INTRODUCTION OF H.R. 2292--THE INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1997
(Extensions of Remarks - August 01, 1997)

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[Extensions of Remarks]
[Pages E1605-E1607]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 INTRODUCTION OF H.R. 2292--THE INTERNAL REVENUE SERVICE RESTRUCTURING 
                         AND REFORM ACT OF 1997

                                 ______
                                 

                            HON. ROB PORTMAN

                                of ohio

                    in the house of representatives

                        Thursday, July 31, 1997

  Mr. PORTMAN. Mr. Speaker, yesterday I was pleased to introduce with 
my colleague, the gentleman from Maryland [Mr. Cardin], H.R. 2292--the 
Internal Revenue Service Restructuring and Reform Act of 1997. This 
bipartisan legislation is an outgrowth of the work of the National 
Commission on Restructuring the Internal Revenue Service, which was 
charged with taking the first comprehensive look at the IRS since 1952. 
The commission created a blueprint for transforming the IRS into a 
world-class service organization that serves all Americans. Now, we are 
taking the first step toward fulfilling the promise of providing better 
service to the American taxpayer.
  Congress created the National Commission on Restructuring the 
Internal Revenue Service in response to mounting public concerns about 
the performance of the IRS. The commission was a bipartisan, bicameral 
effort--I co-chaired the commission with Senator Bob Kerrey, a Democrat 
from Nebraska. Senator Charles Grassley, a Republican from Iowa, and 
Congressman Bill Coyne, a Democrat from Pennsylvania, also served on 
the commission. The commission also had considerable expertise--members 
included a former IRS commissioner and Treasury Department official; a 
former head of the Congressional Joint Committee on Taxation; the 
former head of the New York state tax system; the chairman of the 
California State Board of Equalization; and a representative of: small 
businesses; technology firms; taxpayer advocacy groups (Americans for 
Tax Reform and the National Taxpayers Union); the IRS employees union; 
and the Clinton administration, including the Treasury Department.
  During its year-long existence, the commission conducted 12 days of 
public hearings, held three town hall meetings around the country, and 
spent over 100 hours in private sessions with public and private sector 
experts, academics and citizens groups. The commission staff met 
privately with over 500 individuals, including the majority of senior-
level IRS managers, and interviewed almost 300 front-line IRS 
employees. We received continuous input from various stakeholder groups 
and the general public. And, the commission had unprecedented access to 
IRS reports and documents.
  Early in the course of the commission's work, we developed a simple 
goal: Taxpayer satisfaction must become paramount at all levels of the 
IRS. More than twice as many people pay taxes as vote, and the IRS is 
the only Federal agency that many citizens interact with directly. We 
must ensure that the IRS meets the public's expectations for 
professionalism, accountability, and efficiency. And, we must ensure 
that the IRS works for the taxpayer--not the other way around. In a 
very real sense, the commission's work was a yearlong audit of the IRS.
  This legislation is based on the commission's report. It is designed 
to change the IRS as we know it--to transform the IRS into a responsive 
service organization for the 21st century. It focuses on solving the 
problems in our tax system, which fall into three major, cross-cutting 
areas: First, the complexity of the Tax Code; second, IRS customer 
service; and third, IRS management, governance, and oversight.


