U.S. GOVERNMENT PRINTING OFFICE

60–980 WASHINGTON : 1999

ANNUAL REPORT OF THE INTERNAL REVENUE

SERVICE TAXPAYER ADVOCATE

HEARING

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

FEBRUARY 3, 1998

Serial No. 105–93

Printed for the use of the Committee on Ways and Means

(

(II)

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

JIM BUNNING, Kentucky

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

BARBARA B. KENNELLY, Connecticut

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON OVERSIGHT

NANCY L. JOHNSON, Connecticut, Chairman

ROB PORTMAN, Ohio

JIM RAMSTAD, Minnesota

JENNIFER DUNN, Washington

PHILIP S. ENGLISH, Pennsylvania

WES WATKINS, Oklahoma

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

WILLIAM J. COYNE, Pennsylvania

GERALD D. KLECZKA, Wisconsin

MICHAEL R. MCNULTY, New York

JOHN S. TANNER, Tennessee

KAREN L. THURMAN, Florida

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records

of the Committee on Ways and Means are also published in electronic form. The printed

hearing record remains the official version. Because electronic submissions are used to

prepare both printed and electronic versions of the hearing record, the process of converting

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process

is further refined.

(III)

C O N T E N T S

Page

Advisory of January 27, 1998, announcing the hearing ....................................... 2

Internal Revenue Service:

Hon. Charles O. Rossotti, Commissioner ........................................................ 6

Lee Monks, Taxpayer Advocate ....................................................................... 42

Internal Revenue Service, Pittsburgh, PA, Louis Romito, Pennsylvania District Taxpayer Advocate ....................................................................................... 50

Internal Revenue Service, Hartford, CT, Fran Romano, Connecticut-Rhode

Island District Taxpayer Advocate ..................................................................... 54

Internal Revenue Service, Cincinnati, OH, Janey M. Tabor, Ohio District

Taxpayer Advocate ............................................................................................... 60

Internal Revenue Service, Seattle, WA, Sandra Ling, Pacific-Northwest District Taxpayer Advocate ....................................................................................... 66

Internal Revenue Service, Milwaukee, WI, Elayne M. Goldstein, Midwest

District Taxpayer Advocate ................................................................................. 74

(5)

ANNUAL REPORT OF THE INTERNAL

REVENUE SERVICE TAXPAYER ADVOCATE

TUESDAY, FEBRUARY 3, 1998

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

SUBCOMMITTEE ON OVERSIGHT,

Washington, DC.

The Subcommittee met, pursuant to notice, at 2:12 p.m., in room

1100, Longworth House Office Building, Hon. Nancy L. Johnson

[Chairman of the Subcommittee] presiding.

[The advisory announcing the hearing follows:]

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Chairman JOHNSON of Connecticut. Good afternoon, ladies and

gentlemen. I want to welcome you to the first Oversight Subcommittee hearing of 1998. We have a challenging agenda ahead,

and I am particularly pleased that the new Commissioner is able

to join us today, Commissioner Rossotti, to start off our year’s

work.

Today’s hearing, though, will pinpoint where taxpayers are experiencing the most serious problems in dealing with the IRS and

present us with the legislative changes which might address these

problems. Congress passed the Taxpayers’ Bill of Rights in 1996.

It improved the procedural rights of taxpayers in dealing with the

Internal Revenue Service. For example, it gave taxpayers who prevail over the IRS the upper hand in getting their attorney fees reimbursed by the IRS. It requires the IRS to make a reasonable effort to collaborate the accuracy of disputed information returns. It

also gives the IRS the legal authority to abate interest in fixed deficiencies and to return improperly seized property to the owner.

None of these provisions is flashy or glamorous, but, frankly, they

are the nitty-gritty details that can make the difference between a

taxpayer’s relationship with the IRS going smoothly and a taxpayer’s life miserable.

The House of Representatives extended this tradition of helping

taxpayers in November of 1997, when it passed the IRS Restructuring and Reform Act. Included in this legislation is a new Taxpayers’ Bill of Rights, TBOR 3, which would extend even more protections to taxpayers. For example, it would switch the burden of

proof to the IRS in court cases where the taxpayer has fully cooperated with the IRS. It would allow taxpayers to press damage claims

for the negligence of IRS agents in collection cases, and it would

expand the application of innocent spouse provisions in the tax law.

The Taxpayer Advocate and Congress can be partners in helping

taxpayers. That is why TBOR 2 strengthened the advocate’s authority to help taxpayers and directed him to report annually to the

tax-writing committees of Congress. the annual report is the formal

vehicle for the Taxpayer Advocate to tell the Congress about the

most serious problems which taxpayers are experiencing, as well as

presenting legislative proposals for helping taxpayers.

Let me also say that I am just particularly grateful that this report does give us some concrete suggestions, but it is also my

hope—and I’ve talked extensively with my own staff about this, so

I understand this is one legislator’s hearing of the law she helped

write versus everyone else’s understanding of the law as it was

written, but I do hope that we will use this opportunity in the future not just to have legislative proposals that are as narrow and

specific, but to look at some of the bigger issues of simplification

that also dog the taxpayers as they come in. So I want to be sure

to put on the record that, as pleased as I am that this report is

a giant step forward over last year’s report, I think the challenges

are still out there for all of us in terms of using the information

the advocates get directly from taxpayers in trouble to inform us

as to how we correct, strengthen, and simplify the code.

I am particularly pleased, however, that Commissioner Rossotti

is with us, and I want to point out that Commissioner Rossotti is

from the American Management Systems, Inc.; that he was with

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American Management Systems, an international business and information technology consulting firm which he helped to found in

1970, and where he was chairman of the board. From 1965 to 1969,

he held various positions in the Office of Systems Analysis within

the Secretary of Defense’s office, where he was honored with a distinguished civilian service award for his work as Principal Deputy

Assistant Secretary of Defense.

I mention that because I think as all of us worked our way

through the IRS reform bill, our goal was to create a far more vital

and informed partnership between the public and private worlds of

government and the citizenry, and your coming to lead the IRS,

with the breadth of experience you had in the private sector, coupled with some experience in one of the biggest bureaucracies of

the world, is, I think, a very fortunate thing for all of us. It’s one

of the reasons why I’ve watched your comments with great interest

and was very pleased when you agreed to kick off this hearing.

I’d like to yield to my Ranking Member here, Mr. Coyne, and

then, thereafter, introduce Mr. Monks.

Bill.

Mr. COYNE. Thank you, Madam Chairman. I’d like to say that

today the subcommittee will hold a very important hearing to discuss the future operation of the IRS and the continuing needs of

America’s taxpayers.

I want to welcome to the Oversight Subcommittee the new IRS

Commissioner, Mr. Charles Rossotti. I appreciate your appearance

before us today, and I look forward to many years of working together to reform and improve the agency.

Undoubtedly, taxpayers and the Congress will benefit greatly

from the expertise Commissioner Rossotti brings from the private

sector, as Chairwoman Johnson said, particularly in the areas of

technology systems, large organization management, and customer

service.

On IRS restructuring, I want to repeat the words of the President in his State of the Union address when he stated, ‘‘This bill

must not now languish in the Senate. Follow the House; pass the

bipartisan package as your first order of business in 1998.’’ I join

President Clinton in that message and will continue to work toward timely enactment of IRS restructuring reforms.

Also, I want to welcome the IRS Taxpayer Advocate, Mr. Monks,

to our hearing today. It is important that the Oversight Subcommittee carefully consider the analysis and recommendations

contained in the Advocate’s Second Annual Report to the Congress.

The Advocate’s work on behalf of taxpayers continues to be outstanding and very helpful to the subcommittee in our continuing effort to develop taxpayer rights legislation.

Finally, I want to thank the IRS District Office Taxpayer’s Advocates for making the trip to Washington to appear before us today.

I personally want to welcome the Taxpayer Advocate from the city

of Pittsburgh, Mr. Louis Romito for his appearance before the

Oversight Subcommittee.

I look forward to all the witnesses’ views on how we can make

life easier for taxpayers in their dealings with the government, and

whether the Taxpayer Rights 3 legislation, which recently passed

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the House of Representatives, can be improved upon before its final

enactment.

Thank you.

Chairman JOHNSON of Connecticut. Commissioner Rossotti.

STATEMENT OF THE HONORABLE CHARLES O. ROSSOTTI,

COMMISSIONER, INTERNAL REVENUE SERVICE

Mr. ROSSOTTI. Thank you, Madam Chairwoman and members of

the committee. Thank you very much for your generous comments

about me. I stay up at night whenever I hear those, as I keep

thinking how can I live up to those kinds of comments, but I will

do the best I can.

Chairman JOHNSON of Connecticut. Better enjoy them while you

can. [Laughter.]

Mr. ROSSOTTI. Thank you for giving me the opportunity to outline my concept of how we can modernize the IRS. In my written

statement, I have provided some additional details concerning the

specifics in the Taxpayer Advocate’s report.

At the outset, let me say that the restructuring bill which passed

the House, and which had its inception in the Ways and Means

Committee, is essential to the concept that I’m going to outline. In

fact, the modernization concept is heavily based on the work of the

Restructuring Commission, which was co-chaired by Congressman

Portman.

From all this work, I think a clear sense of direction for the IRS

has emerged: the IRS must shift its focus away from its own internal view of itself and its own internal operations, and think about

its job from the taxpayers’ point of view. I think from the taxpayers’ point of view, there are really two ways that we serve the

taxpayer. We serve the taxpayer, each taxpayer with whom we deal

directly, one at a time. These kinds of one-on-one interactions

range from the routine, such as providing forms and information,

to more complex interactions, such as when a taxpayer mails

money as a result of an examination. But in each and every one

of these interactions with taxpayers, we should provide first quality

service and treatment that is prompt, professional, and helpful

based on what we know to be their particular needs.

Secondly, we serve all taxpayers as a whole by ensuring that

compliance is fair. Our tax system depends on each person who is

voluntarily meeting his or her tax obligations having confidence

that his or her neighbor or competitor is also complying.

I believe that the IRS, over time, can greatly improve both kinds

of service to the taxpayer. Furthermore, I believe that we can accomplish this while also processing a greater volume of workload

with the workforce we have. Our workforce is competent and dedicated, but it is handicapped by outdated practices and technology.

In the near term, we are taking action to move forward on these

goals. For example, the Problem Solving Days, which were sponsored by the Taxpayer Advocates, and which I’m sure you’ll be discussing later, are excellent examples of the way that we should be

serving taxpayers. We’ve also taken many other steps, such as raising the level of management review on enforcement actions, like

seizures, and to see that inappropriate use of enforcement statistics

is ended. These are only a few of many actions that we are taking

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this year to improve service and provide proper treatment of taxpayers.

Of course, we’re also very closely managing our enormous and

challenging program to update our computer system for the century date change and the tax law changes required by the 1997

Taxpayer Relief Act. Most of this work, by the way, must be completed in the next 12 months prior to the 1999 filing season.

As important as these-near term steps are, they will not enable

us, I don’t think, to meet our goals, unless we make some more

fundamental changes to our way of doing business at the IRS. That

is the reason for the concept that I’m about to outline.

This concept includes a renewed mission which emphasizes service and fairness to taxpayers, practical goals and guiding principles

which define the path of those goals. We will reach these goals

through changes in five key areas which are actually listed on the

chart to my right.

The first one is that we must revamp all of the IRS business

practices, so that they focus on understanding, solving, and, where

possible, preventing taxpayer problems. Each of the IRS’s business

practices—from customer education to filing assistance to collection—holds a great deal of promise for improvement by our gaining

a greater understanding of the particular problems that taxpayers

have.

For example, our business practices should make filing easier for

all taxpayers by providing readily-accessible high-quality assistance

to those taxpayers who need help in filing and by having more returns filed electronically. Just as companies in the private sector

develop very particular and specialized marketing programs to

reach customers with differing needs, we can help taxpayers more

effectively by tailoring our publications, education, communications, and assistance programs to taxpayers with particular needs.

For example, college students who often can file with a simple

1040-EZ form and a 10-minute phone call, have very different

needs from senior citizens with social security and investment income, who may be best served through a network of volunteers who

specialize in the needs of seniors.

This principle of tailoring our services to the needs of particular

groups of taxpayers, just as the private sector does, is, I believe,

a cornerstone of how we can dramatically improve our service to

taxpayers, as well as our own internal productivity.

Another very important example is in the area of collections,

which is where some of our most difficult interactions with taxpayers occur. Today, 90 percent of the activity of our phone and

field collectors at the IRS is allocated to accounts that are six

months old, and many are much older than that. This is exactly

the reverse of experience in the private sector. In the private sector, the proven keys to effective collection are to identify as promptly as possible those customers who may present a risk of nonpayment, and to work out a payment program that addresses that

particular customer’s problem. This approach helps the customer,

as well as the collecting agency, and also minimizes the need for

enforcement action.

The second area of change is that we must establish an organization structure that is built around taxpayer needs. The IRS organiVerDate 11-MAY-2000 10:45 Jun 06, 2000 Jkt 010199 PO 00000 Frm 00011 Fmt 6601 Sfmt 6602 E:\HEARINGS\60980 pfrm02 PsN: 60980
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zation structure today, which is being shown in this chart on the

right here, really no longer enables our managers to be knowledgeable about and to take action on, major problems affecting taxpayers nor is it capable of modernizing the business practices and

technology we need.

The principal IRS organization today, as shown in this chart, at

the lower part of the chart, is built around 33 districts and 10 service centers. Each of these 43 units is charged with the mission of

serving every kind of taxpayer, large and small, with simple or

complex problems. Every taxpayer is serviced by both a service center and a district, and sometimes by more than one service center

and district. Each of these units performs customer service, collection, and examination activities for each taxpayer.

For example, in the collection area there are three separate kinds

of organizations spread over 43 organizational units, that use three

separate computer systems to support collection. Each of these

three types of units collects from every kind of taxpayer, from

small businesses to wealthy individuals. On top of this district and

service center structure, there are many layers. There are eight intermediate layers of staff and line management between a front

line employee and the Deputy Commissioner, who actually is the

only manager besides the Commissioner who has full responsibility

for service to any particular taxpayer.

Fortunately, there are solutions to this kind of organizational

problem which are widely used in the private sector. Just as many

financial institutions have different divisions that serve retail customers, small to medium business customers, and large multinational customers, the taxpayer base of the U.S. falls naturally

into similar groups. This fact does not reflect anything in particular

about the IRS. It just simply reflects the structure of the U.S. economy.

Therefore, as shown in the chart that has just been put up, the

logical way to organize the IRS is into four units, each of which

would be charged with end-to-end responsibility for serving a particular group of taxpayers with similar needs. These units, then,

could replace the four regional offices and a substantial part of the

national office, allowing the national office to better fulfill its responsibilities of oversight and broad policy rather than operations.

By organizing in this way, the management teams for each unit

could learn a great deal about the needs and particular problems

that affect each group of taxpayers. The tax code is extremely complex, but most of it does not apply to each group of taxpayers.

I see that I’m getting my yellow light on here, so I will speed up

a bit.

There are, as indicated in my written testimony, very different

problems in each of these taxpayer groups, and I think that’s a

very important point to observe, which we can talk about.

Moving on to the other three components, though, of this overall

modernization concept is the need to establish management roles

which have more clear responsibility, and I think with each unit

being clearly responsible for serving a group of taxpayers, we would

be able to not only fix clearer responsibility, but also set up management teams which would have more attractive jobs for the peoVerDate 11-MAY-2000 10:45 Jun 06, 2000 Jkt 010199 PO 00000 Frm 00012 Fmt 6601 Sfmt 6602 E:\HEARINGS\60980 pfrm02 PsN: 60980
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ple in those teams, and we would be able to track people both inside and outside.

Fourth, I think we would be better able to establish more balanced measures of performance that take into account both customer satisfaction as well as compliance. I believe this would help

us to solve the longstanding problem of the use of enforcement as

a key measure of success in the IRS.

And, finally, I think it would enable us to deploy new technology

more effectively, which is one of the real limiting factors in our

ability to modernize our business practices today. Building new

computer systems to support the old business practices will not

work.

