The Internal Revenue Service contacts millions of Americans each year. For many of us, it is the only agency we deal with so regularly. It's important that Congress move quickly to improve the IRS. The Commissionís report marks the starting point for fundamental reform of the IRS. The report is a comprehensive and nonpartisan document supported by 12 of the 17 commissioners. I strongly agree with the overwhelming majority of the findings and recommendations and actively participated in the consensus building process. I have, however, some concerns about certain areas. Nonetheless, I would be pleased to see the entire package become law.
My comments will highlight some important issues and discuss others where I wish the Commission could have been bolder. Due to our charter, time constraints, or lack of consensus, some findings and recommendations were not made.
The Commissionís report repeatedly refers to "customer" service. While everyone supports the goal of improving service to citizens, Iím sure many, if not most, taxpayers certainly donít feel like they are customers. Real customers have a choice about the products and services they buy. Yet taxes are, after all, involuntary payments, and there's no choice about which IRS to use. Thatís one reason why taxpayersí rights issues are so important.
While the section on taxpayers rights is not as bold as I would like, there are many substantial and solid recommendations in this portion of the report. It is essential that Congress provide more rights and remedies for taxpayers by adopting these recommendations, as it modernizes and restructures IRS.
In addition to the Commissionís recommendations, I want to briefly highlight certain areas that cry out for improvement.
· Innocent spouses still have too little protection under the
· The process for appealing collection actions needs improvement because it mechanically applies rules without allowing for good judgment about what is in the best interests of the government.
· When the IRS abuses taxpayers, federal law still largely prevents the courts from allowing taxpayers to enforce their rights.
· Enforcement of the tax laws can take away the ability of citizens to be self supporting.
· The Freedom of Information Act does not allow timely access to enough information about IRS activities and IRS often improperly uses FOIA exemptions to hide embarrassing information from the public.
· Finally, the IRS is either too limited by laws and work rules or is unwilling to discipline or terminate employees who fail to treat the public fairly or courteously.
The tax code is so convoluted that no one inside or outside the IRS understands it. Money magazine's annual test of tax preparers this year brought another sad result. All forty-five tested tax professionals got a different answer, and no one had the correct tax on a hypothetical tax return. Two out of three were off by more than $1,300.
While I am pleased that the Commission emphasized the benefits of tax simplification, our recommendations may not be strong enough to encourage it. For example, although the Commission recommended that all tax legislation be accompanied by a narrative describing issues related to complexity, I doubt that will be sufficient incentive for Congress to avoid additional complexity or encourage simplification. The committees should be required to quantify the costs of proposals that add complexity or the savings from proposals that simplify the law.
The Commission suggested that Congress consider a quadrennial simplification process, and I hope that Congress and the President will quickly implement such a process either through legislation or by executive order. The Commission found that many members of the private sector tax community were willing to volunteer substantial time to make suggestions for simplification.
A quadrennial simplification commission would harness this volunteer activity and give a broad group of people much more incentive to work for the adoption of simplification rules. This quadrennial commission would also give the Joint Committee on Taxation and the Treasury Department more incentive to suggest simplification of the law.
The IRS: "A Schizophrenic Institution"
Late in our deliberations came an interesting and innovative proposal from the National Association of Enrolled Agents from testimony by Joseph F. Lane, co-chair of their government relations committee. Mr. Lane recommended splitting the IRS into two separate operations. One would handle tax enforcement and the other would take charge of taxpayer service.
An editorial in the May 19th issue of Accounting Today ("Break Up the IRS") endorsed his recommendation, calling the IRS "a schizophrenic institution. But that's only because the agency has conflicting missions: on one hand, the IRS is a law enforcement agency, and as such it is one of the most effective and feared in the world. But on the other hand, it is now supposed to be customer-friendly, service-sensitive and technologically innovative, and as such it is a travesty." The editorial concluded that "only by demolishing the IRS and rebuilding it with its counter-balancing strengths in mind can the nation get the friendly, efficient service it deserves with the tough-minded enforcement it needs."
I believe the Commissionís recommendations for new governance will have very favorable impact on taxpayer service. Itís not necessary to set up two separate agencies with their own political appointees as suggested by Mr. Lane. In fact the goals of his proposal could be accomplished through administrative action and internal reorganization. Should the Commissionís recommendations become law, I hope the new IRS board and commissioner will carefully consider his analysis.
A Citizens Review Board
Buried deep within the Taxpayer Rights appendix is a phrase suggesting a citizens review board. This intriguing suggestion came to us from Samuel Walker, professor of criminal justice at the University of Nebraska at Omaha, and one of the nation's leading experts on external review of local law enforcement agencies in the United States. Professor Walker recommends that the "Internal Revenue Service should be subject to an external review procedure related to citizen complaints about treatment by IRS officials." He notes that "there is persuasive evidence that citizen review procedures have contributed to improvement in policing in many [local] jurisdictions." Even though the IRS is the nation's largest law enforcement agency, it has no such external review procedure.
Such a citizens review board would not concern itself with disagreements about proposed tax bills or allegations of criminal conduct by employees. There already are procedures to address these issues. This review process would focus only on "complaints about the manner in which IRS officials behaved toward citizens." Taxpayers could choose whether to have their cases opened for public review. IRS, which often laments its inability to comment on taxpayer complaints because of disclosure laws, would have a forum outside the courtroom where it could tell its side of the story.
"The mission of an external review procedure for the IRS should have two principal components," Prof. Walker explains. "First, it should provide an avenue of redress for citizens who feel that IRS officials have treated them in an improper or unprofessional manner. Second, it should play an oversight role in terms of identifying recurring problems, recommending solutions to those problems, and monitoring the implementation of such recommendations."
Congress should invite Professor Walker and others with experience in such programs to help implement this concept for the IRS. It has great potential to help the IRS improve its procedures while allowing taxpayers another form of relief.
A New Approach to Taxes Is Needed
While beyond the scope of the Commission's charter, fundamental overhaul of our tax system remains a critically-important goal. As I have stressed, a fundamental problem for taxpayers and the IRS is the complexity of our tax law. As the Internal Revenue Code becomes increasingly incomprehensible, the intrusive measures allowed to IRS for enforcing it seem to become more draconian. Every detail of a taxpayer's private financial life is open for government inspection. IRS employees can make extraordinary demands on taxpayers, and can take extraordinary actions against them. Mixing such broad powers with a vague and complex law is a recipe for a civil liberty catastrophe. Actual abuse is rare, but the threat of abuse is always present.
Until we change how we tax income, we will continue to have an intrusive agency with broad powers. It doesn't have to be that way. Our economy as well as our civil liberties would be better off with fundamental tax reform. A tax return could fit on a postcard if Rep. Dick Armeyís flat tax was the law. Under Rep. Bill Archer's proposed spending tax, we wouldn't even need an income tax. The government would still need some form of tax collection mechanism, but it could be far smaller than the current IRS workforce of more than 100,000, and it would not need to interact with virtually every adult American.
As soon as Congress and the President finish restructuring the IRS as recommended in the Commissionís report, they should begin work on fundamental tax reform. The result will be not only a tax collection agency that has an easier task, but a healthier political and economic environment.