this bill makes great progress. Thus, I congratulate the committee for their efforts. I hope it will not be looked at as the end of the process but will be looked at as a step in the process to reforming our tax laws so that they can be administered in a way which will regain the confidence of the American people that they are fair and that they are reasonable. I yield the floor. The PRESIDING OFFICER. The Senator from Wyoming. Mr. THOMAS. Mr. President, I come to the floor, as many other Members have, to speak in favor of the IRS reform bill that is before the Senate. As the Senator from New Hampshire indicated, I want to take just a little bit of a different approach. We talk about this as one of the steps in the changes that do need to be made. I do come to the floor to express my support for the package. The agency, of course, has basically run roughshod over American taxpayers for too long. This is the first significant reform in this agency in over four decades. Congress should do more of this kind of oversight. It seems to me in this whole business of funding the Government, this whole business of appropriations, that we need to find a way to have more time for oversight. That is why I am supporting and continue to support a biennial budget in the appropriations process, so we would have off years to do this kind of thing for many other agencies. Basically, I guess my point is that this is an important part of the Republican agenda, of our agenda, to do things about taxes. No. 1, of course, is to have tax reduction. I think American families deserve that. I think it is good for the economy. It has to do with having less Government and a smaller Government. IRS reform is part of it, and this is a great step in that direction. Certainly, the third point is simplification of the Tax Code. I think, also, that is a necessary element before we find satisfaction with our Tax Code. So, reducing taxes, IRS reform, and simplification comprise a three- pronged agenda, one which I support. Last year we made some progress in terms of reducing taxes, reduced them in capital gains, reduced estate taxes, installed a $500-per-child tax credit, expanded IRAs, and passed other important small business tax reductions. I would like to go forward in that area, and I hope we shall. Further reducing capital gains, eliminating estate taxes, reducing and eliminating the marriage tax penalty are areas in which we can make progress. This year we will reform IRS, the Federal agency that has interaction with more Americans than any other agency. I salute Senator Roth and the Senator from New York and members of the Finance Committee for holding fast against the initial White House reluctance and opposition to reforms in this agency. His hearings, the committee's hearings, brought to light many unbelievable abuses of taxpayers by this agency. This reform package, then, increases the oversight on IRS, holds IRS employees more accountable, makes IRS a more service-friendly agency, puts the law on the side of the taxpayer, has some very key provisions: Taxpayer confidentiality, extends the attorney-client privilege to accountants, reverses the burden of proof from the taxpayer to the IRS, guarantees 30 days to request a hearing of disputes, gives new powers to the taxpayers who petition the courts to contest decisions, and reforms the management of the IRS. These are all good things. The third part of our agenda, which is still there and I believe is of paramount importance if we are to really change the tax atmosphere: I think we have to address the basic underlying Tax Code. Hopefully, that will take place in the next year or two. We plan to significantly reform the Tax Code and to eliminate the complexity that is now there. There seems to be some misunderstanding about one of the proposals now which would terminate the current Tax Code in the year 2001. It does not eliminate the Tax Code, it simply gives a time certain in which a new Tax Code needs to be devised. The IRS is responsible for creating many of the problems the taxpayers have, but Congress needs to bear the burden of fixing the current Tax Code. There are 17,000 pages of inherently confusing data that need to be changed. Taxpayers spend $200 billion and 5.4 billion hours to comply with the tax law. The IRS employs over 100,000 people, more than five times the number of the FBI. After 80 years of abuses by lawmakers, lobbyists, and special interests, the tax system is unfair, complex, it is costly and punishes work, savings, and investment. Certainly there is a great opportunity for basic recodification of the Tax Code. I support plans, of course, that have the basic elements of fairness, of simplicity, reducing the overall tax burden. It is interesting, as you go about in your State, my State of Wyoming, and [[Page S7629]] ask how many people like the Tax Code the way it is now, nobody responds, of course. Then you say: What do you want to do about it? Do you like sales tax? Do you like flat tax? Do you like consumption tax? But we haven't come, yet, to a consensus on what the replacement ought to be. That is the challenge before us. I am pleased we are about to pass this historic bill, complete the second part of a three-pronged tax agenda. I hope soon we will move to finish the job and fundamentally reform the Tax Code. I yield the floor. Mr. GRAMM addressed the Chair. The PRESIDING OFFICER. The Senator from Texas. Mr. GRAMM. Mr. President, I rise in support of the conference report on IRS reform. What I would like to do is very briefly give a summary of the two philosophical approaches that were initially embodied in the debate, why I believe we chose the better of the two, and then I will outline the few issues in the bill that I feel very strongly about. First of all, when we started learning of IRS abuses--something that most of our offices heard about from constituents from the very beginning of our congressional service--and then when we saw it in its rawest form in testimony before the Finance Committee, I think there were two basic approaches or responses people had. I think one view was that people at the IRS had become insensitive, that there was something wrong with them, and that what we needed was a massive effort to try to sensitize people in the IRS. I have to say, that is the administration's initial viewpoint. It was as if they thought we could solve the problem simply by hiring every sociologist in the country and have them sit down individually with IRS employees and