                       COMPLEXITY OF THE TAX CODE

  The commission identified a clear and undeniable link between the 
complexity of the Tax Code and the difficulty of tax administration.
  The commission found that the laws written by Congress and the 
President can lead to inadvertent noncompliance, increase the 
compliance costs of individuals and businesses, and add to the 
difficulty of revenue collection. The commission also found that the 
law is overly complex and that this complexity is a large source of 
taxpayer frustration with the IRS.
  The commission found that the real culprit is not the IRS--but the 
Tax Code itself: Since 1956, the number of sections in the tax code has 
risen from 103 to 698. And, just since the 1986 simplification of the 
Tax Code, there have been 4,000 amendments to the Tax Code--a rate of 
more than one change per day. Despite claims of the Treasury Department 
to the contrary, front-line IRS employees consider the complexity of 
the Internal Revenue Code to be a major obstacle. The commission 
conducted a survey of almost 300 front-line IRS employees, and they 
overwhelmingly felt that the complexity of the Tax Code impedes their 
work. Money magazine annually asks 50 tax preparers and the IRS to 
prepare a 1040 for a sample family. Because of the complexity of the 
Code, no two preparers ever arrive at the same result, and results vary 
by thousands of dollars.
  The commission report and this legislation make specific 
recommendations for solving this problem. First, we recommend that 
Congress and the administration simplify the code. The commission was 
not charged with reforming the tax code. But the commission's final 
report strongly recommends that Congress and the President work toward 
simplifying the Tax Code wherever possible.
  Until Congress and the administration reach a consensus on a 
fundamental tax reform proposal, we propose a number of steps to 
encourage simplification:
  No. 1, Procedural changes in Congress to provide disincentives for 
adding complexity to the Code through a scoring mechanism for Tax Code 
complexity. Every tax proposal would have to be measured by a uniform 
set of criteria to determine its complexity and possible compliance 
costs on taxpayers and the IRS. And, Members would be able to raise a 
point of order on the House floor on any piece of tax legislation that 
causes additional complexity or compliance burdens--similar to the 
unfunded mandates legislation we enacted in 1995.
  No. 2, Recommendation for providing the IRS with a more independent 
voice to comment on proposed tax legislation. Right now, the IRS is not 
present at the table when tax legislation is being considered and is 
forced to defer to the Treasury Department's tax policy goals. The 
commission proposes to give the IRS a voice in the legislative process. 
In a very real sense, the IRS will serve as an advocate for Tax Code 
simplicity.
  No. 3, Although not included in this legislation, the commission 
report provides Congress with a list of 60 specific provisions of the 
Tax Code that the tax writing committees could simplify or eliminate to 
reduce compliance nightmares for taxpayers and administrative headaches 
for the IRS.


                            CUSTOMER SERVICE

  Traditionally, the IRS has seen itself primarily as an enforcement 
bureaucracy. Yet 83 percent of the revenue owed to the Federal 
Government is paid voluntarily each year without proactive IRS 
involvement. Only an additional 3.5 percent is paid after the IRS 
becomes involved. But, over the years, the enforcement function within 
the IRS has come to dominate the agency.
  Meanwhile, taxpayers have become accustomed to increasingly high 
performance standards from their banks, credit card companies, airlines 
and other service organizations. While the private sector has rewritten 
customer service standards over the last 25 years, IRS taxpayer service 
has remained essentially static. For example, many taxpayer problems 
that could be resolved in a single phone call don't get through to a 
properly trained IRS service representative.
  The result is a considerable service gap between the IRS and the 
private sector: In a survey of 200 leading private and public sector 
organizations by the American Society for Quality Control, the IRS 
ranked dead last in customer service--and its rating actually dropped 
in 1996. Last year, only one in five calls to the IRS customer service 
hotline got through. The IRS reports considerable improvement in the 
number of taxpayers getting through this year, estimating that half the 
calls were answered. This is still unacceptable. An IRS employee may 
have to access as many as 6 different computer systems to resolve a 
taxpayer's problem, and answers to simple questions often take weeks. 
It takes the IRS, on average, about 18 months to match an individual's 
tax return with a 1099 form. Can you imagine a private sector firm 
taking 18 months to send someone a bill--with interest attached?
  We recommend, through this legislation, a fundamental change in 
direction. We propose to transform the IRS by making taxpayer service 
the agency's top priority. It's time to put the word service into the 
Internal Revenue Service.
  How do we do that? First, we level the playing field with significant 
enhancements to taxpayer rights--including a significant expansion

