Good afternoon Chairman Kerrey, Chairman Portman and commissioners. My name is Roger Harris and I am speaking to you today on behalf of the National Society of Accountants (NSA). NSA represents approximately 16,000 members around the country who provide accounting and tax services to millions of small businesses and individuals. On behalf of those members, I thank the Commission for inviting me to testify today regarding the Taxpayer Advocate and the Problem Resolution Program.
Before I get into the body of my testimony, I would like to make two points clear to this commission. First, the Society is very pleased with the passage of TBORII and my comments here today are meant only to suggest further improvements in the programs that the law created, not to suggest that the law enacted was unsatisfactory. Second, the comments of the Society relative to the Taxpayer Advocate and the Commissioner of Internal Revenue are meant only to talk about the positions, not to speak about the individuals who currently hold those positions. It is the Society's intent to ask this Commission to consider the organizational structure created by TBORII and, in some cases, the possibility that the system may not accomplish what Congress had hoped.
Taxpayer Bill of Rights II (TBORII) created the office of Taxpayer Advocate within the Internal Revenue Service. The new law empowered the Advocate to resolve individual taxpayer problems, to analyze problems with the nation's tax system, to propose legislative and administrative solutions to those problems, and to report to Congress on the operations of the Advocate's office. The law also empowers the Advocate with broad authority to affirmatively take any action as permitted by law with respect to taxpayers who would otherwise suffer a significant hardship as the result of IRS action. In order to be successful under the current structure, the Taxpayer Advocate must possess an intimate knowledge of the functioning of the Internal Revenue Service gained from years of experience within the Service. At the same time, in order to be the taxpayers' advocate, this individual must possess a willingness to question, publicly as well as internally, the functioning of the very agency to which his or her career has been devoted. Clearly, it will take a certain type of person to be effective as Taxpayer Advocate. This person must be able to:
1) Work internally within the Service as an advocate for the taxpayer to effectively resolve problems;
2) Develop, propose and review administrative and legislative solutions to problems with the nation's tax system; and
3) Step outside of his or her role as an IRS employee in order to provide objective reviews to Congress on the problems facing the nation's tax system.
NSA respectfully asks this commission to consider whether one position located within the Internal Revenue Service can accomplish all three of these tasks successfully.
The Taxpayers' Advocate
Of the three core functions of the Taxpayer Advocate, perhaps the most challenging is the function that requires the individual to live up to the title; to be an advocate for the taxpayer. According to the IRS Mission Statement, "The purpose of the Internal Revenue Service is to collect the proper amount of tax revenue at the least cost; serve the public by continually improving the quality of our products and services; and perform in a manner warranting the highest degree of public confidence in our integrity, efficiency and fairness." In cases where the Advocate or an agent thereof is called upon to alleviate significant hardship, this person may find him- or herself in direct conflict with two of these concepts. To resolve significant hardship cases, the Advocate must at times argue that a taxpayer should be allowed to settle a debt for less than the proper amount of tax revenue. In so doing, some would argue that fully compliant taxpayers are led to question the integrity, efficiency and fairness of an Internal Revenue Service that demands their continued full compliance while letting someone else get by with some lesser standard. Given the conflict between the mission of the IRS and the job assigned to the Advocate's office and the agents thereof, can this task be successfully accomplished within the Service?
In fact, even prior to the creation of the Taxpayer Advocate, the Problem Resolution Program (PRP) has been serving this function with a high degree of success within the IRS. From a practitioner's standpoint, the Problem Resolution Officers (PRO's) at the Internal Revenue Service are some of the most important contacts one can make. The current system of PRO's working with cross-functional teams to resolve taxpayer problems under the supervision of the District Directors has garnered consistently high marks from taxpayers and practitioners alike. On a case-by-case basis, this program has helped many individuals to resolve difficulties with the Service and to alleviate significant hardship.
The success of this program to date has hinged on the Service's ability to identify and employ the right individuals as PRO's and for those individuals to receive the full support of IRS executives. As a result of TBORII, the Taxpayer Advocate or a designee will participate in the selection and evaluation of all PRO's. For the program to continue as a success under the new law, the two previous requirements will still need to be met and the Service will also need to have an active Taxpayer Advocate with the full support of the Commissioner. Unfortunately, there is no way to legislate this into being. To be an effective Taxpayer Advocate, the individual must have lengthy experience at the IRS with a demonstrated focus on serving the taxpayer. This customer-focus must include a willingness to, when necessary, place the needs of an individual taxpayer above the Service's Mission Statement. As stated by Congress in House Report 104-506, which accompanied TBORII, this individual must be prepared "to affirmatively take any action as permitted by law with respect to taxpayers who would otherwise suffer a significant hardship as a result of the manner in which the IRS is administering the tax laws." While Congress can empower a position with extensive authority, it is still impossible to quantify what qualifications on a resume will make a person suited to be Taxpayer Advocate.
Even with the right person in the Taxpayer Advocate's position, the continued success of this program still hinges on the effectiveness of the local PRO. NSA members have recently begun to express concerns that following the reorganization of the Internal Revenue Service, some PRO's who remain in posts of duty which were formerly district offices seem to be understaffed and less able to effectively serve the public. While NSA commends the Service's efforts to maintain PRO's in the former district offices, the Society also wishes to express its concern that PRO's continue to receive the financial resources and executive support necessary to properly serve taxpayers and practitioners throughout the country. This program has been a great help to the taxpaying public and it would be unfortunate if it were to suffer reduced effectiveness as a result of budget cuts and/or administrative reorganizations.