So all of this is summarized in the large chart, and I want to emphasize that a great deal of study is required to validate this concept and to decide on many details, and much consultation will be

required internally and externally during the study process, which

we hope to complete by early summer. So there’s an enormous job

ahead of us, but I am confident that, given time and support from

the Congress and the public, this path will lead us to the goal

which we seek, which is an IRS which provides consistently firstquality service to all taxpayers.

Thank you.

[The prepared statement and attachments follow:]

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Chairman JOHNSON of Connecticut. Thank you very much, Commissioner.

I was interested in your testimony, in your comments about the

100 million filers out of the 140 million taxpayers who have only

wage and investment income. Could you enlarge your thoughts on

that subject——

Mr. ROSSOTTI. Yes.

Chairman JOHNSON of Connecticut [continuing]. And it’s implications for IRS reform?

Mr. ROSSOTTI. Yes. I think that’s a good example of how, when

you start to look at taxpayers like customers, just as businesses do,

you find out that there’s quite a bit of difference between these different groups of taxpayers. There’s about 100 million filers—and

these are round numbers, Madam Chairwoman; these are not exact

numbers—but there are about 100 million filers which represent

about 140 million taxpayers, taking into account those that file

joint returns, that have only wage and investment income, meaning

interest and dividends and other forms of investment income. All

of this income is reported, of course, through third-party filings.

Most of the cash that we receive from this group of taxpayers actually comes in through their employers, rather than directly from

them, of course. So 80 percent of these taxpayers are actually getting refunds. We’re actually, of course, paying out money to them,

most of them, during the filing season rather than receiving cash.

So the collection problems are not very great with this group, nor

are the compliance problems great.

There are, of course, compliance problems with such things as filing status, dependent exemptions, and in upper-income taxpayers

there are certain kinds of issues, but, by and large, the compliance

rate is very high. Most of the issues that we have in serving these

taxpayers are providing them good assistance in filing, getting refunds quickly, giving them information about their refunds and

their accounts. It’s really very similar to a large-scale customer

service operation. That’s quite in contrast, for example, to the small

business sector, which we can go into if you like, but has very different kinds of requirements.

So by focusing on this group and providing a team of people that

really understand those problems, I think just like in business, we

have a better chance of solving those problems and getting action

to serve them better.

Chairman JOHNSON of Connecticut. Thank you. And then I just

want to inquire, how extensive did you find the practice of districtlevel collection offices using collection receipts to motivate employees? It is now common knowledge——

Mr. ROSSOTTI. Yes, yes.

Chairman JOHNSON of Connecticut [continuing]. That this was

the case. That’s something a lot of us had good reason to worry

about, and part of what motivated the changes that were adopted

the last few years. How extensive was this practice, and what

changes have you adopted, so that you sit here today and say it’s

no longer true?

Mr. ROSSOTTI. Yes. That was one of the first issues that I was

confronted with when I took office, and there had already been

some internal audit studies initiated by the Acting Commissioner

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initially on one district, the Arkansas-Oklahoma district, and then

based on that, we expanded to 11 other districts.

I think what we found was that there was reasonably widespread

use—it was not—you know, I mean, you have to go into each district, when you’ve got those numbers, as to how often those statistics were used down at the group manager or individual employee

level. They were not by any means universal, but there was certainly more than isolated example, and they varied a lot by district.

Furthermore, I think the more basic point that was actually stated by the internal auditor was that the whole environment of the

use of these enforcement statistics was really fairly extensive.

Some of the things that were done to stop this were already done

before I got there, such as the suspension of the use of these district statistics at the district level, but we’ve also taken quite a few

other steps to have additional certification to ensure that a certification is done by people up and down the line, that statistics will

not be used.

We’ve also initiated a number of investigations in certain particularly egregious cases where individual managers may have had

potential misconduct. We have set up a process, actually a panel

of three people, two of which are outside the IRS, to receive the results of these investigations, and make a decision or a recommendation as to whether any disciplinary action has been taken.

In addition to that, of course, we’ve taken quite a few other

steps. We’ve had a number of education sessions. I mean, I don’t

want to go on with a long laundry list, but there’s a whole set of

steps that have been taken, and are continuing to be taken, to try

to deal with this issue.

I really want to stress that longer term, the real solution here

is to turn the whole thing around and not make enforcement—I

think as we were just speaking briefly before the session—and really make compliance the goal, which is something you can reach

through a lot of means, not just enforcement. You can reach it

through education, through assistance, through customer service. I

think part of the modernization concept is to really flip this whole

thing around and focus it on serving taxpayers’ needs, which I

think will also aid compliance in the long run, as opposed to just

making enforcement an end in itself.

Chairman JOHNSON of Connecticut. Thank you. I’m going to yield

now to my ranking member, Mr. Coyne.

Mr. COYNE. Thank you, Madam Chairwoman, and again, welcome, Commissioner.

The IRS over the past couple of years has undergone a reorganization of some sort and to some degree. I guess one could argue,

is it necessary to further reorganize the agency, and if it is necessary to do that, why?

Mr. ROSSOTTI. Well, I think that what has happened in the last

few years is that there has been reorganizations, as in most organizations; there tend to be some reorganizations almost every year.

The big thing that happened was a consolidation of the number of

districts down from 63 to 33, which I think was a necessary and

essential step to improve efficiency.

But what has really not changed since I believe about 1952, is

the basic concept of the way the IRS is organized. It’s basically orVerDate 11-MAY-2000 10:45 Jun 06, 2000 Jkt 010199 PO 00000 Frm 00026 Fmt 6601 Sfmt 6602 E:\HEARINGS\60980 pfrm02 PsN: 60980
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ganized geographically, and then on top of that were added districts and then regions and service centers. That’s pretty much the

way a lot of large organizations, like banks and manufacturing

companies, were organized 20 or 30 years ago.

I think if you look in the private sector, you’ll see that if you

really want to establish an agency or a business, or anything that

is really focused on serving companies, you have to somewhat organize the way customers’ problems are set up, not the way you happen to be set up internally.

So I think while there’s been many reorganizations and they

were very useful ones—I think the need to consolidate the number

of districts was something that would have been done no matter

what; they were wrong; the reorganizations were very useful—

there really hasn’t been any reorganizations for a very long time

that have changed the concept of the way we do business. I think

what we’re trying to do here is to move us from sort of an internally-focused group to an organization that focuses on the outside

world, on the taxpayers, which is a very, very common trend

throughout all businesses that I’m familiar with.

Mr. COYNE. Okay. The IRS has been conducting taxpayer problem-solving days over the past three months. Could you give us

some sense of the results of that activity?

Mr. ROSSOTTI. Yes. I think that you can get more as your next

witnesses come, the Taxpayer Advocates, because they’re the ones

that sponsored it, and in fact, Mr. Monks was the leader of putting

this together. So I want to congratulate him on that.

It was all planned, by the way, before I got there, so I’m not taking any credit for it whatsoever. But I think it was an outstanding

idea in really bringing together all the different functional areas of

the IRS in a face-to-face way with taxpayers, to be able to address

problems that probably in many cases had been festering for a long

time with these taxpayers.

In terms of the results, we’ve, I believe, handled about 16,000

cases so far through this process. We’ve been having them monthly,

of course, in different cities around the country. We’ve gotten an

independent survey from an outside research firm to talk to the

taxpayers and get them to rate us on a scale of 1 to 7, and we’ve

gotten a rating on the average of about 6.4 out of 7, which is really

very, very high. I think what’s interesting about that is the fact

that many taxpayers did not necessarily get the exact answer they

wanted. You know, some taxpayers came in and were hoping that

they would have a certain tax that they wouldn’t have to pay, or

certain money that would be relieved, and of course people still

have to follow the law and the regulations, and not in all cases

could they be given the relief they sought. But, nevertheless, the

fact that they got face-to-face treatment, that they got what they

needed, I think they were very pleased with that on the whole, and

that’s why we got these ratings.

Mr. COYNE. What issues did the taxpayers primarily raise when

they came in? Do you have any sense of what the most

prominent——

Mr. ROSSOTTI. Yes, yes. Many of them would be perhaps, you

know, a longstanding collection issue where they had an balance

outstanding, and they would come in and had penalties, and they

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just hadn’t been able to really figure out how much they owed, how

much they didn’t owe, and come to a conclusion as to what they

owed.

There were audit reconsideration requests, where they had an

audit, and maybe the taxpayer hadn’t responded on a timely basis,

so they got an assessment in that audit, and now that they had

this assessment they wanted to come down and really be serious

about figuring it out.

There were people that came in that had not filed. I personally

went to several problem solving days, and there were people who

just basically—I talked to one taxpayer that had a shoebox and this

fellow actually was owed a refund. I mean, it wasn’t that he hadn’t

paid his tax, but he had just gotten behind. I guess he had some

personal problems, and he was just afraid to come in. Finally, the

fact that there was this Problem-Solving day gave him the courage

to come in and bring his shoebox in, and the IRS person sat there

and worked out his tax form. Of course, he had some pluses and

minuses, but I think he actually ended up with a small refund out

of it. But, most important, he was so happy just to be back into

compliance.

I mean, of course, all the stories were not that good. There were

people who had problems that couldn’t be resolved. People had penalties for withdrawing money from IRAs that they were trying to—

it’s actually a tax, not a penalty, and they were trying to see if they

could get that abated, which they couldn’t, but at least they became

aware of what the situation was and understood it.

So I think it shows that if you put the right kind of people together with the taxpayers, they can help them figure out some sort

of a solution to their problem, even if it isn’t exactly what they

want.

Mr. COYNE. Do you have it broken down by inquiry, not by individuals, but what the most prominent questions were——

Mr. ROSSOTTI. Yes.

Mr. COYNE [continuing]. To the least prominent?

Mr. ROSSOTTI. Yes, we do. I don’t have that with me, but Mr.

Monks may have it with him. If he doesn’t, we’ll get it to you for

the record.

Mr. COYNE. Okay.

[The following was subsequently received:]

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Mr. COYNE. We understand that title V, the employee flexibility

provisions in the original Democratic IRS restructuring bill, which

were not included in the Ways and Means House-passed bill, are

needed to allow you to hire your proposed management team.

Would you want to discuss that?

Mr. ROSSOTTI. Yes. What we did—in my testimony I didn’t cover

it today, in the interest of time—but last week at the Senate we

did request some additional flexibilities over and above what’s in

the House-passed bill, some of which were along the lines of what

was in the Democratic bill. But the specific ones that we requested

were really dealing with the ability to bring in some senior people.

I mentioned these management roles. I think part of the way we’re

going to help to change the culture and improve the organization

is selectively to bring in some people with private sector experience. Madam Chairwoman mentioned that as part of what we want

to do here, and I think one way to do that is by bringing in some

individuals, and I think by adding some additional flexibility in the

bill, we’ll have a better chance of doing that.

Mr. COYNE. And you hold out the possibility of doing that in the

Senate?

Mr. ROSSOTTI. Yes, I hope so. I mean, I think that we’re working

with the staff, and I think they’re receptive to adding some of

these.

Mr. COYNE. Thank you.

Chairman JOHNSON of Connecticut. Mr. Rossotti, I’d like to recognize Rob Portman, who you probably know was the co-chair of

the Commission, and takes a close second to Alan Greenspan for

his Commission report being adopted almost in whole, in bringing

it back to the Congress, though not without a battle.

Rob.

Mr. PORTMAN. Thank you, Madam Chair, and thank you, Mr.

Commissioner, for being here. I want to start by thanking the Taxpayer Advocate for giving us a better report this year, and congratulate Nancy Johnson for being determined on that front over

the last year and a half, both prior to the last report and then in

the interim period. I think it’s a better report. We will talk with

Mr. Monks, I know, in a moment about some additional improvements we’d like to see that Mrs. Johnson alluded to earlier, but it

is a much better report. It’s along the lines of what Congress needs

to actually be able to change things at the IRS consistent with

what the Taxpayer Advocates are hearing internally and externally.

Mr. Commissioner, as you know, I’m very supportive of your proposed ideas. We talked about them on page 12 of our Commission

report. As you said earlier, central to the concept you’re outlining

is the passage of this legislation that is currently in the Senate Finance Committee, and I think soon to come onto the Senate floor,

we hope, before April 15, and go on to the President.

I guess I have a couple of questions for you that are related to

the two issues we’re dealing with today. One is the modernization

program you outlined, and the second one would be the Taxpayer

Advocate. The first is what you think the Taxpayer Advocate’s role

might be, forgetting about the changes that are proposed in the legislation that’s on the Senate side, but in your new proposal where

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you would have, in essence, different structural areas based on the

customer or the taxpayer. I infer from your comments earlier that

you would like to see a Taxpayer Advocate in each of these areas.

So there would be someone who would be in the withholding area,

where people have wage income, someone in the small business/

self-employed area, and so on.

Is that your idea? Why do you think that would—

Mr. ROSSOTTI. That’s exactly right. I just didn’t get a chance to

say it, but I think that it’s part of these management teams. I

mean, the whole idea is, if you can understand the taxpayer’s problem more precisely, you have a better chance of figuring out what

to do about it. I think under my concept we would have a Taxpayer

Advocate for the individual taxpayers, primarily for the wage-earners, who would focus on both the problem-resolution program, as

well as coming up with more systematic solutions for them; similarly, for small business, and for the tax-exempt area. I don’t think

we need a Taxpayer Advocate for the large businesses. I think they

can probably take care of themselves.

Mr. PORTMAN. They can hire their own.

Mr. ROSSOTTI. Hire their own. Then also, of course, very importantly, still have the National Taxpayer Advocate, who would, I

think, oversee and work with these other ones, and I think it would

build on—certainly not substitute, but actually build on—and

greatly enhance the concept that is already present that we’re

starting to see the benefits of from the report you get today. So I

think it’s building on that idea, and just sort of pushing it, having

a better sense of the taxpayer or the individual customer group, because of the close identification with that group, and understand

their problems, exactly.

Mr. PORTMAN. Let me shift quickly to the legislation and see if

you have any comments about the Taxpayer Advocate part of that.

As you know, we tried in the legislation, and this subcommittee actually took the lead with Chairwoman Johnson to try to strengthen

the Advocate’s Office and make it more independent. We included

a number of things. I notice the grade increase which you’re already beginning to see in most of the districts. I want to talk to

you further about that, which I think is an important improvement, where there can be a career track within the Taxpayer Advocate. I wonder if you could comment on that briefly.

We, also, as you know, had other provisions in the legislation. As

to reporting, in the Commission report we actually had the Taxpayer Advocate reporting directly to the Oversight Board. In the

legislation, that was altered, so that the Oversight Board would

have the responsibility of hiring the Taxpayer Advocate, rather

than the Commissioner, but then day to day the Taxpayer Advocate would report to the Commissioner. The abvocate would give

periodic reports to the board.

How would you feel about having that Taxpayer Advocate report

to the board as well as being hired by the board?

Mr. ROSSOTTI. Well, Congressman Portman, I think I would not

favor that particular approach because, as I’ve said, I think that

really what we need to do is to convert the whole IRS much more

to thinking of themselves as taxpayer advocates, as problem-solvers

for the taxpayers. I really don’t—it’s like sort of having the quality

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department report outside the main building, so to speak. I mean,

it gives people the impression that quality is somebody else’s job.

I really would like to have the Taxpayer Advocate be a key member

of the management team of the IRS Commissioner, and of each of

these business units, just as we’ve said, or operating units.

Now in terms of making the taxpayer more independent, though,

that part I definitely agree with. I think that, as you may have

heard, we’ve just begun a search to—when Mr. Monks moves on to

his next assignment—recruit the next Taxpayer Advocate from outside the IRS. I hope to find a person of serious stature that would

take that role and have a considerable amount of independence. Of

course, the idea of reporting to the Congress, as you’re doing here

today, is a very important form of independence that benefits the

taxpayer—because I can tell you, by the way that his report was,

as is indicated in the legislation, not censored or filtered in any

way—this was strictly straight-up from the grassroots through the

Taxpayer Advocates’ organizations. So I agree with all of the provisions except for the idea of having it be not part of the IRS. I think

it’s essential—just like a quality control department is part of a

manufacturing company, you really want to have it as part of the

mainstream of the operation.