[[Page E1606]]

of the taxpayer's right to seek redress against the IRS for wrongful 
actions. We will put disincentives within the IRS to ensure that 
disputes with taxpayers are resolved before they occur. And we will 
ask, for the first time, that taxpayers complete a survey after having 
an experience with the IRS to ensure that they were treated 
courteously, professionally and efficiently.
  We also propose vast improvements to IRS technology. IRS must have 
the technology to provide high quality customer service. That means a 
phone system that works, trained taxpayer service representatives and a 
computer database that will allow customer service representatives to 
access accounts and resolve problems on the first phone call.
  Electronic filing is an important component of this effort. It's a 
win-win situation for IRS and the taxpayer.
  IRS still hand processes the vast majority of returns and still 
relies on paper--14 billion pieces of paper annually--an incredibly 
inefficient system. Electronic filing saves the IRS money--it costs the 
IRS about $7 to process a paper return, and less than $1 to process an 
electronic return.
  There is currently close to a 22 percent error rate on paper 1040 
forms. Half of that error rate comes from the taxpayer. But the other 
half comes from the IRS--when employees inadvertently misinput numbers. 
When forms are electronically filed with the IRS, there is less than a 
1 percent error rate.
  The legislation requires the IRS to develop and implement a strategic 
marketing plan to make paperless filing the preferred and most 
convenient and cost-efficient form of filing for 80 percent of 
taxpayers within the next 10 years. Our legislation provides tangible 
incentives--not mandates--to make electronic filing so easy that 
taxpayers will not want to file paper forms.
  One of the most important incentives is extended filing deadlines for 
electronic filers to reduce the massive deluge of paper that overwhelms 
the IRS every April 15--increasing errors and delaying returns. We 
recommend a May 15 deadline for individuals who choose to file 
electronically.


                  MANAGEMENT, GOVERNANCE AND OVERSIGHT

  All of these reforms are important. But none of them can take place 
in the current IRS management and oversight structure.
  The commission found a serious lack of expertise, continuity and 
accountability in the management structure of the IRS. Over the years, 
IRS has developed an insular culture that is often resistant to input 
and ideas from outside the agency--preventing leaders at the top of the 
organization from effecting real changes. When things go wrong, such as 
the $4 billion computer modernization failure, no one is clearly 
responsible.
  Billions of taxpayer dollars were wasted on the tax systems 
modernization program ``due to pervasive management and technical 
weaknesses'' according to GAO. In 1995, the GAO described the same 
efforts as ``chaotic'' and ``ad hoc.''
  The IRS has failed a number of recent audits by the General 
Accounting Office and is unable to balance its own books. At the same 
time, we're spending more on the IRS than ever--the IRS budget has 
almost tripled since the Carter administration and now stands at $7.3 
billion.
  And, the Department of Treasury has not demonstrated a historic 
pattern of effective oversight of the IRS--often ignoring problems 
until they have reached crisis proportions. There are no clear lines of 
accountability and responsibility in the current IRS-Treasury 
relationship. And, Treasury often advocates tax policy goals that 
create administrative nightmares for the IRS.
  Although I believe the current Treasury Secretary has been more 
attentive to the IRS than his predecessors (perhaps in part due to the 
commission's work), the Treasury Secretary and Deputy Secretary can 
only be expected to devote a small portion of their time to their 
responsibility of running the IRS. No Cabinet department is more 
important than the Treasury Department. Treasury also oversees U.S. 
domestic and international financial, economic and tax policy, 
including the specific responsibility for managing at least 10 other 
major agencies and bureaus, such as the Office of the Comptroller of 
the Currency, the Bureau of Alcohol, Tobacco, and Firearms, the Customs 
Service, the Office of Thrift Supervision, and the Secret Service.
  This lack of focus on IRS is a natural result of these distractions 
and the disconnect between the important policy functions of the 
Treasury Department and the operational challenges of the IRS. It is 
important to note that this lack of effective oversight is not new; it 
has been a problem in Republican and Democratic administrations alike. 
There is an inherent flaw in the system.
  Treasury oversight is also poorly coordinated--the IRS Commissioner 
is forced to deal with various assistant secretaries on budget, 
operations, computers, tax policy, and other issues. But IRS is often 
treated as an afterthought, and these Treasury Department officials 
rarely take responsibility for IRS operations.
  The current structure is also weak because the expertise the IRS 
desperately needs just does not naturally reside at Treasury. While the 
officials at the Treasury Department have considerable expertise in tax 
policy and law enforcement, they are often lacking expertise in 
providing customer service, implementing major technology upgrades and 
managing a 100,000 person organization.
  And, the frequent turnover of Treasury leadership exacerbates IRS' 
inability to complete long-term projects. Continuity is a serious 
problem: The most recent IRS Commissioner served under two Treasury 
Secretaries and three Deputy Secretaries. The average tenure of an IRS 
Commissioner over the last 20 years has been 2\1/2\ years, and the 
average tenure of a Deputy Treasury Secretary is even shorter.
  Constant turnover with the Commissioner and at Treasury is in 
contrast to the insular nature of the IRS. Only 6 of the top 83 people 
at the IRS have been with the agency for less than 15 years. And, other 
than the Commissioner, only 2 non-IRS employees have been brought in 
from the outside world to fill senior positions at the IRS.
  Meanwhile, the oversight in Congress has clearly contributed to the 
problem. Oversight responsibility for the IRS is shared by seven 
congressional committees. These committees do not meet formally to set 
long-term goals and objectives for the IRS and tend to focus on 
individual micro-issues, sometimes giving contradictory direction to 
the agency.
  In response to these problems, the commission developed ideas for an 
entirely new management structure. The criteria we used to judge any 
new structure were: First, does it provide clear accountability; 
second, will it provide expertise in running a modern customer-service 
organization; and third, will it provide the continuity to get the job 
done through changing administrations and personnel? After a year-long 
process, the commission developed the following recommendations that 
serve as a basis for the governance component of this legislation.


