The Internal Revenue Service Restructuring and Reform Act of 1998.

On June 23, 1998, Tax Executives Institute submitted the following comments to the House-Senate conferees reviewing H.R. 2676, the IRS Restructuring and Reform Act of 1998. The comments supplement the Institute's testimony at a January 29, 1998, Senate hearing on proposals to restructure and reform the IRS. The comments took the form of a letter from TEI President Paul Cherecwich, Jr. Mr. Cherecwich's January testimony is reprinted in the January-February issue of The Tax Executive; supplemental comments were printed in the May-June 1998 issue.

Tax Executives Institute, Inc. is pleased to submit the following comments for consideration by the House-Senate conferees on H.R. 2676, The Internal Revenue Service Restructuring and Reform Act of 1998. The 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 2,800 companies in North America; they are responsible for conducting the tax affairs of their companies and for ensuring their compliance with the tax laws. TEI members deal with the tax laws and with the Internal Revenue Service on almost a daily basis, and the Institute 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 and to enhance taxpayer rights.

General Comments

H.R. 2676 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. The Institute commends the members of the House Committee on Ways and Means and the Senate Committee on Finance -- especially those members who served on the National Commission on Restructuring the IRS whose work laid the foundation for the legislation -- for their leadership and for their efforts to achieve an appropriate balance between the needs of the IRS (which is charged by Congress with collecting the revenues necessary to fund government programs) and taxpayers (who are clearly entitled to be treated with respect and professionalism by an adequately trained and properly motivated workforce).

The task confronting the IRS is a daunting one -- enforcing the tax laws, processing 200 million tax returns annually, and collecting the $1.5 trillion necessary to run the federal government, all in an efficient, fair, and evenhanded manner. Most people pay their fair share of taxes voluntarily, without problems and, indeed, without even coming into contact with an IRS employee. Other taxpayers, however, for a variety of reasons (including purposeful noncompliance) do not. Congressional hearings, both last fall and this spring, demonstrated that the IRS has not always succeeded in its dealings with taxpayers. Although TEI and its members have experienced the same frustration that has prompted calls to "abolish the IRS" or "tear the tax system out by the roots," the Institute recognizes that the facile, "easy" solution to what ails the IRS -- dismantling the agency -- is the wrong one. Some type of organization is necessary to collect the taxes Congress imposes, and it would be unwise to assume that a new agency could avoid all the shortcomings of the IRS simply because it is a new agency. The key is to focus on particular problems, to attack and resolve them, and to move forward. The key is to move away from rhetoric and toward practical, responsible solutions.

Stated simply, there is no magic cure for what troubles the IRS, no panacea. To be sure, the IRS and its employees must be held accountable, as must those taxpayers who fail to fulfill their legal obligations. For IRS reform to be successful, the agency must address training, operations, technology, culture, and taxpayer education -- and the public's confidence in the IRS must be restored. These issues are interrelated. TEI agrees that the culture of the IRS must be changed. Granting the Commissioner greater discretion in recruiting, rewarding, and retaining the agency's top managers is critical to fulfilling one of the objectives of IRS restructuring and reform -- ensuring that taxpayers deal only with IRS employees who are trained adequately and possess the skills and tools necessary to do their jobs well.

In the comments that follow, TEI sets forth its recommendations on significant provisions of the House and Senate versions of H.R. 2676 that differ materially from each other.

IRS Oversight Board

Both the House and Senate versions of H.R. 2676 would create an Internal Revenue Service Oversight Board to provide continuing oversight of the IRS. Under section 101 of the House bill, the Board would consist of 11 members (including 8 "private-life" appointees), whereas section 1101 of the Senate bill would create a Board consisting of only 9 individuals (with 6 "private-life" members). Under each bill, the Secretary of the Treasury, the Commissioner of Internal Revenue, and a representative of an organization representing a substantial number of IRS employees would be appointed to the Board. Believing that a smaller Oversight Board would operate more efficiently (and be less likely to be dominated by "constituency politics"), TEI urges the conferees to adopt the Senate bill's provision on the size of the Board.

In respect of who should serve on the Board, the Institute generally believes that members should be selected on the basis of their expertise in areas such as general management, finance, technology, and personnel. Hence, although TEI appreciates the reasoning underlying the decision to include a union representative on the Board (specifically, the need to secure the support of IRS employees in order to enable the agency to meet...