Mr. PORTMAN. Thank you, Mr. Commissioner.

Chairman JOHNSON of Connecticut. Mr. English.

Mr. ENGLISH. Thank you, Madam Chair, and I want to thank you

for the opportunity to participate in this hearing.

Commissioner, I am very pleased by some of the things I’ve been

hearing. You have been so far, I think, a real breath of fresh air,

and I’m excited about some of the things that you are talking

about, particularly your introduction of performance measurements

into the IRS.

A couple of specific questions: I understand that you have been

quoted as favoring the establishment of new citizen advisory panels, and I wonder, could you tell us a little bit about what you have

in mind, and do you feel you can do this with your current administrative authority or will you need legislation to do it?

Mr. ROSSOTTI. Mr. English, I have been quoted, and we are actually proceeding to set up initially four citizen advisory panels, one

in each region. We can do it administratively, with the help of the

Secretary of the Treasury, who has been a big supporter of this.

And the basic idea is, although, frankly, we still have to work

this out in some detail—that’s why we’re doing four of them initially before we spread them through the whole country, but the

idea is that these would be panels of citizens that would be, in a

sense, advisors to the local Taxpayer Advocate. They would be kind

of a link between the citizenry and the Taxpayer Advocate, and the

thought was that they would meet periodically with the Taxpayer

Advocate and review at the local level, or at the specific level, the

problems that are cropping up or that are being typically surfaced

in that particular district, and as citizens, give advice to the Taxpayer Advocate.

They would also, we hope, be a form of outreach, so that more

people would know about what the Taxpayer Advocate’s role is.

They would not, however, get involved in individual cases.

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Mr. ENGLISH. Could I ask, how would persons be selected for the

panels?

Mr. ROSSOTTI. What we are going to do for the first four, working

with the Treasury Department on this, is, we actually have selected a consulting firm, a known consulting firm, that has worked

with a number of different public sector organizations in setting up

different kinds of advocacy and advisory panels. They are going to

actually do the screening and you’ll set up criteria, so that we

have—the idea is to have a broadly-representative group of the citizenry in that local area. We want to make sure that there isn’t

anything political about this, that it’s just really there to get the

citizens’ input. So that’s why we’re having this outside, experienced

firm actually help with the selection process.

Mr. ENGLISH. I’ll be following what you do. I am delighted at

your pursuit of this idea. I’m strongly supportive of what you’re

trying to do, as you’ve outlined it here. You’ll have my full support

as you pursue it.

On another front, when the Acting Commissioner was previously

before this panel, we talked a little bit about tip monitoring agreements, and that there had been concern around the country, from

the restaurant industry, that there was coercion being used to force

restaurants to participate in these agreements—in effect, look over

their employees’ shoulders.

Can I ask you, recognizing that we have already in the House

promoted legislation and sent it to the Senate that would address

this, have you proceeded internally to address this problem at all?

Mr. ROSSOTTI. Mr. English, I have heard about that problem, but

I have to honestly say I have not in my reasonably short time gotten involved in it in any way. I’d be happy to look into it and get

back to you on it. I just don’t have enough information to respond

right now.

[The following was subsequently received:]

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Mr. ENGLISH. My concern is that Mr. Dolan had pointed out,

when he was in front of this panel, that it is current IRS policy

that this is not an appropriate practice. Yet, there is evidence, at

least there was evidence, that it was fairly widespread. I’d suggest

that this is one area where you have a real challenge to change the

culture——

Mr. ROSSOTTI. Right.

Mr. ENGLISH [continuing]. Of the IRS. I want to thank you for

being here. We appreciate your testimony, and I think you’ve been

a breath of fresh air. Thank you, Commissioner.

Mr. ROSSOTTI. Thank you very much.

Chairman JOHNSON of Connecticut. Thank you.

Mrs. Thurman, please.

Mrs. THURMAN. Mr. Commissioner, maybe at that point you

would like to talk a little bit—it’s my understanding that you had

announced a disciplinary panel that you’re going to set up, and

maybe that will fall into Mr. English’s issues. So if you’d like to expand on that, and give us an idea of what that’s all about——

Mr. ROSSOTTI. Yes, that is correct. I have done that, and the purpose of that is to act on the results of investigations that have been

undertaken as a result of the internal audits. This has to do with

the use of enforcement statistics in an inappropriate way, and we

believe that there are perhaps—well, we know that there are certain individuals that may have potentially engaged in misconduct

to a level that requires some disciplinary action. Of course, until

we get the results of the investigations and the facts, I don’t want

to prejudice anything, but in order to make sure that those investigations were received by an objective group, and would not in either direction go too far, either being unfair to the employees or

perhaps being not strict enough, we came up with the idea of having an independent panel. It does have one person from the IRS

on it, but it has one person from another Treasury bureau and it

has one person from the Justice Department, and they will get the

results of this investigation and decide what kind of action is appropriate.

Mrs. THURMAN. Commissioner, actually, in Florida over the

break, Senator Graham and I had a hearing in Orlando, specifically, on IRS, and talked to several taxpayers and had the Taxpayers Advocates with us as well, and some of the Regional Directors. One of the issues that was reoccurring to me, beyond what

may be even in the report that we’re going to hear about, although

it is mentioned a little bit—I think No. 15 or something—is the

issue of, once somebody starts working with the IRS, and then all

of a sudden they can’t come to completion or there’s not enough information, or whatever, people are asked to sign a waiver. They

sign this waiver, and then, of course, penalties start, and then the

interest starts. What we’re looking at for many people, and sometimes obviously part their fault, but also, because we drag our feet

a little bit, that they’re ending up with a lot more penalties and

interest than what their actual debt would have been to the IRS,

causing them some real hardships then.

Are we looking at any of that? Has that been discussed when you

were at the Senate, to talk about maybe some ways we could deal

with that?

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Mr. ROSSOTTI. Yes. I think that is really a definite problem that

needs to be relooked at, the whole issue of penalties. As a matter

of fact, before I was confirmed I went around and talked to several

former Commissioners, just to get what advice they had, and the

most uniform advice is: take a look at those penalties; this really

needs to be relooked at.

I think there is a provision, actually, in the bill to study penalties, and I think that is something that we would support very

much. We need to really take an entire look at this area of penalties.

Let me also say, though, as I said in my opening comments, part

of the modernization concept is that we need to get on the problems

the taxpayers have much more quickly. I mean, part of the problem

is just our whole business process is set up so that we don’t really

get to these collection cases most of the time for six months. Sometimes they’re years. Well, by that time, no matter what penalty

structure you have, you have interest and penalties built up.

So part of it is to study penalties, and let’s try to fix some of

those penalty provisions. But the other is, part of this modernization concept, we’ve got to do what private business does; don’t wait

six months or a year. Let’s get on these cases and help get people

out of trouble before they really get too deep into the hole.

Mrs. THURMAN. Well, I think there is a balance there for those

who cooperate and continue to work with us——

Mr. ROSSOTTI. Sure.

Mrs. THURMAN [continuing]. That maybe when we give them that

waiver, that nothing starts accruing at that time until we run into

some other problems. But that is the one area that we consistently

heard was a problem.

So I thank you, and I look forward to working with you.

Mr. ROSSOTTI. Thank you.

Chairman JOHNSON of Connecticut. Commissioner, as I have told

you personally, I am delighted that you come to this job with the

experience and resources that you have, but I think it is also important to point out that not only has this committee done a lot of

work in the last few years, but so has the Department. On this

issue of inappropriate behavior by employees, it is a pleasure for

me to hear you talking more openly about some of the problems

and how you’re going to go after them. I also remind the committee

that we will have the first real report on how employee misconduct

is handled and how it’s tracked in a few months when that report

is complete.

You’ll remember that when we first passed this provision two

years ago in the Taxpayer Bill of Rights II there was no system in

place at all to either track or oversee, and certainly no reporting.

The first report basically told us there hadn’t been a system that

we could talk about and put in place a system we could talk about.

When the report is complete in a few months it will be another

milestone along the way to better administration and a more open

agency.

So I thank you for your comments on Congresswoman Thurman’s

previous question. I would just note how far the IRS has come already, and we look forward to moving forward with you.

I’d like to recognize Mr. Hulshof.

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Mr. HULSHOF. Thank you, Madam Chair.

Commissioner, welcome. I want to talk a little bit about something you mentioned, about changing the environment of the IRS.

I think the word Mr. English used was the ‘‘culture’’ of the IRS.

And the organizational charts that you had there for us to look at,

first of all, how long do you anticipate the implementation of this

new organization? It’s probably ongoing, but what’s your goal?

Mr. ROSSOTTI. Sure. Well, first off, let me say that the organization is one of the five components. I think in terms of trying to

change the culture and change the goals and try to look at things

from a taxpayers’ point of view, we’re going to start on that right

now. We are starting on it right now with some of the things we’re

doing.

The organization is a bigger change that’s going to take longer,

and right now the only timeframe that we’ve set out is that we

hope to finish the next study of this—I mean, this is at a concept

level right now—we hope to get a study done by early summer,

which will validate this concept sufficiently that we could proceed

to implementation.

We really won’t be able to do any major implementation of organizational change before the 1999 filing season, which is a year

away, because we have massive changes that are required in our

year 2000 work and the tax law changes, and we need to get those

sort of stabilized before we begin to do some of these other things.

So I think, as a sort of rough outline, we’re going to be trying

to implement a lot of these short-term things that we’re doing, like

the Problem-Solving days, as we’re doing those now. We’ll be studying and coming to conclusions about precisely how to do these other

organizational moves, and then I think beginning in 1999 is when

we will really begin to implement some of those longer-term

changes.

Mr. HULSHOF. Let me follow up. You mentioned the problemsolving days. You’re alluded to testimony we’re likely to hear a little later this afternoon, particularly from the field Taxpayer Advocates, and I think one of the successes, at least in the testimony

of the advocates in the field is that the success of problem-solving

days largely rests in the face-to-face meetings, the taxpayers who

finally get a chance to sit down with someone to at least hear their

concerns.

I also recognize your background, the fact that you’ve come from

the American Management Systems business, and as you look for

ways to utilize technology, what are your thoughts on trying to balance high-tech methods such as e-mail, voicemail, or some say

‘‘voice jail’’—[Laughter.]—along with the need to have the face-toface meetings?

Mr. ROSSOTTI. That’s really an excellent question. I think that

what most businesses have now found is that the real key is to provide a range of ways for customers to interact, depending on what

their particular preferences and needs are, rather than a one-sizefits-all. I mean, the whole principle behind this modernization concept is to look at things more from finding groups of taxpayers that

have certain needs, and not try to fit everybody into the same

mold.

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I mentioned college students. I mean, college students do everything by e-mail and phone, and that’s just the way they do business. Other groups, perhaps senior citizens, like more the face-toface. So the concept here is not that we would just use technology

to replace people. In fact, it’s really the opposite. I think some of

the savings that we might make in terms of this more complex

structure, I think we could reinvest in terms of having more retail

sites, for example, in rural areas and other places, where people

could, as in Problem-Solving day, have face-to-face contact for those

taxpayers that wanted to do it that way.

But we also, of course, for a large number want to use our

website. Our website is doubling every year in terms of how many

hits it gets. They’re not mutually exclusive. They’re just different

ways of providing service to taxpayers based on what their particular needs and preferences are.

Mr. HULSHOF. It sounds great. I wish you encouragement. We

will be watching.

Mr. ROSSOTTI. Yes.

Mr. HULSHOF. I yield back.

Chairman JOHNSON of Connecticut. Congresswoman Dunn.

Ms. DUNN. Thank you very much, Madam Chairman.

Welcome, Mr. Rossotti. We expect great things from you. Ever

since we began to hear the rumors that you would be the head of

the IRS, everything I’ve heard has been wonderful and positive,

and I very much like your plan to do a reorganization from the top

to the bottom. I think that that’s what the taxpayers deserve and

want, and I also think it’s what the majority of the folks who work

for the IRS want. I think many of them have been distressed by

a bad reputation that has come to the surface in the last few years,

and I think they want to show that they’re there to help the taxpayers and that that’s their goal. I think what you’re doing from

a management standpoint just as soon as you come in is very wise.

As others have said on this panel, we’ll be watching with great interest and support.

I have a few items that have concerned me in the time that I

have been on this committee and heard people testifying, and I

wanted to just bring them to your attention, so that as you go

through the reorganization—these are things you’ve heard before,

but they come to me a lot in my district east of Seattle.

One of them is the 20 percent error rate on keypunching, returns

that are sent into the IRS. That’s the figure I’ve heard. You certainly can correct me if that’s incorrect, but it worries me because

that’s where you generate those letters that people get when they

probably in most cases should not be receiving them.

The second thing is the electronic filing. I’m very concerned, on

behalf of particularly small businesses, and I would like to have

you tell me that that’s under control, that the sales pitch you’re

giving to the people out there will let them how important this is

as the new way of filing taxes, and that it contributes to a higher

accuracy rate, but that also in the long run it’s going to be better

for the taxpayers. But before the information that had gone out on

it caused a lot of fear rather than complete acceptance, and so I

would like to monitor that.

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And the third thing is in some cases in the recent past we’ve

seen an ‘‘us versus them’’ mentality between the IRS and the customer, or the taxpayer—is it called the customer? I didn’t hear you

use that term today. Is that a new term you’re now going to use?

Good, I applaud you. ‘‘Taxpayer’’ is the one that say because customers usually have a chance to shop around.

But the Taxpayer Advocate really needs to be representing the

taxpayer, and I fear that if it continues to be somebody who’s hired

by and paid by the head of the IRS, that that will the IRS advocate. So I just want to make sure we turn that in the proper way.

You probably know all the management ways to do that, and I certainly have faith in what you will do, but it’s really important to

me to feel that that person is independent, and also in the regional

offices, too, that that person has the full ability to stand up for the

taxpayer when that’s needed, and isn’t imbued with the culture of

the IRS, at least the culture of the past that I think has been less

than helpful in many cases to taxpayers.

So if you could just respond to those—the other thing I’m going

to be watching for is the question Mr. Hulshof asked you, and

that’s when we’re going to get some of the results of the reorganization, so that we can see if it’s working.

Mr. ROSSOTTI. Well, thank you. Those are quite a few. Let me

just say on the Taxpayer Advocate, I really feel very much in

agreement with these comments about the Taxpayer Advocate. I

think that we really need to make that person a key member of the

senior team all the way up and down the line, to be the person that

both acts as sort of a quality control department and a Taxpayer

Advocate, and that’s one of the reasons we’re going out and doing

the search to find the person that I hope will be a real serious stature that can be the National Taxpayer Advocate, and then gradually as we get into this reorganization, we could have a senior person representing small business and the individual taxpayer, and

so forth.

So I really think that we’re going to dramatically, really dramatically, elevate, even more than we have already, the importance of

this position. I don’t know whether I have time because I’ve got the

yellow light on, but in terms of electronic filing, I think that part

of the problem with electronic filing is that to really explain this

to people, it’s more like a marketing issue in part. I mean, it’s partly technical, but it’s partly marketing. The IRS has not really been

a strong marketing organization.

We have just recently hired a person, named Bob Barr, who

came from the industry, another example of bringing someone in

who has a completely different kind of point of view. He was with

one of the major companies that does electronic software, and his

whole entire role in life, which I was just spending the whole morning talking with him, with the group, was to try to work with different stakeholders, including small business, to try to figure out

exactly what their problems are, not just in general, but also specific ones, to make it easier and to make it more attractive. We are

making progress. I hope we can make progress faster, but at least

we’ve got somebody there that knows how to do that.

I guess my time is up.

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On some of the other ones, I think the error rate was another

question. Of course, having more electronic filing, that’s one of the

great advantages: it reduces the error rate.

I think the 20 percent number is a number that is valid at the

time that the first round of paper returns go through, and those

are not just keypunching errors; those are all kinds of errors, taxpayer errors. By the time it gets through the end, there’s a whole

error correction process, and the rate is a lot lower. But still, I

mean, you’re right; I mean, these errors do get through, and that’s

one of the advantages, one of the really major advantages, of the

electronic filing.