                INTERNAL REVENUE SERVICE OVERSIGHT BOARD

  Overall responsibility for IRS governance should be placed with an 
independent oversight board--appointed by the President, confirmed by 
the Senate and accountable to Congress and the American people--to 
provide the expertise, continuity and accountability lacking now and 
clearly needed in order to implement major changes at the IRS. This 
oversight board will have the authority to hire and fire the 
commissioner, recommend a budget for the IRS and to oversee the 
operations of the IRS.
  While representatives of the administration will serve on the 
oversight board, the majority of the board members will be private 
citizens who bring expertise in running large and complex 
organizations, expertise in customer service and expertise in 
technology. The needs and concerns of individual taxpayers will also be 
represented, as will IRS employees. Oversight board members will be 
appointed and will be removable by the President, confirmed by the 
Senate, and will serve for staggered 5-year terms.
  Our legislation leaves full control of tax policy to the Treasury 
Department. The oversight board will oversee tax administration. 
Oversight board members will be subject to full disclosure rules and 
will not be permitted to examine individual tax returns or have the 
power to affect enforcement decisions. I believe the legitimate 
concerns Treasury raised about the oversight board throughout the 
commission's yearlong work have been clearly addressed in this 
legislation.


                        CONGRESSIONAL OVERSIGHT

  We also propose to streamline and coordinate congressional oversight 
of the IRS under the auspices of the Joint Tax Committee, to ensure 
that Members of Congress and staff have sufficient information to make 
informed decisions about both tax legislation and tax administration. 
This entity would bring together the leadership of the seven 
congressional committees with IRS oversight responsibility to focus on 
long-term priorities and goal setting for the agency.


                      IRS PERSONNEL AND BUDGETING

  The commissioner should be apolitical and should serve for a 5-year 
term. We strengthen the ability of the commissioner to make real 
changes at the IRS by providing the hiring flexibility to recruit high-
quality executives. We also propose to provide the commissioner with 
the stable budgeting needed to permit long-term planning and to allow 
essential projects to be funded with certainty.


                        FINANCIAL ACCOUNTABILITY

  But, to ensure that taxpayer dollars are being put to good use, the 
IRS must demonstrate that it can balance its own books. We recommend a 
number of steps to improve IRS financial accountability.
  Taken as a whole, our recommendations provide a blueprint that will 
fundamentally

[[Page E1607]]

transform the IRS into a modern service organization. I believe they 
will vastly enhance service and accountability to the taxpayer.
  I look forward to working with my colleague from Maryland, Mr. 
Cardin, Members of the House and Senate, and the administration to 
improve and refine this bill during the legislative process so that, 
together, we can transform the Internal Revenue Service into a modern, 
efficient organization that truly serves the American taxpayer.

                          ____________________