IRS restructuring bill leads to relief for state and local governments.

• Author: Kimmel, Thomas C.
• Position: Internal Revenue Service

After hearing weeks of emotional testimony from taxpayers and agents about abuses by the Internal Revenue Service (IRS) that made for dramatic sound bites on the news, Congress passed legislation that should result in the most significant changes at the IRS in nearly half a century. President Clinton's signing on July 22, 1998, of the Internal Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-206) culminated nearly a year of sometimes partisan political struggle on how to reform and modernize the agency which is responsible for collecting 95 percent of the country's revenue.

The President's signature on the bill represented a turnaround on legislation that he originally opposed because of provisions that would shift the burden of proof in enforcement actions from the taxpayer to the IRS. In addition, the new law contains sweeping reforms in IRS management, new taxpayer rights, congressional oversight, and provisions regarding electronic filing.

In a surprise development during Senate consideration of the legislation, Senator Orrin G. Hatch (R-UT) offered an amendment that resulted in the bill's most significant change affecting state and local governments: new rights for issuers of state and local government bonds to appeal a determination by the IRS that their bonds are taxable. It is hoped that the new appeal rights will give issuers leverage in dealing with the IRS where none previously existed.

Management Organizational Changes

Some of the most compelling testimony presented to congressional committees came from agents who spoke of directives from senior managers to target particular groups of taxpayers for audits because the IRS felt they would be less likely to fight the audits. The Congress reacted to these perceived abuses with significant structural reorganization and managerial changes designed to provide additional congressional control of the agency.

The legislation provides for a new nine-member oversight board to be appointed by the President with the advice and consent of the Senate. One member shall be the Secretary of Treasury and another the Commissioner of Internal Revenue. Six members are required to be citizens who are not federal officers or employees. The six non-federal appointees must have expertise in one or more of the following areas: management of large service organizations, customer service, federal tax law, information technology, organization development, the needs and concerns of taxpayers, and the needs and concerns of small businesses. In one of the most politically divisive issues, the final member of the oversight board must be a full-time federal employee or representative of employees. Republican members of Congress fought hard with the administration to remove the last board member who in...