Chairman JOHNSON of Connecticut. Thank you.

Mr. Watkins.

Mr. WATKINS. Thank you, Madam Chairman.

Commissioner, thank you for being here.

First, I want to thank you for the taxpayer advocacy work you

have done in behalf of some of my constituents, I have called you

with some of their concerns. Most of the time we hear their problems. I know you hear a lot of the problems and you don’t hear the

good things that happen. But you hear people out, and try to help

them answer the question: whom can I call to get help? So I think

on several occasions there’s been some real positive goodwill built

and solved some problems, and I think by having the taxpayer advocacy group it’s really meant a lot.

You know, it’s always easy to say, when a constituent’s asking

your help, when you say, yes, we can do that, and they’re happy.

But when you tell them, no, you cannot help, you’ve to have more

compassion and sympathy.

Mr. ROSSOTTI. That’s correct.

Mr. WATKINS. I think some of the people at the Taxpayer Advocate are working at that. Maybe it’s some changing attitudes, culture, but I think an advocacy group sure means a lot.

On behalf of Oklahoma, I think you know we had some unique

problems, and I know that I think your office has expressed a concern there. Could you update me of the situation with the Oklahoma City office.

Mr. ROSSOTTI. Yes.

Mr. WATKINS. It alarmed both me and many Oklahomans when

we realized some of the abuses there.

Mr. ROSSOTTI. Yes. Oklahoma was one of the districts that had

significant problems with the use of enforcement statistics. I mean,

essentially, we replaced pretty much the entire management out

there, and that’s basically a big part of it.

We’ve also—and I don’t want to get into specific cases—but we’ve

also, as part of this whole process of doing audits and investigations, obviously, looked at all the districts that were involved in potential misuse of enforcement statistics. So if there’s any action to

be taken in a disciplinary sense, that will be part of what comes

out of this process that I described earlier.

So I think we’ve put a lot of focus on management attention on

Oklahoma. I should also mention that, in addition to the district

itself, the Arkansas-Oklahoma District, we have recently selected

and appointed a new Regional Commissioner, based in Dallas, that

has oversight over that district, Mr. Ladd Ellis, who I think is a

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person that I have confidence in will help fix some of the management problems that we have. One of his top priorities is to work

with the people in Arkansas and Oklahoma to bring that district

more into a positive kind of a place, which it needs to be.

So you’re right, Mr. Watkins, that has been a problem area, and

we’ve taken quite a few steps to try to see if we can bring it into

a first-rate place again.

Mr. WATKINS. Well, I want to personally thank you. I know there

have been quite a few hearings on it. Some of which I have not

been able to attend, but I appreciate your bringing me up to date

a little bit.

The gentleman’s name is Mr. Ladd Ellis?

Mr. ROSSOTTI. Yes, he’s the Regional Commissioner, based in

Dallas, and he has oversight. He’s one level above the district, and

I just mention that because he’s also a new player that we’ve put

in to take a fresh look at all the districts out in that area, but, in

particular, in Arkansas-Oklahoma.

Mr. WATKINS. Well, I appreciate that information. I’ve worked

with some of your staff in the legislative liaison office on some

more parochial concerns, and I won’t belabor this issue, but I will

follow up a little later on it. I appreciate their help and your help

on some of that, in dealing with some Oklahoma tax issues, and

I will try to discuss that with you later on.

I appreciate the job you’re doing. I had a lot of hope when I saw

you appointed, and I was also pleased with some of your opening

remarks when you first came as the new Commissioner. I wish you

well, and I know you’ve got a tough job, but we have a lot of hopes

that things can be smoothed out.

Thank you.

Mr. ROSSOTTI. Thank you.

Mr. WATKINS. Thank you, Madam Chair.

Chairman JOHNSON of Connecticut. Mr. Ramstad.

Mr. RAMSTAD. Well, thank you, Madam Chair, for convening this

hearing on the Annual Report of the Taxpayer Advocate.

Welcome, Commissioner. Nice to see you here.

I just want to say, very briefly, I think this year’s report is definitely an improvement over last year, both in style and substance.

The format’s more user-friendly, and the report contains the 18 recommendations for legislative changes, which we didn’t get last

year, as well. So I think it’s safe to say that we’ve come a long way

over the last year. Thanks to my colleague sitting on my left, Mr.

Portman, and his counterpart, our colleague, Mr. Cardin, we

passed the IRS restructuring bill that originated in this subcommittee.

Commissioner, with your considerable private sector experience

and technological expertise, I think it’s accurate to say the IRS is

headed in some promising new directions. I appreciate your efforts.

You have a tough job, and so far you’ve done it very well.

We obviously have a long way to go. I think it’s also not an overstatement to say that the general public is distrustful of the IRS.

They have a lot of adversaries, and we certainly have a lot of room

for improvement, but I think important steps have been made, and

Rome wasn’t built in a day. It’s going to take some time, but, as

I said, I think we’re going in the right direction.

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I’m really encouraged by your plans to streamline the IRS and

focus on customer service for taxpayers. I think that’s so key to reform.

Let me just ask you this very briefly: under your reorganization

plan, Commissioner, based on the four taxpayer service categories,

which category would deal with estate and gift tax? I wasn’t able

to figure that out.

Mr. ROSSOTTI. Yes, that is one of the many questions that we

haven’t answered yet. I mean, this whole thing is at a concept

level, and the study that we hope to do over the next three or four

months would have to get into some of those specific issues. I really

don’t know the answer to that yet.

Mr. RAMSTAD. I see. So not even conceptually do you—you don’t

have that framework now?

Mr. ROSSOTTI. I just don’t. I just don’t know the answer to that

yet. I mean, there are quite a few questions actually like that that

need to be studied. I’m sure we can come up with an answer, but

we just don’t have it yet.

Mr. RAMSTAD. Well, that’s one of the most refreshing answers

you can give, an honest answer: ‘‘I just don’t know yet.’’ Thank you

for your candor, and I’m sure that you’ll be working on that and

be able to deal with that, obviously an important area for the Service and for the American taxpayers.

The same can be said about the excise tax issue.

Mr. ROSSOTTI. Exactly.

Mr. RAMSTAD. That’s another area that’s——

Mr. ROSSOTTI. Those two are two that we can figure out, and

there are various options, but we just haven’t studied them yet.

Mr. RAMSTAD. Well, again, Commissioner, thanks to you and

your staff for working with us. If we continue to work in a bipartisan, pragmatic, collaborative way, I know we can make the necessary improvements not only in the Internal Revenue Service, but

also in the tax code to make it more user-friendly as well. So I look

forward to working with you.

Mr. ROSSOTTI. Thank you.

Mr. RAMSTAD. Thank you, Madam Chair. I yield back the balance

of my time.

Chairman JOHNSON of Connecticut. Thank you very much, Commissioner. We appreciate your being with us. We look forward to

working with you. We know there will be many challenges over the

next few months, and we appreciate this good start to our communications and our work on the year ahead. Thank you.

Mr. ROSSOTTI. Thank you, Madam Chairwoman, for giving me

this opportunity.

Chairman JOHNSON of Connecticut. I’d like to welcome Mr.

Monks, and we’re going to call everybody up at the same time because there’s a markup that’s going to start in not too long, and

we want to be able to hear from everyone.

Mr. Monks, we’re certainly going to hear from you first, but if

your regional people will join you, we’d appreciate that.

But while you’re sitting down, I do want to thank you, Mr.

Monks, for a very good report, and one that does speak more directly to what the committee felt was its needs and the needs of

the Congress, both to create far better communication between the

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frontline Taxpayer Advocates and the policymaking body of the

Congress, but also to the need for far more direct and open communication between your office and our staff and ourselves, in order

to accomplish much better work on behalf of the taxpayers. So I appreciate the quality of your report.

I’ve read your testimony, and Mr. Portman will take over momentarily. Thank you.

STATEMENT OF LEE MONKS, TAXPAYER ADVOCATE,

INTERNAL REVENUE SERVICE

Mr. MONKS. Thank you. I have provided written testimony, so I’ll

try to be somewhat brief in going over my comments.

Madam Chairman and distinguished members of the subcommittee, I’m very pleased to be here today to discuss with you

the Problem Resolution Program and the second Taxpayer Advocate Report to the Congress. As you’re very much aware, the Problem Resolution Program, or PRP for short, celebrated its 20th anniversary during 1997, and that means for the past 20 years of the

program’s existence, our PROs, our Problem Resolution Officers,

now referred to as District and Service Center Taxpayer Advocates,

have provided a very important and meaningful service to the

American public. I’m very pleased that you chose to include a panel

of local advocates as part of the hearing today.

This past year was also remarkable for another reason, and

that’s due in part to the amount of attention that problem resolution has received following the Senate Finance Committee hearings, and as you may be aware, we were also prominently mentioned in an Ann Landers column featuring a letter from our Acting Commissioner at the time, Mike Dolan.

Just an anecdotal incident: about four days after that column appeared across the country, I came in and we had received about

250 letters from taxpayers because my address was provided in

that column. So taxpayers do read Ann Landers.

As a result of the increased publicity on our program and our

high degree of involvement in coordinating the district problemsolving day events, our contacts from customers have dramatically

increased over the past year. In fact, during the first quarter of

Fiscal Year 1998 we have had a 30 percent increase in contacts

from taxpayers. More and more taxpayers are finding their way

into PRP and that’s good for them. It’s also good for us in terms

of helping them get their problems addressed, and very good for

our program.

We’ve been busy in PRP on a number of fronts during Fiscal

Year 1997. First of all, we provided assistance to over 237,000 taxpayers who had experienced problems of a systemic nature with

the IRS, and we also handled over 30,000 requests for assistance

on cases involving significant hardship. In addition, we have been

actively working with the operational areas in developing administrative and legislative proposals to assist in reducing taxpayer burden, achieving equity or fairness for taxpayers, and of course trying

to improve IRS operational systems.

One of the things that we did new this year was to conduct taxpayer focus groups with both individual and small business taxpayers to get input from them on what they perceived as the most

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significant problems they face in dealing with the IRS. In addition

to that, I participated in a significant number of practitioner liaison meetings across the country to get direct feedback from them

on their concerns and their ideas for improving service. We’ve included feedback from both of those groups in my report.

One of our most visible efforts following the hearings, however,

was our involvement in the IRS district problem-solving days. As

Mr. Rossotti mentioned, I was assigned the responsibility for planning and coordinating our first nationwide district problem-solving

day event, and then the subsequent events to be conducted on a

monthly basis by each of our district offices.

I convened a national task group to develop a template and a

strategy for conducting these sessions across the country, and as

you’re aware, we conducted our first national problem-solving day

on November 15. That proved to be very, very successful. We assisted over 6,000 individuals on that day, and almost 2,000 other

individuals by telephone prior to November 15.

As Commissioner Rossotti indicated, the reaction from taxpayers

was very favorable, and in addition to that, the reaction from our

own employees was also very favorable. We received a substantial

amount of input; feedback from them on what we can do to make

problem-solving days more effective.

We’ve already planned for some additional events. We’re planning some problem-prevention days, which will take place in April,

and then we’re also planning another national problem-solving day,

which will be coordinated nationwide, scheduled and will take

place on May 16 of this year.

One of the interesting fallouts from problem-solving days was the

identification of certain cases which were causing problems for taxpayers, and also for our own employees. This has given rise to a

task force for which I have been assigned as the executive sponsor.

We’re reviewing what additional authorities might be necessary to

provide to our field employees, both in collection and our Taxpayer

Advocates, to assist taxpayers in resolving these types of issues. I

think, Mrs. Thurman, we picked up some of the feedback from the

Florida hearing on problems with interest and penalties, and that’s

going to be one of the areas that we will include in looking at these

additional authorities.

Because, what we found is that in some cases, either administrative procedures provided a barrier to closing out these cases or

there was some legislative issue that we could not overcome. So the

task for the group that I’ve pulled together, which is composed of

a number of field employees, and headed up by two field executives, will be to look at what additional authorities we need to provide to our employees to allow us to deal with some of these troublesome, problematic cases that we just can’t seem to close out of

inventory. I think we’ve got the opportunity here for some significant breakthroughs, and I’m really looking forward to the results

of this effort.

Another initiative that my office undertook this year was the development of some additional authority for the Taxpayer Advocate’s

office. As you’re aware, I’m required to report on problems that taxpayers are experiencing in dealing with the IRS, and also the adVerDate 11-MAY-2000 10:45 Jun 06, 2000 Jkt 010199 PO 00000 Frm 00047 Fmt 6601 Sfmt 6602 E:\HEARINGS\60980 pfrm02 PsN: 60980
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ministrative and legislative proposals that we’ve made to help relieve those problems.

In the past, if the Taxpayer Advocate made a recommendation

that the functional area did not agree with, that pretty much ended

the process, except for the opportunity for the advocate and the

functional area to have some additional dialog on that issue. However, as a result of some discussions that I held with the Acting

Commissioner at the time, I proposed to provide the Taxpayer Advocate with the authority to issue a Taxpayer Advocate directive.

This would require the Service to act on any administrative recommendations made by the Taxpayer Advocate unless it was appealed to the Deputy Commissioner. This proposal was recently approved, and we’re currently in the process of developing implementing instructions for the use of the Taxpayer Advocate directive. I certainly view this as another tool for the Taxpayer Advocate

that will assist in facilitating dialog within the organization, and

also to help bring about needed change to assist taxpayers.

We’ve included a number of areas in our report on recommendations that have been made; the different areas that problems have

materialized with taxpayers during the past year. Many of the

problems that we cited in the report are basically some of the same

from the prior year, and that really should come as no surprise to

most of us. Complexity of the tax law ranks as No. 1 for tax practitioners, while complexity of forms and instructions is ranked first

for individuals and small business groups.

We’ve covered a number of the various initiatives that are underway within the Service to deal with some of those areas. I’ve also

included a number of specific administrative proposals that were

made, issues dealing with divorced and separated taxpayers, repeat

examinations, notifications on offer and compromise cases, and so

on.

Of course, we submitted legislative proposals dealing with waiver

of the addition of tax for early withdrawals from an IRA, deduction

for repayment of income previously reported, allowing taxpayers to

change filing status under certain conditions, and so on. So we’ve

had a number of internal activities, a number of administrative

proposals that we put forward, and a number of legislative proposals that we’re dealing with.

Of course, that’s just the beginning of the process. We have a

number of task forces underway. We’ve looked at some of the fallout from the district problem-solving days, and have identified the

primary source of cases coming into us from district problem-solving days. We’ve asked our regional offices to assist us in analyzing

the root causes of those cases, to develop additional administrative

proposals and legislative solutions to those problems.

One of the criticisms of problem resolution in the past is that

PRP has been somewhat alluded to as IRS’s best-kept secret. We’re

trying to do a considerable amount to change that process. We’re

working with the IRS communications staff to develop a national

campaign to increase public awareness of PRP and the availability

of our services. We’re also publishing the phone listings for all of

our Taxpayer Advocates, along with their addresses and fax numbers, and a copy of that listing is included as an appendix in the

current report. We will be moving, hopefully by later this summer

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or early fall, toward developing a nationwide 1-800 number service

for PRP, which we expect will be a great service for taxpayers.

Following the hearings and some of the problems that materialized, it was very evident that PRP could have played a more significant role in the resolution of some of those cases. The Acting

Commissioner issued a memorandum to all IRS employees at the

time, emphasizing the need for them to identify cases that meet

the criteria for PRP—those cases that are difficult to resolve—and

immediately get those cases in the hands of our problem-resolution

specialists.

This, of course, along with the publicity that we received, has

certainly generated a substantial increase in inventory, and also

the need to look at staffing for our problem-resolution program. I’ve

already received a small increase to my staff in the headquarters

office, and we’re currently reviewing staffing needs in the field. In

addition to that, we also implemented a grade-level increase for all

District and Service Center Taxpayer Advocates more commensurate with their new responsibilities and duties. That was recently

approved by the Deputy Commissioner and has been initiated in

most of our offices.

