Proposed legislation to restructure and reform the Internal Revenue Service.

• Position: Tax Executives Institute testimony, January 29, 1998

On January 29, 1998, Tax Executives Institute testified before the Senate Committee on Finance on proposed legislation to restructure and reform the Internal Revenue Service. The Institute's testimony, which was presented by TEI President Paul Cherecwich, Jr. of the Salt Lake City Chapter, focusses primarily on H.R. 2676, a bill that overwhelmingly passed the House of Representatives in November 1997. TEI's earlier submissions on this topic appeared in the November, December 1996, July-August 1997, and September-October 1997 issues of The Tax Executive.

Good morning. I am Paul Cherecwich, Jr., Vice President-Taxes and Tax Counsel for Thiokol Corporation in Ogden, Utah. I appear before you today as the president of Tax Executives Institute, the largest group of in-house tax professionals in North America. The Institute is pleased to submit these comments on proposals to restructure and reform the Internal Revenue Service -- H.R. 2676, which has been styled The IRS Restructuring and Reform Act of and its Senate counterpart, S. 1096. The legislation, which passed the House of Representatives last November with overwhelming bipartisan support, is based on the work of the National Commission on Restructuring the Internal Revenue Service (of which Senator Kerrey was co-chair and on which Senator Grassley served). In the Institute's view, the legislation holds great promise for improving the management and oversight of the IRS and for significantly enhancing taxpayer rights while giving the agency the tools necessary to fulfill its congressionally approved mandate.

1. Background

   Tax Executives Institute is the professional association of corporate tax executives. Our 5,000 members are accountants, attorneys, and other business professionals who work for the largest 2,700 companies in North America; they are responsible for conducting the tax affairs of their companies and for ensuring their compliance with the tax laws. Hence, TEI members deal with the tax laws and with the Internal Revenue Service on almost a daily a basis. (Most of the companies represented by our members are part of the IRS's Coordinated Examination Program, pursuant to which they are audited on an ongoing basis.) They also have day-to-day dealings with senior corporate management and corporate boards of directors and, accordingly, know first-hand the strengths and weaknesses of the corporate governance model. TEI believes that the professional training and experience of our members enable the Institute to bring an important, and balanced, perspective to the issues involved in efforts to restructure and reform the IRS.

2. Setting the Tone for a Constructive Debate

   1. The Emerging Consensus At the outset, TEI commend the members of the National Commission on Restructuring the IRS, the House Committee on Ways and Means, and this Committee for their unstinting efforts to identify areas of concern, to seek out the views of interested parties, and to craft thoughtful solutions. We especially commend the members of Congress who have cosponsored comprehensive restructuring legislation, and who have remained open to modifications in an effort to develop a bipartisan consensus for enhancing the management and of the IRS. Even though TEI disagrees with certain provisions of H.R. 2676, the Institute is convinced that the proposed legislation holds great promise for improving the Internal Revenue Service. The daunting support the bill garnered in the House of Representatives (426 to 4), coupled with the Clinton Administration's constructive support, speaks volumes not only of the bill's appeal but of the care the sponsors have taken in addressing a plethora of complicated issues.

      This is not to say, of course, that the bill cannot be improved. As this statement makes clear, TEI clearly believes it can. As the legislative process moves forward, however, TEI believes it is important that the perfect not become the enemy of the good. We also believe it is imperative that everyone concerned -- Congress, the Administration, the IRS itself, stakeholders in the private sector, and the public -- acknowledge that consensus has already been attained on a wide variety of issues, including the critically important issue of Executive Branch governance. Hence, the biggest obstacle to reform -- acceptance of the need to bring greater continuity, accountability, and expertise to the management and oversight of the IRS -- has already been removed. The key now is to ensure that whatever changes are adopted do not impede the IRS's ability to do its job -- collecting the revenue necessary to run the government -- today and into the future.

   2. The Need for a Balanced Approach. TEI is especially pleased that nearly all parties recognize that there is no single solution to what ails the IRS. What is needed is a balanced, integrated approach. One change -- say, the appointment of an IRS Oversight Board -- will not transform the agency unless it is effectively coupled with others, including coordinated and streamlined congressional oversight, stronger leadership by the Commissioner and senior IRS management, an increased focus on customer service, and the assurance of effective performance measures. Indeed, one of TEI's primary concerns is that the establishment of an oversight board not become just another layer of bureaucracy within the IRS. By itself, such a board will not make the agency more responsive and may even impede the government's ability to improve the development and administration of our tax laws. In tandem with other changes, however, enhanced Executive Branch oversight of the IRS can increase management accountability and contribute to a tax system that properly focuses on customer service without minimizing the importance of ensuring taxpayer compliance.

   3. Focusing on the Future. Once again the focus of these hearings should be on the future. We should concentrate on clearly defining expectations, on streamlining and strengthening oversight of the agency by both the Treasury Department and Congress, and on providing the IRS with sufficient (and stable) budget resources to modernize its systems, to serve the public, and to ensure compliance with the tax laws. To the extent TO has a regret about the process that has brought us to this point (including the Finance Committee's hearings last fall), it is the tendency by some to "play to the gallery" and engage in unconstructive, vitriolic criticism of the IRS and its personnel. To be sure, IRS management can be improved, but there is plenty of blame to go around. Unfounded, misplaced, and exaggerated attacks on the agency may have surface appeal and score well in public opinion polls, but in our view, they are not constructive; they are part of the problem, not the solution. The keys to giving the American people the tax system they deserve are to remain focussed on the future, to resist the temptation to micro-manage the IRS's day-to-day activities, and to complete the legislation as soon as possible so the IRS can get on with its work.

3. The Need for Meaningful Simplification

   Although the focus of these hearings is on improving the Internal Revenue Service, we believe it both proper and fair to observe that Congress itself bears a full measure of responsibility for the problems that plague the tax law and its administration. TEI respectfully submits that the biggest steps Congress can take toward meaningful reform are, first, to resist the temptation to use the tax system to address every social or economic ill that confronts the Nation and, second, to work to simplify the tax laws already on the books. Without a doubt, the taxpayer rights title of H.R. 2676 is important and TEI agrees that many of the proposed protections are laudable and merit enactment. At the same time, it should be remembered that the biggest abuses come not from excessive actions by IRS personnel but from the highly complicated laws and onerous administrative procedures that Congress enacts and the President signs into law One need look no further than the complexity, complications, and confusion spawned by the Taxpayer Relief Act of 1997 for a prime example of how not to write the tax laws. As Winston Churchill...