Cracking the code: Congress and the White House go to work to simplify the tax code

Entrepreneur, Oct, 1997 by Joan Szabo

If the commission's recommendations are enacted, small-business taxpayers will find it easier "to comply with their tax obligation with less intrusion from the IRS," states a commissional report. They'll also gain more rights and protections.

The IRS interacts with more citizens than any other government agency or private-sector business in the United States and collects 95 percent of the revenue needed to fund the federal government. Overhauling the IRS is a tall order - but it's long overdue, say Sen. J. Robert Kerrey (D-NE) and Rep. Rob Portman (R-OH), co-chairs of the National Commission on Restructuring the IRS. Among the commission's findings is that the agency lacks expertise and accountability, and there's not enough continuity among senior officials.

The IRS' attempts to update its computer system also received poor marks. The $4 billion wasted on ineffective computer modernization efforts is a perfect case study of the deficiencies that exist within the current IRS management and oversight structure, says Portman.

Attorney and CPA Mark Luscombe agrees. "The IRS botched up its conversion to technology. It spent a lot of money and [doesn't have] much to show for it," says Luscombe, principal federal tax analyst with CCH Inc., a Riverwoods, Illinois, publishing company specializing in federal laws and business finance. Despite these problems, he says, "the IRS is still probably the most efficient and effective tax collector in the world."

* INDEPENDENTS' DAY

Some argue the IRS' collection and enforcement roles have become too dominant, neglecting concerns as basic as providing efficient customer service. To make the agency more responsive and accountable, lawmakers want to place management of the IRS in the hands of a seven-member board independent of the agency.

Five of the board's members would be private citizens. "These members would [be required to] have backgrounds in customer service, computerization and organizational management because the IRS doesn't [currently] function with a customer or private-sector mentality," says a spokesperson for Rep. Portman. The two other members would be the treasury secretary and a representative from the National Treasury Employees Union, which represents IRS workers.

The board would have the authority to hire and fire personnel and hold IRS management more accountable than its sole current overseer, the U.S. Treasury Department. "Treasury kind of treats the IRS like a poor stepchild," says Portman's spokesperson. "It doesn't give it the attention it needs."

Treasury Secretary Robert Rubin, however, contends that because the board's members would not have full-time responsibility for IRS oversight, management of the agency would be less efficient than it is now. The Treasury Department has warned that an independent board would catapult the IRS into a maelstrom of legal challenges to its law-enforcement authority.

Secretary Rubin has also indicated there could be political motives behind the congressional plan to restructure the IRS. Reacting to the recommendations, Rubin says, "I think that in this debate about governance and the IRS, there are [those] who have other agendas. There is a desire on the part of some to undermine our progressive taxation system and replace it with a different system, and one approach to [doing] that is to attack the Internal Revenue Service."

* SPELLING IT OUT

Lawmakers are not deterred. The commission's recommendations have been turned into legislation Congress will consider in the months ahead. In addition to setting up an independent board, the legislation would:

* bolster taxpayers' rights by allowing them to recover up to $100,000 in damages caused by IRS negligence. This would include unintentional acts such as seizing the wrong taxpayer's or business's assets, explains Portman's spokesperson. "We [will] provide disincentives for the IRS to initiate contact except when it is absolutely sure it has its information straight," he adds.

* simplify the 9,451-page tax code by giving the IRS a voice in the legislative process, enabling agency representatives to comment on tax proposals before they are enacted. Currently, the IRS cannot comment on tax legislation or on whether it can administer various legislative proposals. In addition, 60 complex code provisions have been identified for Congress to review and either repeal, reform or simplify. The Alternative Minimum Tax and the Earned Income Tax are two such provisions on the list.

* modernize the IRS' computer system to speed the process of resolving taxpayer problems. The congressional commission also recommends encouraging greater use of electronic filing; it would like to see 80 percent of all returns filed electronically by 2007. To accomplish this, lawmakers would extend the April 15 tax deadline to June 15 for electronic filing and to May 15 for paper returns.

* provide the IRS with multiyear budgeting so it can plan several years into the future. This would help the agency better plan for the expense of technology and other large outlays.