I do have some comments relative to the question that you asked

the Commissioner in terms of the placement of the Advocate. As

the Advocate for the past five years, I certainly have been allowed

a great deal of latitude in operations by both of the Commissioners

that I’ve had the opportunity to work for. I truly believe that the

Advocate position should remain within the IRS and be part of the

Commissioner’s immediate staff, because I think that whether that

person is selected from inside the organization or from outside the

Service, I think it’s important that that person have an identity

with the Commissioner.

I also feel that the current reporting structure for our field advocates should be retained. While they each now report to the current

head of office, the Director, they do receive program guidance from

my office and from the regional staffs, and to a great degree that

ensures joint accountability for the success of the program. Regional Commissioners and Directors have a responsibility, and so

does the National Taxpayer Advocate, to ensure that we have an

effective program. I view somewhat the Taxpayer Advocate’s Report to the Congress as the report card for the program to make

sure that the Advocate is truly independent and serving taxpayers

in the way that they should be.

That concludes my comments. Thank you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much, Mr.

Monks. I appreciate your presentation, and I appreciate the work

that has gone into the taxpayer problem-solving days, and the care

with which you prepared, and the success that they were.

I’m going to hear from each of the other members of the panel

and then go to questions, so that those who have to go to the markup will have at least heard the testimony.

So let me start with Mr. Romito.

STATEMENT OF LOUIS ROMITO, DISTRICT TAXPAYER ADVOCATE, PENNSYLVANIA DISTRICT, INTERNAL REVENUE SERVICE, PITTSBURGH, PA

Mr. ROMITO. Madam Chairman and distinguished members of

the subcommittee, thank you for the opportunity to meet with you

again to discuss the role of the local Taxpayer Advocate. After our

initial meeting, it was obvious from an advocate’s point of view that

the Service needed to effect a cultural change in order to modify

our approach to customer service. The movement toward this necessarily dramatic change has begun.

I’m sure that some of the changes grew from the testimony that

was presented before this committee last year. I am just as sure

that the Service would have taken longer to implement these

changes had it not been for the impetus provided by this committee, the Senate Finance Committee, and the appointment of our

new Commissioner. These factors certainly are accelerating the

process.

You have heard, or will hear, from my colleagues of the many immediate and long-term actions that have taken place on a nationwide basis. They include such highly publicized actions as the problem-solving days, the elimination of ranking the 33 districts based

on their revenue and enforcement results, and requiring higher levels of approval on high taxpayer impact enforcement activities,

such as levies and seizures.

Local Taxpayer Advocates are actively involved in implementing,

overseeing, and monitoring the effectiveness of these and other customer-related programs such as the citizen advisory panels. Further, the Commissioner’s recently-announced concept for restructuring the Service will unquestionably expand the role of the Taxpayer Advocate.

Beyond these additional new and potential responsibilities, I

want to tell you about my personal involvement as a local Taxpayer

Advocate in three of these change actions.

First, one of your associates, Pennsylvania Senator Rick

Santorum, has been conducting a series of hearings across the

Commonwealth to hear individual and business taxpayers report

on their interactions with the Service to gather ideas from tax

practitioners regarding changes to the tax laws and to provide the

Service with the opportunity to present its position on allegations

of taxpayer abuse and the efforts we have taken to improve customer service. I was privileged to attend the hearings in Harrisburg, Pittsburgh, and Erie, and to testify on behalf of the District

Director at the last two locations. I was also able to pick up suggestions from the other participants that will serve as the basis for

proposals for legislative change.

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Second, I recently spent a week here in Washington as the field

office representation on the national office task force charged with

planning the implementation of a concept that will provide taxpayers with a centralized call site that will deal with problem-resolution-type cases. The call site will be available to taxpayers

through a unique, toll-free telephone number.

Congressman Coyne, as an aside, the Pittsburgh office has asked

to be considered as the location for that call site. We feel, and our

Northeast Regional Office agrees, that we have the high quality of

personnel that would make this initiative a success.

Third, I am participating, along with the rest of the Pennsylvania District Director’s top management, in an evaluation of the

engineering of the local problem-resolution program case processing

procedures. The efforts are based on the fact that the Service has

traditionally designed processes that focused on the meeting of statistical objectives. We are looking at the process from the point of

view of the taxpayer. What factors would our customers consider

as constituting satisfactory case processing.

The point of these three examples is to show the breadth of the

involvement of the typical Taxpayer Advocate in providing customer service. This is in line with Commissioner Rossotti’s longterm goal to provide service to taxpayers that is as consistently as

good as, or better than, they receive in the best companies in the

private sector. Mr. Rossotti has stated that we owe it to the American public to take every step possible to ensure that impartial and

fair treatment of taxpayers is never compromised.

To that end, he is refocusing the attention of the Service on

achieving the high level of customer service that taxpayers deserve,

and the local Taxpayer Advocates are right in the middle of the refocusing. If there was ever an exciting time in the problem-resolution program, this is that time.

That concludes my prepared remarks, and I’m available for any

questions you have.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you, Mr. Romito. It’s

a pleasure to have you here, and especially being from my colleague, Mr. Coyne’s district.

I would now like to welcome Mr. Romano, who is from the Connecticut office in Hartford. Thank you for being here again, Mr. Romano.

STATEMENT OF FRAN ROMANO, DISTRICT TAXPAYER ADVOCATE, CONNECTICUT-RHODE ISLAND DISTRICT, INTERNAL

REVENUE SERVICE, HARTFORD, CT

Mr. ROMANO. Thank you, Madam Chairman and

distinguished——

Chairman JOHNSON of Connecticut. I was extremely pleased with

the good results of your problem-solving day. We often know more

about what happens in our own district than those of others, and

I was very pleased with how well you carried it off and how the

public responded to it.

Mr. ROMANO. Thank you. Madam Chairman and distinguished

members of the subcommittee, I appreciate the opportunity to be

here for the second time as the Taxpayer Advocate for the Connecticut-Rhode Island district. During the past year, the Internal

Revenue Service has been the focus of several congressional hearings, GAO studies, internal audit reviews, and heightened media

attention. In addition, changes to the Internal Revenue Code have

added to its complexity. All of these have significantly enhanced

the importance of the Taxpayer Advocate’s position.

I’ve been involved in the problem-resolution program since 1982

as a caseworker, group manager, Assistant Problem Resolution Officer, and Taxpayer Advocate. I’ve experienced the growth of the

program, and recognize the taxpayers’ need for an individual to operate independently within the system to ensure their issues are

resolved fairly within the context of the existing tax law.

I would like to focus this year on four areas. My comments will

highlight the key points of my written testimony. First, I will summarize some of the issues that have been raised and the lessons

learned as a result of the Internal Revenue Service problem-solving

days held in the Connecticut-Rhode Island district.

Second, I will describe the advocacy initiatives I am involved in

at the local level and with the Northeast Regional Office.

Third, I will discuss the legislative proposals which are outlined

in the Taxpayer Advocate’s Annual Report as they relate to issues

which have been raised to me as a local Advocate.

Finally, I will focus on 1997 tax changes which I believe may require involvement from the local Advocates during the coming year.

The Connecticut-Rhode Island district held three problem-solving

days in Fiscal Year 1998 in Hartford and New Haven, Connecticut

and Providence, Rhode Island. Taxpayers have been invited to

make appointments at times other than our normal business hours

to discuss outstanding issues which remain unresolved. As always,

we remind taxpayers that there is no need to wait for a special day

to raise their concerns. The problem-resolution program is available to them every day during normal business hours.

Many taxpayers who attended problem-solving days were able to

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payers who interpreted this day as a tax amnesty day and requested their tax liabilities be excused. There were also a number

of requests for actions which are prohibited under current law, the

most common of which is to allow refunds for returns filed beyond

the timeframes required under code section 6511.

Regardless of the issues, the feedback from most taxpayers was

positive. Many commented on the courteous and professional treatment they received. They were pleased with the extended hours of

service, and most of all, they were grateful for the opportunity to

sit face-to-face with someone and leave with a clearer understanding of their issues and the options available to them.

The number of taxpayers taking advantage of problem-solving

day has taught us that the presence and availability of the Taxpayer Advocate and the PRP program have to be more visible

through better advertising. As the Advocate for the ConnecticutRhode Island district, I am participating in an advocacy initiative

with the Northeast Region Advocate’s Office related to Federal tax

deposit rules simplification. As pointed out in the Advocate’s Report, the electronic Federal tax payment system was designed to

simplify the payment process and eliminate penalties due to incorrect deposits by taxpayers and processing errors by the Service. Fifteen recommendations were made, some of which are outlined in

my written testimony. Many of these fall in line with the conceptual vision recently presented by the Commissioner.

The 1997 Taxpayer Relief Act contained a provision which enabled the Connecticut police and firemen who received heart and

hypertension benefits in 1989 through 1991 to request a refund of

tax paid on these benefits. My office worked closely with the Examination Division in the Connecticut-Rhode Island district to alert

taxpayers to provisions of this law and to monitor the processing

of the claims.

I included in my previous testimony a comment on how unfair

taxpayers perceive Internal Revenue Code Section 6511. This year’s

Taxpayer Advocate’s Report contains two alternative recommendations to amend IRC Section 6511. Allowing refunds to offset certain

balance-due accounts would encourage delinquent taxpayers to reenter the system. Facing the possibility of enormous liabilities and

not being entitled to credits due to the statutory requirement is so

overwhelming at times, it discourages taxpayers from becoming

compliant.

During 1997, Congress passed legislation known as the Taxpayer

Relief Act. There are two sections in this law, section 1024 and

1025 of this act, which will allow the Internal Revenue Service to

place continuous levies on up to 15 percent of specified Federal

payments. This 15 percent applies to unemployment benefits and

means-tested public assistance. I anticipate that levies on this type

of income will likely produce many requests for hardship relief in

the coming year.

Thank you for the opportunity to speak to you, and I’m also

available to answer questions.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much, Mr.

Romano. Those specifics are very helpful.

Next I’d like to welcome Ms. Tabor from Cincinnati, Ohio, and

from the home town of my colleague, Mr. Portman.

STATEMENT OF JANEY TABOR, DISTRICT TAXPAYER ADVOCATE, OHIO DISTRICT, INTERNAL REVENUE SERVICE, CINCINNATI, OH

Ms. TABOR. Thank you, Madam Chairman and distinguished

members of the subcommittee. I’ve got a cold, so I apologize.

I appreciate the opportunity to be here today to discuss three

things: the role of the District Taxpayer Advocate, the problem-resolution program, and the problem-solving days held in Ohio. I have

served in the District Taxpayer Advocate position for eight months

in the Ohio district and I’ve been with IRS for over 22 years, and

in Government service for 25 years in various technical and managerial positions. I feel that these prior opportunities within the IRS

have served to prepare me for this most challenging role of Taxpayer Advocate.

In my role as a District Taxpayer Advocate, I have the opportunity to listen to and assist the taxpayers who may have become

bogged down in the system, unable to resolve their problems or

have encountered hardships because of various policies and procedures. I am responsible for ensuring that taxpayers’ rights are protected, and I serve as the advocate for taxpayers within the Internal Revenue and represent their interests and concerns within the

context of existing law.

The problem-resolution program is the place to address those

unique situations where taxpayers have fallen out of the normal

channels or somehow don’t fit into a particular process that successfully serves the vast majority of taxpayers. Even though the

Service is an organization comprising good people who do an admirable job of administering a set of complex tax laws, the laws, regulations, and our own administrative systems sometimes prevent the

Service from doing what at times may be in the best interest of our

customers.

When taxpayer problems have become more complex and don’t

easily fit into these existing processes, the IRS is sometimes prevented by law from helping the taxpayer get right with their tax

obligations. This particularly relates to the interest and penalty

provisions which I will share an example of later in my statement.

The IRS employees’, as well as the Taxpayer Advocates’, hands

are sometimes tied and prevented from doing what would be in the

best interest of the taxpayer. I believe the two Taxpayer Bill of

Rights have moved us closer to the goal of administering a tax system that provides fairness for all, but has a way to go.

I’d like to share with you now some reactions and a scenario

from the problem-solving day events. This scenario is also an example of the dilemma resulting from the interest and penalty provisions.

So far, we’ve had three problem-solving days in Ohio—in Cincinnati, Cleveland, and Toledo. The majority of the taxpayers that

came in on problem-solving days were very satisfied with the ServVerDate 11-MAY-2000 10:45 Jun 06, 2000 Jkt 010199 PO 00000 Frm 00064 Fmt 6601 Sfmt 6602 E:\HEARINGS\60980 pfrm02 PsN: 60980
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ice, and this isn’t based on just my opinion; it’s based on the taxpayer comments on their exit surveys.

Taxpayers who had been having problems for years came in, met

face-to-face with IRS employees to either resolve the problem or obtain a better understanding of what they owed and determine a

method to pay it off. They were able to put a face to the IRS, and

it was a positive experience for both taxpayers and employees. Adequate resources were available to help them do their jobs. This created an atmosphere that maximized the problem-solving.

The Service is presently set up in such a stovepipe structure,

often placing barriers unintentionally between functions, and

therefore preventing quick resolution of problems, and with problem-solving days, these stovepipes or barriers were broken down

and a structure put in place to handle all facets of the taxpayers’

problem.

Many of the managers and frontline employees have remarked

how wonderful it would be if this multi-functional concept created

with problem-solving days could be put into the day-to-day work

environment to assist taxpayers. Later in my testimony I’ll describe

what the Ohio District is doing to create this type of environment.

First, let me share with you a scenario from the problem-solving

day event that illustrates how the current tax law created a tax

burden for taxpayers. A husband and wife came in to problem-solving day to solve their back tax due of about $10,000 for tax years

1987 and 1988. Over the years they had struggled with financial

problems and tried to pay the tax bill. On November 15, they came

in to settle their account, hoping to qualify for an offer and compromise. At this point, the taxpayers had paid $1,500 on their

original tax bill of $10,000, and still owed us $10,000. They had little equity in their house, about $11,000, three children, and had

suffered mentally from this tax burden. They did not qualify for an

offer and compromise. They had no funds to make an offer, but

were willing to borrow from relatives to pay off the $1,800 they still

owed from the original $10,000. They wanted to try and get this

debt off their backs and see some light at the end of the tunnel.

There are no provisions in the tax law to help these taxpayers.

Under existing law, they keep racking up high interest and penalties over the years while trying to pay their actual tax due. We

need legislative action to be able to consider taxpayers’ situations

such as this. We suggest adding to the offer and compromise code

perhaps a third provision for best interest for the taxpayer and the

Service. If we could provide some consideration of taxpayer circumstances, while maintaining proper compliance with the tax

laws and fairness in the administration of the laws, then we could

make some strides in achieving a fair and equitable tax system.

Part of the success of the problem-solving days was the multifunctional involvement, and because this multi-functional approach

to resolving problems proved so beneficial during problem-solving

days, we’re working on a concept in the Ohio District where we’re

testing a cross-functional group. This cross-functional group is

working well, and we are ready to add additional expertise based

on the involvement of the other functions validated at the problemsolving days.

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Based on the success of problem-solving days, we believe this approach is one method of providing the same environment as our

problem-solving days to our problem-resolution program, but we

would be able to do that on a daily basis. Ultimately, I feel we need

to organize the Service in a manner which allows us to eliminate

the functional lines and focus on providing the best customer service related to our taxpayers’ needs. I believe this supports the concept Commissioner Rossotti testified to. In the interim, an approach like we are testing would improve the relief for taxpayers

now.

In closing, I hope my role as Taxpayer Advocate will be strengthened by the legislative proposals currently in process and that Congress will pass those laws which will help the Service provide a

more fair and equitable tax system. I believe the problem-resolution program has been successful in helping taxpayers, and we will

continue to do this.

Problem-solving days have elevated the successes of the problemresolution program to a higher level and verified the need to provide a Taxpayer Advocate to assist taxpayers bogged down in the

system.

This concludes my prepared statement, and if you have any questions, I would be glad to answer them. Thank you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much.

Ms. Ling, who is from Jennifer Dunn’s district.