The Tax System's Handyman
TBORII goes on to charge the Taxpayer Advocate with the responsibility of identifying systemic problems with the nation's tax system, proposing legislative and administrative solutions to those problems and evaluating whether those solutions, once implemented, have been successful. This function, at least, seems more within the Service's Mission Statement in that it will "serve the public by continually improving the quality of [IRS] products and services." An effective analysis of whether this compound function can be performed by one office within the Internal Revenue Service requires that each step in this process be examined separately.
When it comes to identifying systemic problems with the nations's tax system, perhaps no position could be better situated than that of the Taxpayer Advocate within the Internal Revenue Service. Through contact with the network of PRO's around the country, the Advocate can develop an extremely detailed picture of what aspects of the process are causing difficulty for taxpayers and practitioners. At the same time, the Advocate must also call on external stakeholders to comment on what they perceive to be the most important problems in tax administration. By combining the internal and external views of problems with the tax system, the Advocate will gain a complete awareness of the problems the Service faces. This in-depth understanding of what is wrong with the process is the first step toward making the system work better for all taxpayers.
Once the problems have been surfaced, the Advocate must then propose legislative and administrative solutions for the difficulties that taxpayers have encountered within the system. At this juncture, it will still be important for the Advocate to seek external as well as internal viewpoints on improving the tax process. As a career IRS employee committed to customer service, the Advocate will no doubt have ideas on solving the systemic problems. The Advocate's location within the Service will also provide a wealth of internal resources upon which to draw for support. Just as importantly, though, the Advocate must seek input from external stakeholders, such as practitioner groups, state revenue agencies, other federal agencies and taxpayer groups, in order to make certain that the proposed solutions attempt to accommodate all those with an interest in the operation of the Internal Revenue Service.
The final segment of this compound function, determining whether the implemented solutions have been effective, will also require contact with outside stakeholders. As the Advocate reviews the implementation of the legislative and administrative remedies, the success of the programs must be measured both internally by the Service and externally by those that the changes were intended to benefit.
So it would seem that a Taxpayer Advocate located within the Service can effectively analyze and recommend improvements to the tax system, if external stakeholders are included in the process. As enacted, TBORII does not require the Advocate to involve any stakeholders in this process.
The Legislators' Watchdog
Finally, TBORII requires the Taxpayer Advocate to make two reports to Congress every year. The first is to outline the objectives for the office in the coming calendar year and the second is to report on the activities of the Taxpayer Advocate during the previous fiscal year. As stated in House Report 104-506, pg. 25, "The objective is for Congress to receive an unfiltered and candid report of the problems taxpayers are experiencing and what can be done to address them." Can such an unfiltered and candid report be prepared by one office within the Internal Revenue Service?
The difficulty with requiring the Taxpayer Advocate to provide these reports to Congress lies in the fact that Congress made the Taxpayer Advocate responsible to the Commissioner within the IRS administrative hierarchy. As discussed above, in order to be an effective advocate for taxpayers, this individual will need to have spent a lengthy career at the IRS learning how the system works. During this career, this individual will no doubt learn the importance of the chain of command within the hierarchy and the risks involved in circumventing that chain of command. Now, Congress is telling the Taxpayer Advocate to report outside that chain of command directly to the tax-writing committees. While the committee report is clear that no one is to review the report prior to its delivery to Congress, it is unreasonable to expect that any individual who has invested decades in a career at the Internal Revenue Service will not consider the possible impact that a report critical of IRS executives might have on that career.
At the same time, when it comes to placing the responsibility for these reports elsewhere, better alternatives are not readily apparent. Having Treasury prepare the reports would eliminate the IRS chain of command issues, but ultimately the Treasury employee responsible may face the same concerns within Treasury. The General Accounting Office could prepare these reports, but that office is not located within the IRS and does not spend the whole year focused on these issues as the Taxpayer Advocate does. Making the Taxpayer Advocate a political appointee would cost the committees the experience and insight that an IRS veteran brings to the project. Of all the possibilities, it appears that the person best situated to provide the information in question is a Taxpayer Advocate within the IRS. Nevertheless, there still exists the challenge of ensuring that this individual is willing and able to report openly about some very sensitive issues within the Internal Revenue Service.
Having discussed all of the functions of the Taxpayer Advocate, it does seem possible at least in theory for an individual situated within the Internal Revenue Service to perform the functions that Congress has set forth in TBORII. Because the Advocate is so new, however, it is impossible at this time to be certain whether the structure created by the new law will in fact work in practice. Clearly, it will take a certain type of individual to be successful as the Advocate and, once in the position, this individual must have total support from the Commissioner and other IRS executives.
In order to ensure that the Taxpayer Advocate provides the service to taxpayers and the information to Congress that legislators envisioned, NSA requests that this Commission recommend an annual review process for the Advocate. At the same time that the Advocate prepares his or her year-end review for Congress on initiatives taken during the year, have the General Accounting Office prepare a corresponding report from an outside viewpoint. Also, request that external stakeholder groups prepare similar reports from their viewpoints. Use these external reports to examine whether the Advocate has properly identified systemic problems and whether the steps taken by the Internal Revenue Service to alleviate those problems are having the desired effect. Just as external stakeholders will play a key role in helping the Advocate to identify problems and propose solutions, they can also help Congress to identify problems and propose solutions within the Advocate's office.
In conclusion, I would like to respectfully point out that NSA includes among its members practitioners who are licensed as public accountants, enrolled agents or CPA's, as well as unlicensed practitioners around the country. Many of the Society's members maintain credentials through the society's credentialling affiliate, the Accreditation Council for Accountancy and Taxation. The diversity of the Society's members and the clients that they serve provides NSA with a wide range of experience in working with the Internal Revenue Service. I hope that the Society's insights have been helpful today and, on behalf of all of the members, I thank you for your interest and I hope that you will feel free to contact NSA at any time for assistance in completing the task assigned to you.