Ms. Ling.

STATEMENT OF SANDRA LING, DISTRICT TAXPAYER ADVOCATE, PACIFIC-NORTHWEST DISTRICT, INTERNAL REVENUE

SERVICE, SEATTLE, WA

Ms. LING. Madam Chairperson and distinguished Members of the

Subcommittee, thank you for the opportunity to provide this committee with my insights and perspectives on the role of the District

Taxpayer Advocate. I have served as the Taxpayer Advocate in the

Pacific-Northwest District since 1994. Prior to assuming this position, I have worked at different levels of the IRS organization in

Houston, New York City, and San Francisco. My experience includes work in problem resolution, of course, and taxpayer service,

and the examination functions.

As a District Taxpayer Advocate, I’m responsible for ensuring the

protection of taxpayer rights, representing their interests in decisions about the activities of over 2,200 IRS employees, and overseeing the problem-resolution program in the Pacific-Northwest

District. Our district encompasses the States of Alaska, Hawaii,

Oregon, and Washington, an area of over 756,000 square miles,

with a population of approximately 10.7 million.

During Fiscal Year 1997, my staff, along with problem-resolution

caseworkers, resolved over 7,600 problems and processed 2,208 applications for taxpayer assistance orders, requests for the Advocate’s intervention in matters pertaining to IRS action and/or lack

of action, providing a minimum partial relief in 84 percent of those

issues. Since last September, the district has conducted six problem-solving days, helping over 400 people.

I would like to devote the bulk of my remarks to suggestions for

improving the system. I believe that the vast majority of IRS employees wish to serve the public in a fair and just manner, but are

sometimes hampered by obstacles over which they have no control.

These include complex tax code. The Internal Revenue Code currently covers over 9,000 pages, including indices, explanations of

amendments, and tables of sections. Within each section are references to other sections, definitions of terms, and a staggering

quantity of complex and sometimes ambiguous language. I have

often wondered how many Members of Congress actually prepare

their own tax returns. Quite frankly, after 17 years with IRS, I’m

still not always certain that I’m taking advantage of all the credits

and deductions that I am entitled to. As reasonable people, how

can we expect the average person to understand his or her rights

and meet his or her responsibilities under these laws? I urge this

committee to communicate to the full Congress the need for decisive action to produce a tax code that is both simple and fair.

I want to preface my statement about statutory empowerment

with my thanks to Congress for passing the second Taxpayer Bill

of Rights. It has made my job easier by empowering me to intervene in some situations when actions taken by the Service have

created a significant hardship or when pending IRS action may not

be the best alternative to pursue, given the taxpayer’s circumstances.

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However, the Advocate’s statutory authority must be expanded.

I encounter too many situations where taxpayers clearly want to

get matters resolved, and yet the Taxpayer Advocate lacks the

means and/or authority to institute any equitable settlement.

In other instances, taxpayers in severe financial distress could

benefit greatly from expedited issuance of refunds. Yet, I am either

hampered procedurally or lack the statutory authority to provide

this relief.

An example relates to the offset of refunds. Our computers are

programmed to search first for outstanding Federal tax liabilities

and offset any overpayment to them. In cases of extreme hardship,

I currently have a narrow window of opportunity within which I

can prevent such an offset and issue the refund to the taxpayer.

I need the authority to refund this money in cases of severe significant hardship.

But that is only part of the problem. The Internal Revenue Service is statutorily required to offset refunds to State and Federal

agencies claiming an outstanding liability; for example, delinquent

Federal student loan payments and child support. After satisfying

any Federal tax steps through offset of refunds, the computer

searches for liabilities reported by these other agencies, sending remaining overpayments to them. In these cases, I have no statutory

authority whatsoever to prevent or reverse such an offset. A taxpayer suffering severe hardship who owed money to the IRS and

the Veterans’ Administration could get no relief from my office

until the VA debt was paid in full.

There’s also an additional concern relating to this issue. If the

other agency provides the IRS with erroneous information regarding outstanding liabilities, the money is still offset, and it is often

the IRS, not the agency that made the error, that bears the brunt

of the resentment from the taxpayer. The IRS is required to assume that the debtor master file information is correct, yet faces

loss of credibility and public trust if the offset is unwarranted. By

putting the IRS in a position of collecting other agencies’ liabilities,

the system further hinders voluntary compliance. Taxpayers who

fulfill their obligations and file their returns may be faced with the

loss of their refunds to other agencies, even though the debt may

be in dispute. Needless to say, this creates a disincentive to file

timely or withhold the proper amount of tax from wages.

Another concern is the assessment of penalties. The purported

purpose of penalties is the inducement of appropriate behavior, not

punishment of those who fall behind. A cap on penalties would

minimize their excessively punitive effects while preserving their

behavior modification aspect. I know of many situations in which

a taxpayer has made a good-faith effort to satisfy his or her liability, may have actually paid the tax in full, but has little hope of

paying the remaining balance of accrued penalty and interest in his

or her lifetime. For the average taxpayer, this burden can be overwhelming, and, again, may be a disincentive to filing on time.

Certain penalties may be abated for reasonable cause; others

may not. I urge Congress to provide the Taxpayer Advocate or another entity with the authority to make discretionary abatement of

all penalties, as well as interest, under limited circumstances.

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I would like to add a few additional words about empowerment.

We must be certain to strike a balance between the need for compassion and flexibility and the requirement that we enforce the tax

laws. Most people, given a fair chance, will understand the need to

learn from their mistakes and behave responsibly in the future, but

for those who would deliberately flout or abuse the system, attempting to evade payment of taxes, the Service must remain diligent and firm. To do otherwise would be a disservice to the vast

majority who pay their taxes when due.

Let us not forget common sense. There are times when statutes,

while not causing significant hardship, leave much to be desired.

As you’re aware, the normal time period for collection of taxes is

10 years from the date of assessment. That period may be extended

further with mutual consent of the taxpayer and the Service. In my

opinion, if the IRS is unable to collect the tax within the 10-year

statute of limitations, it should simply abandon the effort. No responsible organization would do otherwise.

Further, I believe that Congress should contrast the 10-year statute of limitations on collection with the significantly shorter statute

of limitations within which a taxpayer can file a claim for a refund

of overpaid taxes—generally, the latter of three years after the due

date of the return or two years after the tax has been paid. It

seems only fair that these two periods be the same. The current situation raises an issue of equity and may create the perception that

IRS isn’t fair in the way it administers the tax laws.

Negative characterizations of the Internal Revenue Service—in

recent months there has been much reporting of alleged abuse and

irresponsible actions by the IRS and its employees. While the Service is gravely concerned about these allegations and is continuing

to investigate them at all levels, many IRS employees, myself included, are also concerned that the high quality of overall service

they have provided has too often been overlooked. The constant emphasis on perceived inadequacies of the agency is undermining the

public’s confidence in the IRS and greatly hampering the agency’s

ability to fulfill its duties.

Further, this negativity is in some cases encouraging the aggressive and sometimes dangerous attitudes of those who oppose government in all forms, and the IRS in particular. Just as importantly, those who engage in incessant and one-sided criticism of the

IRS may unconsciously compel some individuals whose allegiance

to the extreme positions have previously been tenuous to step over

the line into legal protests and possibly militant action. In last Fiscal Year, 872 threats or assaults against IRS employees were reported nationwide, including 41 in the Pacific-Northwest District.

I am certain that every member of this committee agrees that no

public servant should be expected to perform his or her duties in

an atmosphere of impeding violence.

I urge this committee to help the Internal Revenue Service improve its ability to meet the needs of the American taxpaying public. In my opinion, this can best be accomplished through diligent

fact-finding, rigorous discussion, and insightful changes in policy

and statute. I believe that the important work of this committee

should be undertaken in the spirit of determination and nonpartisan, as suggested by the National Taxpayer Advocate, while

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avoiding divisive and destructive rhetoric against an agency of over

100,000 dedicated and conscientious public servants.

Thank you for the opportunity to present my thoughts.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you, Ms. Ling.

Ms. Goldstein from Milwaukee, Wisconsin.

STATEMENT OF ELAYNE M. GOLDSTEIN, DISTRICT TAXPAYER

ADVOCATE, MIDWEST DISTRICT, INTERNAL REVENUE SERVICE, MILWAUKEE, WI

Ms. GOLDSTEIN. Yes. Madam Chairman and distinguished Members of the subcommittee, it is an honor to appear before you once

again to provide you with my assessment of what we, as field advocates, can provide to the taxpayers of this country.

I am currently the District Taxpayer Advocate in the Midwest

District. The Midwest District consists of the three States of Wisconsin, Iowa, and Nebraska. I’ve been in the problem-resolution

program a total of 12 years, 3 as a Problem Resolution Specialist

and the balance as a Problem Resolution Officer, and then the District Taxpayer Advocate.

In those years, I have seen dramatic changes in my role as an

advocate, as well as an increased expectation on the part of our

taxpayers of this country, both for the Internal Revenue Service in

general and the problem-resolution program in particular. Because

of the strides that we have made in society in all aspects of our

lives, particularly in the technology arena, the taxpayers of this

country have come to expect the same level of prompt, courteous

service from the IRS that they receive from any other service organization in the private sector. They have a right to expect it, and

we have an obligation to deliver that service. What we as an organization need to do is we need to figure out what we need to do

to put these skills, knowledge, and abilities in the hands of every

IRS employee, so they can deliver world-class service to the taxpayers of this country.

I believe it is important that Congress partner with the Treasury

and the Internal Revenue Service to ensure that these tools are

placed in the hands of all IRS employees, whether it be tangible

products such as computers and research material or intellectual

property such as training and mentoring. We are at a critical time

in our history when we need to stop calling each other names and

start to roll up our sleeves to get the job done. I believe the American public deserves that from us all.

I don’t think in my IRS history the attitude of employees toward

providing customer service has been more reflective than in our recent problem-solving days. The Midwest District has held three

problem-solving days to date, and they’ve been a resounding success. Our customers do have a right to expect that level of service

from the Internal Revenue Service. On a scale of 1 to 7, with 7

being the highest, the Midwest District scored an overall rating of

customer service of 6.84, and I know that other districts throughout this Nation enjoyed the same success during problem-solving

days.

Another item that problem-solving days brought to my attention

is that there is a certain segment of our population that can only

deal effectively with the Internal Revenue Service in a face-to-face

situation. These are people who will never be convinced that they

can deal as effectively or as efficiently with the IRS over the teleVerDate 11-MAY-2000 10:45 Jun 06, 2000 Jkt 010199 PO 00000 Frm 00078 Fmt 6601 Sfmt 6602 E:\HEARINGS\60980 pfrm02 PsN: 60980
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phone, and they generally don’t have access to the Internal Revenue Service.

In recent years, because of lean budgets, it has been our strategy

to move people away from face-to-face situations to either the telephone or alternative methods of receiving information from the

IRS. In whatever budget deliberations take place, as decisions are

made to assign resources to the IRS, I would hope that this body,

as well as the Internal Revenue Service, would not lose sight of

those people that need to meet with the IRS employees personally.

As a Taxpayer Advocate, my goal in the upcoming year and years

ahead is to work in our district to make every day a taxpayer problem-solving day. This should be the goal for all of our districts.

What we did on problem-solving day was really no different than

what we do every day during the year. However, we were operating

in an artificial atmosphere. Generally, we don’t have the tools and

resources available to us on a daily basis that we have available

during problem-solving days.

We generally don’t have the luxury to take as long as it takes

to resolve a taxpayer’s problem that we don’t have on a regular

business day. As an organization, we must commit ourselves to ensure that we are making this luxury of taking the necessary time

to help a taxpayer with their problem into a routine, regular way

of doing business for us on a daily basis. I know that Commissioner

Rossotti is committed to this vision, as we must all be.

In reading the Taxpayer Advocate’s Report to Congress, he did

fail to mention one initiative that his office is undertaking that I

am very much in support of. This initiative is currently in the talking stages, and it is the implementation of an equity board. Last

year when I was before this committee, I stated that it was my

opinion that the most serious problem facing taxpayers was the

complexity of the tax law. I have not changed that opinion. As a

matter of fact, I’m even more entrenched in my belief since the passage of the Taxpayer Relief Act of 1997.

When the Taxpayer Advocate sponsored focus group interviews

around this country, practitioners rated the complexity of the tax

law as the No. 1 problem facing taxpayers. Taxpayers, individuals

and small business taxpayers, rated the complexity of the tax forms

and the instructions as their No. 1 problem, which of course is a

byproduct of the complexity of the tax law.

I believe that tax complexity will be with us for a while, and the

equity board concept is just such an instrument to help Advocates

assist taxpayers when we recognize we cannot help them because

of the tax law or IRS procedures. As field advocates, when we recognize that it just doesn’t make sense to not help a taxpayer because of artificial barriers that have been set, we would be able to

elevate these problems and issues to the equity board, who would

work toward finding a solution to what appears to be an unsolvable

problem. I am personally looking forward to the results of the task

force looking into the equity board concept.

To say that formulating tax law and administering its aftermath

is an easy task would, of course, be a gross understatement. We all

do need to work together to ease the burden on our taxpayers. We

owe it to our taxpayers of this country and we owe it to ourselves.

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I would be glad to answer any questions you may have. Thank

you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much, Ms.

Goldstein. I thank the panel very much.

I earlier mentioned that the Human Resources Subcommittee

would convene at 4:00. I was mistaken in that; it’s at 4:30, for

those of you who have that obligation.

Ms. Goldstein, I want to just go back to this equity board concept

that you mentioned, because our original vision was that, through

our communication with you, we would come to understand where

the law or an IRS procedure did prevent the kind of outcome that

you on the frontlines saw as equitable and fair.

It is a very difficult issue of balancing compassion and justice on

the individual basis with the importance of having uniform and

consistent tax law across the Nation, and that tension is something

that we’ll always live with, but I’ll be interested to watch this discussion about the equity board develop, because it may be that

they could refine these issues in such a way that then we would

get very much more specific input from you as to what laws need

to be changed and why.

I know when I was first elected, I had a terrible problem in my

district. It was solved completely unfairly. It put the guy out of

business. The taxpayers lost; he lost; we all felt miserable. And it

was explained to me—I was a freshman then—that it had to be,

so that there would be consistency across the Nation; that it’s true

we could have done this little thing over here, but then we wouldn’t

have consistent tax policy, and someone else in his circumstances

might have been treated differently in another part of the country,

and that wouldn’t be fair. So it is a problem, and we really have

to be far more realistic about it. I think the whole purpose of developing the taxpayer advocate system, and particularly trying to

break through the communications barriers between the front line

of any agency, frankly, and the Congress was exactly that—to try

to identify those portions of the law and those procedures that you

see working against common sense and fairness.

I think some of the points that a number of you have made have

been very interesting in that regard. I think we do have to look at

this issue of severe hardship. On the other hand, what is the need

of the child for child support? And how do we make sure that you

have guidance, but also flexibility? So as we look into those kinds

of recommendations that you have brought to us, they’re not going

to be easy, but I appreciate your bringing them to our attention

and making some recommendations, because, clearly, we do need

to look at that.

I did want to ask Ms. Tabor, what did you mean exactly, because

it’s a little hard for me to get from all of your testimony what problems you were able to solve and what problems you can’t solve. And

when you said ‘‘multifunctional’’ approach, I sort of roughly hear

what you’re saying, and that you found that a very useful part of

these problem-resolution days, and you’re going to try to replicate

that. But what do you mean about that? Give me an example of

the kind of problem that in the normal course of events is hard to

solve, but on a problem-solving day, where you somehow have a little different situation, could be solved because of this multi-functional approach.

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Ms. TABOR. An example would be, you have a collection problem

that a taxpayer comes to you with, but it’s not actually a collection

problem. They owe the tax, but it’s based on an assessment that

was done in examination. The collection officer can’t change the assessment, and it’s depending on the issue. You know, you have to

really look at each taxpayer’s case on a case-by-case basis.

But where the multi-functional concept comes in, and what

worked for us on problem-solving days, is the revenue officer would

be there and be meeting with the taxpayers to try to get them to

pay the tax, and really they called in someone from exams to help

look at the issue and see, is that a valid issue, and be able to explain it to the taxpayer, that this is a valid assessment; you do owe

it, and you need to work with the revenue officer to pay it off. Or

they would say, this is something that you really didn’t owe; it was

an invalid assessment, and we’ll take care of it and take that debt

away from you.

So I don’t know if that’s——

Chairman JOHNSON of Connecticut. So, Ms. Ling, was this the

same kind of thing that you were referring to when you talked

about the cases in which the debt may be in dispute?

Ms. LING. That’s correct; yes, it is.

Chairman JOHNSON of Connecticut. Could you give us some examples of the kinds of cases that got solved on problem-solving

day? Are there categories of cases that came in that tended to get

solved and categories of cases that tended to get referred on, just

started the process of resolution on problem-solving day?

Ms. GOLDSTEIN. In the Midwest District, many of the issues we

were able to resolve while the taxpayer was in the office. It principally had to do with requests for elimination of penalties. They

were able to come in to give us a valid reason as to why a tax return was either filed late or the tax was paid late. Based upon

their oral testimony, in many cases we were able to accept that

reason and effect change to their account that would have eliminated that dollar amount owed for that penalty amount.

Mr. MONKS. Mr. Rossotti had commented earlier that I might

have some information on the categories, the primary categories, of

cases that we dealt with during problem-solving days. Audit reconsiderations was the No. 1 issue, and that has been——

Chairman JOHNSON of Connecticut. Excuse me. I didn’t understand that.

Mr. MONKS. Audit reconsideration, requests for audit reconsiderations was the No. 1 issue; offer and compromise cases were No.

2; requests for installment agreements were No. 3, and penalties

were No. 4. So those were the primary requests, and those four and

the next two or three categories after that probably constituted

somewhere in the neighborhood of 50 to 60 percent of the cases

that came in.

Offers in compromises are another good example. That would be

a process that would normally take a considerable amount of time

to conduct a review, but because we had a multi-functional team

in our offices, they were able to conduct the initial review, and

even have counsel take a look at the proposed offer to see if it met

all of the requirements that they might look for, and so they were

able to expedite the solving of the problem; whereas, typically, in

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an IRS office, if the taxpayer were to go in, they would meet with

a Taxpayer Service Representative, and that would have to be referred somewhere else, and it might take another week or two before they were able to deal with that. But because they had the

multi-functional teams there, they had everybody in place that they

needed to have to solve that problem, and they even had linkage

with the Service Centers for those issues that had to be resolved

at the Service Centers, because in many cases only the Service

Center has the authority to make the final action. So we either had

Service Center employees onsite at the district during problemsolving days or had a linkage established with them, a contact

point, in each of our centers. So that also greatly assisted the process.

This was probably the No. 1 thing cited by employees that they

saw as favorable in the process. First of all, it allowed them the

opportunity to show that we can provide able assistance to taxpayers, and, secondly, they liked the fact that we use this multifunctional approach to problem-solving.

Chairman JOHNSON of Connecticut. Well, I can certainly see that

that would be more satisfying to both the taxpayers and to your

employees, and I hope you succeed in your efforts to find some way

to structure this into your normal procedures. I won’t pursue that

at this time, though, because we have so many members still here,

and I want to be sure they have a chance to question.

I thank you all for your testimony. It was really very helpful to

us, and much of it we’ll pursue with you afterwards, but at this

point I’d like to recognize Mr. Coyne.

Mr. COYNE. Thank you, Madam Chairman.

Mr. Monks, in your report today, you talked at some length

about the need for simplification of the tax code. You point out that

there is an awful lot of talk about simplifying the tax code, but

very little action in doing it, and as part of your report, you call

for a commission to be formed to study the current tax system. I’m

just wondering if you could touch on why you think a commission

might be able to be helpful to us.

Mr. MONKS. First of all, trying to deal with the issue of simplification is somewhat akin to solving the problem of world hunger; it’s a very difficult process. It’s not something that I think can

be dealt with in a piecemeal fashion. We can make recommendations for simplifying a particular section of the code in trying to

deal with a certain aspect, but then there are going to be 20 or 30

other tax legislative proposals made this year that may add to complexity, and we continue to use the tax system for other programs’

effort other than raising revenue. So that adds both to complexity,

and I think concern about the fairness of the system.

I think the efforts of the Restructuring Commission in looking at

the IRS organization was an excellent job. They looked at a number of issues. It was a bipartisan effort. It brought the IRS into the

picture. It brought significant stakeholders from outside of the IRS

into the process. I think an approach like that, that would get the

various tax proposals that have been made by different Congressmen across the spectrum, including the flat tax, the consumption

tax, and frankly, the current tax system, which I believe happens

to be a fairly good system, if it didn’t have so much complexity in

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it—looking at all of these issues, trying to eliminate some of that

complexity, developing a system that would be fair; it’s the kind of

national debate and discussion that I think we need to have. I

think the public wants a simpler system. They also want a fair system, and it’s somewhat difficult to develop both of those in the

same context. So I think it really requires a long-term effort, and

I think a bipartisan effort, composed of members from the administration and from the Congress to look at this is exactly what is required.

Mr. COYNE. Thank you very much.

Ms. Ling, I just want to take time out to congratulate you on a

very positive and forceful statement relative to the need to tone

down the rhetoric as it relates to the IRS. Many elected officials

and others just take advantage of the opportunity to pound an

agency that is, by its nature, not doing a job that most people

would want to do. I want to congratulate you and the panel for the

work that you do for this country in a very tense and often

confrontational atmosphere. Thank you.

Chairman JOHNSON of Connecticut. I just want to say that I concur with my colleague, the comments of my colleague, Bill Coyne.

It is, however, an unfortunate reality that the focus on change, the

product of change, the constructive things that are happening now,

unfortunately, only did happen when there was a lot of focus on

problems and failures and frustrations and angers. But we are certainly, without question, entering an era when we need to work together; we need to use the information that we have. I certainly am

proud to represent an office and a State in which the IRS has provided really outstanding service, and I rarely can complain.

A lot of my colleagues are in that position, and I recognize the

quality of the work you do and the enormous problems that complexity has posed for you. As Rostenkowski used to say, simplicity

is the enemy of equity, and it’s true if you look at the last year’s

tax bill. It’s complex because we tried to be fair in providing and

using very limited resources to help, for example, young families.

So that doesn’t mean we can’t do something about it, but the problems you point out to us are going to be critical in helping us to

figure out what we can do that will be most effective. So I thank

you for some of the very thoughtful suggestions you have given us

today.

I’d like to recognize Mr. Portman.

Mr. PORTMAN. Thank you, Madam Chair.

Thank you all for your testimony. It is a much better report, as

I said earlier, much more helpful to us as legislators looking at it.

As I’ve looked through the specific recommendations, I think four

of them actually are in one form or another in the legislation that’s

currently resting in the Senate, which we hope to again have to the

President by tax day.

You guys are in a better position than we are, because you can

make these wonderful recommendations and not worry about how

to pay for them. Some of these are very expensive. Your innocent

spouse relief I love, but the Joint Tax Committee will tell us that’s

billions of dollars. I haven’t thought about what that probably

would be, but it sounds like so much money, it’s almost absurd. So

there are some restraints, obviously, on what we can do, and others

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are just very sensible and actually would cost nothing, but would

make your lives easier trying to advocate for taxpayers. I think this

is exactly what we need. It’s very helpful.

On simplification, Mr. Monks makes the comparison to world

hunger. I think that’s a bad analogy because in the last decade

we’ve made significant progress in reducing world hunger, while at

the same time complicating our tax code much further. Since 1986,

they say we’ve made over 4,000 changes to the tax code, and so I

think we’re probably going in the opposite direction. It’s not fair to

world hunger to make that comparison.

But I do have a couple of specific questions regarding some of

your ideas and the report itself. The focus groups you did, are interesting; you summarize those results. Is there a way to get those

focus group results into your report, so that you’re making specific

recommendations rather than just telling us about your focus

groups and what happened in the focus groups?

Mr. MONKS. Yes, we have more specific information. What we

tried to do in the report was just to highlight the comments that

they had made relative to where they saw the specific problems,

and that is included in the report, along with the comments from

the tax practitioners. We do have a considerable amount of information regarding what was provided by the focus groups. We conducted 10 focus groups across the country, 5 with individual taxpayer groups and 5 with small businesses, and what we tried to do

here is just summarize what they basically told us were the primary issues that they were faced with, but we can provide more

extensive information, if you would like.

Mr. PORTMAN. Well, information is helpful, and it’s helpful that

you’ve summarized here on page 15. What might be helpful,

though, is to address those concerns. For instance, if in a focus

group someone raises a concern about fear of audit and documentation problems, rather than simply to state that as a concern that

was raised in a focus group, you would address that. How can that

be addressed in the future? Should that be addressed? Give us

some of your analytical thinking on it rather than just explaining

what you heard in a focus group. I haven’t heard from the chairwoman on this yet because we haven’t had a chance to talk about

the report, but I think that would be helpful to the subcommittee

in the future, if you take those focus groups and give us some analysis.

One other pet peeve of mine is, I think you know, on the grade

level. You say, on page 97, that the pay grade level for District Tax

Advocates has been increased to grade 14, in 21 Districts and three

Service Centers. How did you make that decision, and why haven’t

you provided for a career path in all 33 Districts and all 10 Service

Centers?

Mr. MONKS. Well, that action has been made available to each

of the Directors. In some cases, relatively new individuals had been

selected into the positions that had only come into the position recently and were not yet eligible for the grade 14 positions.

Mr. PORTMAN. But it’s within their discretion to be able to do

that?

Mr. MONKS. It is. It is available in all 33 Districts and all 10

Service Centers——

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Mr. PORTMAN. Okay.

Mr. MONKS [continuing]. And it’s just that in some cases they’ve

not yet been eligible for that or they’re making a change, because

this provided an opportunity to solicit maybe someone that the Director felt was more qualified to be in that position at a higher

level.

Mr. PORTMAN. In the legislation that’s, again, sitting over in the

Senate, I think we would require that, right? It’s not within the

discretion of the District Director? Doesn’t the legislation—actually,

the legislation says there needs to be a career track developed

within——

Mr. MONKS. Right, it requires the Advocate to——

Mr. PORTMAN [continuing]. The IRS for Taxpayer Advocates, and

it leaves up to you all to develop a plan.

Mr. MONKS. I think it requires the Advocate to engage in a study

on developing a career track with the Commissioner.

Mr. PORTMAN. Okay. So you’ve already taken what I think is an

important step in that. It’s not about you, but it is about providing

that ability for people or Taxpayer Advocates not to be looking over

their shoulder, not to be worrying about the functional areas, and

having to go into the audit or compliance areas next.

The final question I have for you is with regard to that legislation, because there are some changes that are likely. You seem to

take a pretty strong position that you don’t want the Taxpayer Advocate to report to the oversight board; rather, you want that advocate to report to the Commissioner.

Don’t you think that it’s going to be difficult to have the kind of

independence we’d all like to see as a Taxpayer Advocate so long

as you have the Advocate reporting to the Commissioner?

Mr. MONKS. Well, I think, again, the Advocate has, in effect, at

this point in time, two groups that he needs to report to, one being

the Commissioner, and ensuring that the Advocate is fulfilling the

role that the Commissioner sees the Advocate fulfilling, and the

other is to the Congress itself. I think that the independence of the

Advocate is strengthened by TBOR 2, some of the actions such as

the report to the Congress, because it gives the Advocate the authority to come directly to the Congress with legislative and administrative proposals that are made and also to report on the actions

that the IRS is taking in response to those recommendations.

That’s a pretty powerful tool. In effect, if the Advocate is not doing

the job, it’s going to be very clear to the Congress that this report

is not what we’re looking for; it’s not fulfilling the needs that we

have in terms of an independent Advocate, so, in effect, you have

that capability to make that determination. That’s how I view the

report and the TBOR 2 legislation. I think it’s pretty powerful incentive for the Advocate to be independent, and it’s recognized

within the agency that the Advocate has a different role. The Advocate speaks for the taxpayer. The Advocate is going to come from

a different perspective, and that is expected.

Mr. PORTMAN. Okay, my time is up. I’ve got a million other questions, and just to say, I think it’s a vast improvement because it’s

very helpful to us, this report. I enjoyed the comments. Ms. Tabor,

thank you for your Cincinnati insights on stovepipes and the inability to break down some of those barriers, as you called them,

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and the fact that the taxpayer assistance days broke down those

barriers. I think that’s exactly what Commissioner Rossotti was

talking about, and I’m very excited about the next four or five

years, as we work together to try to improve these.

As long as Nancy Johnson is here in the subcommittee, Mr.

Monks, I will agree with you that there is some independence

through the congressional reporting, because you’ve got a bulldog

here who will stay on your case.

One final question, if I might, and that’s just a yes or no. Do you

agree or disagree with the provision in the bill that states that the

Advocate, after he or she leaves office, cannot go back to the IRS

for a period; I think it’s five years?

Mr. MONKS. I do not have any problem with that concern. In fact,

I raised an issue with our folks in Legislative Affairs that if they’re

going to require that of an internal Advocate, the same requirement ought to be placed on anyone coming in externally, because

otherwise you have the potential for burrowing in.

Mr. PORTMAN. Right.

Mr. MONKS. So if you’re going to impose that requirement on an

internal selectee, then make it an across-the-board requirement.

Mr. PORTMAN. Okay. Thank you very much for your testimony.

Thank you all for being here.

Chairman JOHNSON of Connecticut. All right, thank you. I’m

going to recognize Mrs. Thurman next, but I also have to excuse

myself, unfortunately. Thank you very much for your input. We

look forward to working with you. Remember, this is the first step,

and really if we’re going to get at this issue of complexity, we have

a better chance at fighting it from the bottom up than we do from

the top down. So if you give us guidance on which knots cause the

most problems, we will have a better opportunity to resolve them.

You’ve pointed to some today. The 18 suggestions that you made

are really fairly simple; they’re fairly technical. I hope in the future

you’re going to come with some of those recommendations, but also

some other recommendations, pointing at sections of the law that

are particularly complicated. You did some of that today, and we’ll

be working with you.

But we all have to learn how to use this tool that we have, your

contact with the taxpayers, and our ability to change the law, far

more effectively and aggressively and in a time-sensitive manner.

Thank you all very much for your testimony today.

I’m going to recognize Ms. Thurman, and then Mr. Hulshof will

have a chance to ask questions.

Thank you all for being here.

Mr. MONKS. Thank you.

Mrs. THURMAN. Thank you, Madam Chairman.

First of all, let me say that we appreciate the job that you are

doing. For any of us who work in our district offices, and we do get

those IRS calls on occasion as well, and you are the first ones we

call. I understand we’re going to have a new one in our area in

north Florida. So we look forward to that.

But we do appreciate the job that you do, and it’s not an easy

one, I’m sure. Sometimes when they come to you, I don’t know that

they necessarily know that you’re their Advocate as much more as

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that you might work for IRS, and therefore you can do something

for me.

Let me ask you a couple of questions, though. In the reorganization—and if you’re uncomfortable with this because I know this is

all new, and I don’t know how much of this has really been shared

with everybody, but in the fact that they’re going to break it down

into four areas, does that seem to be helpful in solutions where, because of the initial time that they might contact IRS or be involved,

where somebody knows about the wage and investment income,

and then if they have a problem with small business or self-employed, do you see that from your experiences, being the Advocates,

that just somebody having knowledge of those kinds of areas and

being particularly educated in those, that that will be helpful in addressing some of these problems?

I open it up. Mr. Monks, you can choose.

Ms. GOLDSTEIN. I’m going to quote something that Lee Monks

had said yesterday, although, unfortunately, I was not in the meeting, so I was not privy to his comments, but Mr. Romito shared

them with me. He mentioned that General Electric has various divisions. They go from making toasters to making jet engines, and

I don’t think their expectation for their employees is that those employees who make toasters also need to know how to make a jet

engine.

I see Mr. Rossotti’s suggestion for modernization of the IRS in a

somewhat similar manner; that right now I think we are bogged

down in everybody needing to know everything, and I think as an

Advocate, if we have specialty areas that could concentrate on the

specific problems that those areas are creating for our taxpayers,

we would be a much more effective organization as a whole, and

I think we as Advocates could be more effective advocating for

those individual units of our taxpaying public.

Mr. MONKS. I think one of the other opportunities that I see—

and it’s not quite clear how it would play out at the district level

yet, so I’m not quite sure how that would happen, but certainly at

the Service Center level, and at our call sites, toll-free call sites,

you could then specialize in the categories of taxpayers you serve.

So the training for the employees could be targeted to either individual taxpayers, corporate taxpayers, small business taxpayers, or

the specialty-type taxes, and you may well decide that you need

seven of the ten centers to deal with individual taxes, one or two

to deal with the others, and you would specialize in that area.

So your training would be more effective; your employees would

be more effective over a period of time, and from a Taxpayer Advocate’s focus, you could focus your problem-solving and your legislative proposals, your administrative proposals, in the area that you

have more expertise in than you would currently have. So it certainly seems to be exciting, and I’m not sure that anyone other

than someone coming from outside of the IRS could have come in

and made that kind of an assessment as quickly as Mr. Rossotti

has. So it’s a very exciting concept, and I think it’s going to hold

much—hold us in good stead in the future as we move toward this.

Mrs. THURMAN. Just listening to people talk about it, just getting

accurate information, and the same information from one agent to

another, has been a significant issue, so it would seem to me.

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Mr. Monks, you had mentioned in your statement that, because

of some of the congressional oversight, that we’ve kind of accelerated the process. Let me ask you, then, and from your perspectives,

I know that you have given us some recommendations, but if we

were to accelerate the process to give you some additional tools,

what would be your three top things that we could do within the

bill that’s sitting in the Senate today, if we were in negotiations

with them?

Mr. MONKS. Providing the Advocate with additional tools.

Mrs. THURMAN. Right.

Mr. MONKS. I will let some of the Advocates comment on that as

well. I mentioned to you the fact that I was aware of the hearing

that you conducted——

Mrs. THURMAN. Right.

Mr. MONKS [continuing]. Down in Florida, and I got some feedback as a result of one my employees, or actually one of our Advocates having had the opportunity to participate. One of the things

that we are doing is looking at this issue of additional authorities,

and I think the issue that you raised at that hearing with the Directors—and the Directors indicated that they did not have the authority to deal with, was the abatement of interest, and that is a

significant problem.

As we look at what additional authorities we might want to have,

we might want to look at certain circumstances where interest

abatement would be appropriate, because in problem resolution, we

continually run into cases where taxpayers are on an installment

agreement, and making their installments, and yet at the end of

the year they owe more money than they did at the beginning of

the year, and that’s due to the compounding situation. We didn’t

start compounding interest until—I’m not sure when, but that has

caused us a specific problem.

One of the authorities that we’re looking at, in this task force,

that we’ve kind of laid out to them as a starting point is the ability

to remove an asset from consideration in considering an offer-incompromise case, or to close a case as uncollectible. In many situations the revenue officer is prevented from closing that case because the taxpayer has equity in the asset, and the rules, in essence, for an offer-in-compromise require that equity to be paid

over, at least that amount, for the Service to be able to accept an

offer.

Yet, in many of those cases the seizure of that asset or for the

taxpayer to pay that kind of equity would cause an undue hardship, and so one of the things that——

Mrs. THURMAN. Like losing their home.

Mr. MONKS [continuing]. I’ll be looking at in this task group is

to develop the authority to consider excluding an asset from consideration based on hardship, so that the field employees or the Taxpayer Advocate can close a case on an offer-in-compromise, or an

installment, excuse me, or putting an account into uncollectible status, whereas currently they do not have that authority. That’s an

area that I’m sure this task force will come up with a proposal

along that line, and we will present this as quickly as we can to

the executive committee.

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Now this may require a legislative change as opposed to being

able to do this administratively, but if it does, we have already

started work with the Office of Chief Counsel to help us develop

that legislative proposal.

Mrs. THURMAN. Mr. Portman, just briefly, maybe to you and to

the Oversight Committee, one of the concerns that I have in this—

and maybe it’s something we can get some information from Joint

Tax—is when we look at our revenues and such, is that included?

Are these penalties and such included in any of our monies that

might be available to us? Because I think if they are, then we need

to have some idea of what we’re looking at, if there’s a revenue offset or whatever, or if there is not, and I have no clue at this time

as to how that works. Maybe you do; maybe you can give me some

information on this. But if we do look at this penalty and the waiver, or looking at the assets and whatever, how does that affect us

in our numbers in our budget? I think it might be something for

us to look at before we get too far into this.

Mr. PORTMAN. Well put.

Ms. GOLDSTEIN. Ms. Thurman, the only other item that I would

add, in discussion in regard to additional authorities, is the fact

that currently there is a provision that allows us to extend the

statutory period for collection for many taxpayers who enter into

an installment agreement, and that installment agreement actually

extends beyond the statutory period for collection. In many cases

we have very unhappy taxpayers, and place many taxpayers in a

hardship situation, because they feel compelled to sign that statutory waiver; otherwise, they may be threatened with immediate collection action.

Mrs. THURMAN. That was the other issue that was brought up.

Ms. GOLDSTEIN. And what I would like to see is that perhaps,

legislatively or administratively, a provision that would perhaps

limit the length of time that we extend the statute——

Mr. MONKS. And, in fact, we did include that as—that’s one of

the administrative proposals—I think it’s No. 18 or something on

the list—one of the administrative proposals that we made to the

to the collections function, was to consider limiting the number of

times that a statute can be extended, particularly on a dormant account, where there’s been really no active collection taken on that

account other than offsets of refunds. Let it go if it’s at that point,

and not extend it further. The Congress gave the IRS a 10-year

statute, and yet we often find revenue officers that are going out

and extending the statute over and over and over again, just to

keep the case alive.

Mrs. THURMAN. Thank you.

Mr. PORTMAN [presiding]. Okay, Mr. Hulshof.

Mr. HULSHOF. Mr. Chairman, thank you.

Ms. Ling, I notice that during your testimony, the portion regarding complexity, you wondered aloud how many Members of Congress do their own taxes. If you want to keep a running tab, put

me down as a yes. [Laughter.]

But I’ve got to tell you that, as you alluded, that I’m not very

aggressive in seeking out credits or deductions because I’m afraid

of awaking the slumbering giant called the IRS. [Laughter.]

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So I want to talk a little bit about complexity. Mr. Monks, can

we make some assumptions? You pointed out some specifics, and

I appreciate that very much.

For instance, can we assume that people that itemize deductions,

do they have more problems than those that claim the standard deduction? Is that a fair assumption?

Mr. MONKS. Oh, absolutely.

Mr. HULSHOF. What about married taxpayers that are filing joint

returns as opposed to single taxpayers filing separate returns?

Would you say——

Mr. MONKS. I don’t know if I could categorize that as a higher

complexity in terms of the return, because, after all, it’s just using

an individual rate versus a married/filing joint rate. What would

add to the complexity would be the schedules that would be attached.

Mr. HULSHOF. Have you found any correlation between the size

of a taxpayer’s income and the problems that they encounter? That

is, those that—some of you are nodding, and I don’t know if you

have any specific data, but is there any correlation between the

size of a taxpayer’s income and the problems that he or she is likely to have?

Mr. MONKS. I have not seen any studies of that nature. Obviously, a high-income-level taxpayer is probably going to get professional assistance, and is probably less likely to have an error.

Mr. HULSHOF. Okay. I note that Mr. Portman mentioned that in

the bill that’s languishing in the other body that there is a provision that would require the Joint Committee on Taxation to prepare a tax complexity analysis, which for every tax bill, it sort of

conjures up an image of an Olympic judge holding up numbers, as

we debate these bills. But, again, I think anything—Ms. Ling,

going back to your point—that we can talk again about the need

to emphasize complexity. As we’re beginning discussions about Fiscal Year 1999 budget, there’s been, again, discussion of using the

tax code or changes in the tax code to drive public policy and encourage certain behaviors through the tax code, which of course

adds complexity.

One other point in the remaining time, one of the legislative proposals, Mr. Monks, in your report regarding the innocent spouse

situation would allow taxpayers who filed a joint tax return to subsequently elect to be treated as a married/filing separately in cases

where one spouse is deemed to be unfairly saddled with joint liability, and I use those terms because you used them in the report.

Who would be making the determination that a spouse would be

unfairly saddled, and what would go into that determination of

being unfairly saddled?

Mr. MONKS. Of course, this is just a concept at this point, but

I would envision that it would require the signature of both taxpayers to agree to that type of a situation, but we do get a number

of cases in problem resolution, and each of our field Advocates can

attest to that, that many of the cases they get involve divorced or

separated spouses where the wife seems to be saddled with the tax

bill because we’ve either not been able to locate the other spouse

or the other spouse has no assets from which collection could be affected.

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In a case, a classic case, that came to my office, and we got involved in this situation, the wife, had planned to file a separate return, and would have got a refund, but the husband’s accountant

had convinced her to file a joint return with her husband because

it would reduce the husband’s liability. Subsequently, the husband

made no payment on the taxes at all, and ended up declaring bankruptcy. They separated, and the only payments on the account had

been made by the wife through offsets on her refund. Collection, at

that point in time, was proceeding to collect against the wife because she was the only one that had assets. Yet, the income that

created the tax liability was primarily the husband’s. That’s the

type of a situation that I would envision that we could rightfully

conclude that the proper action, the right thing to do, would be to

treat this taxpayer as if they were married/filing separately, and

get their tax liability down to where it would have been, had they

filed separately, but we currently do not have that capability in the

code.

There is the provision to allow married/filing separates to file

married/filling jointly, but not the provision to go the other way.

That’s the type of situation that I would see that occurring in, because we get a lot of cases in problem resolution where that seems

to be the case.

Mr. HULSHOF. Thank you.

Mr. PORTMAN. Thank you, Mr. Hulshof.

I don’t want to hold you all too much longer, but I have a couple

of other follow-ups, if I could. One, I want to thank Mr. Hulshof

for mentioning that we do get at the complexity issue somewhat in

this legislation, not as much as many of us would like to do, but

we do have this, as Mr. Hulshof said, complexity analysis which

would require, for every new tax piece of legislation, the cost to you

all administering the taxes, but also the cost to the taxpayer in

terms of time required, resources required, new forms, new lines,

new schedules. That’s something I think which will be quite helpful

in terms of at least bringing to the public’s attention, and to my

colleagues’ attention, what some of the consequences are of the new

legislation. If that’s not part of the tax proposal, then any Member

of Congress can raise a point of order on the floor of the House or

the Senate to require that. So we’re making some progress.

We looked, as you know, very hard at the complexity analysis to

come up with an actual ranking on complexity or perhaps even a

number as to the actual cost to the taxpayer, and, frankly, the

Joint Tax Committee was not able to give us assurance that they

could do that. Otherwise, that would be in the legislation, but it

was viewed as something impractical at this time.

We do have, as Mr. Monks had mentioned earlier, a study to try

to look at that. I think you mentioned that in your testimony, and

maybe over time we’ll be able to come up with some economic analysis that can give us that kind of information. But, I think, it is

a step in the right direction, and will be somewhat helpful.

Also, we require that the IRS be at the table, as you know, which

is something that I think was more practiced in earlier years than

it has been recently, where the IRS actually is working with us on

tax legislation at the committee level. Now at 3:00 a.m. in the

morning in the conference, when some of these decisions are made

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through horse-trading, it’s going to be practically impossible, I

think, to have that kind of input, but at least we will get better

input at the outset, again, on some of the burdens to the system

and to the taxpayer, from the people who know, because we often

blindly legislate in this committee and others without that input.

That’s something that I think is supported on a bipartisan basis,

including, I know, the chairman of the committee is very supportive of that. So we’ve made some progress.

I like your EITC ideas. I know that not all of these proposals

have been vetted by the administration. You all are, indeed, independent because I know that the administration doesn’t support all

of your proposals. I guess the proof’s in the pudding.

But on EITC, my memory may be failing me here, Ms. Goldstein,

but I think that you made a comment last year at the hearing that

you thought it would be best to take the EITC out of the tax code

altogether——

Ms. GOLDSTEIN. Yes, I did.

Mr. PORTMAN [continuing]. Put it on the spending side, expenditure side, and allow it to be what it really is, which is a transfer

program. To call it a welfare program is probably not accurate because it’s for people who are working, and welfare implies they are

not working. But it’s a system where the government is paying people a subsidy; 85 percent of it, as you know, is refundable. The

error rate this year is going to be something like 21 percent, we’re

told. It’s been higher in years past, but we think some of the new

provisions we have in the law from last year and two years ago

might help. So that’s what, about $5.5 billion that will be mispaid

this year. It’s a system that I hear about a lot from people I know

at the IRS. I don’t see it high-ranked on your problems that you

encountered in talking to IRS employees.

I guess my question is, since this year we didn’t hear that from

any of our panelists, that the EITC is a major problem, is it something that you are somehow feeling is working better, or are these

numbers we’re hearing from Treasury and the IRS of the over $5

billion being mispaid, and the problems that we’re hearing

anecdotally back in our districts true, which is this continues to be

a real problem, to have the EITC run through the tax code?

Ms. GOLDSTEIN. I’ll answer that, only because I did raise the

issue last year. What we’ve seen, as far as burden on taxpayers,

it has lessened because of the administrative way in which we deal

with incorrect applications for the earned income credit. Legislation

allowed us to go from treating it as an examination and going

through statutory deficiency procedures to treating it as a math

error. By treating it as a math error, very often, when someone

gives us an incorrect social security number, we are able to deal

with that problem for the taxpayer more immediately than we had

in the past.

But I have not changed my opinion in regard to the earned income credit. I do believe that it is a necessary funding issue for the

working poor. However, my preference personally would be to remove it off of the tax code because it does create an administrative

nightmare for us, as well as I think sometimes hampers those legitimate taxpayers who need to get at it, but in very many cases

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it’s so complex now that they just don’t claim it, when they’re entitled to it.

Mr. PORTMAN. I would add, I know that this is not the right

place to talk about the policy issue, and there are people at the IRS

who deal with the policy, how to administer what we’re passing up

here, but when you look at the interplay between the child tax

credit and the EITC that is in place because of the balanced budget

agreement we made with regard to EITC, I think a year from now

you will be saying that it, indeed, is even more complex for a lot

of Americans who are trying to figure out whether they are eligible

for the child tax credit, in addition to the EITC. As I read the legislation, it’s very complicated; I, frankly, can’t explain it to my constituents, that interplay, the stacking, and so on, and I don’t know

how you all are going to be able to explain it to people, many of

whom, frankly, are not going to take the time to sit down and read

through the IRS instructions or our legislation. So I think we’re

probably making it more complicated with the changes that we

made last year that would be effective, as I understand it, for this

calendar year.

Any other thoughts on the EITC?

Mr. ROMANO. Yes, I’d just like to add that I think you’re absolutely right. We’re really not going to see the fallout from the

changes that were made. When taxpayers start to play with the

earned income credit, along with the child credit, and balance everything out, I think that they are going to be looking for help from

the Service to go through the forms, to go through the lines, and

it’s really too early to tell at this point what kind of fallout we’re

going to see from that, from those changes.

Mr. PORTMAN. Any other thoughts, Mr. Monks?

Mr. MONKS. No, I think that pretty much summarized it. I think

the implementation of the ITIN process last year probably also

eliminated some of the problems, because it removed certain categories of individuals eligible for the credit, and so that eliminated

some of the problems that we had experienced in previous years.

Mr. PORTMAN. Well, again, thank you all very much for your testimony and for what you’re doing out in the field, in my district,

in Mr. Hulshof’s district, and others. We appreciate it, and we appreciate your testimony today.

Mr. MONKS. Thank you.

Mr. PORTMAN. This hearing is now adjourned.

[Whereupon, at 4:51 p.m., the Subcommittee adjourned subject to

the call of the Chair.]

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