An excellent opportunity to reform the IRS

Nation's Business, Dec, 1997

Internal Revenue Service abuse of taxpayers, documented recently before the Senate Finance Committee, alerted the American public to a situation that has long been grimly familiar to small businesses.

Many such companies not only have struggled for decades with the Byzantine complexity and demands of the tax system but also have suffered from the debilitating impact it can have on struggling firms and from the IRS enforcement tactics that sustain that system.

Business has long pressed for reforms that would bring simplicity and fairness to the way the government raises revenue. Prospects that these goals will be achieved have been increased significantly by two factors on the national political scene.

One is a congressional majority receptive to such change. The other is the overwhelming public support for reform that congressional hearings and follow-up publicity have generated for overhaul of the IRS itself. Proposals to do this are embodied in the Internal Revenue Service Restructuring and Reform Act of 1997 (H.R. 2676), which the House of Representatives approved Nov. 5 on a 426-4 vote. This broad measure covers management of the IRS, taxpayer rights, and congressional oversight to ensure that abuses do not recur

Major provisions would:

* Create a board that would oversee the IRS's administration, management, conduct, and direction. Eight of its 11 members would be private citizens. The others would be the secretary of the Treasury, the IRS commissioner, and an IRS employee representative.

* Take steps to bring the proportion of tax returns filed electronically to 80 per cent over the next decade.

* Shift from the taxpayer to the IRS the burden of proof on factual issues in disputes that reach the courts. The provision would apply to individuals, partnerships, and corporations with net worth of $7 million or less. To shift the burden of proof to the agency, the taxpayer would be expected to cooperate with reasonable IRS requests to examine books, records, witnesses' and documents within the taxpayer's control.

* Allow taxpayers to sue the IRS for up to $100,000 in civil damages when an IRS officer or employee has negligently disregarded laws or regulations in connection with the collection of federal taxes.

* Enable taxpayers to make greater use of existing provisions entitling them to reimbursement for attorneys' fees and other costs when they prevail against the IRS.

* Reduce from 25 percent to 9.5 percent the maximum interest on unpaid taxes for taxpayers who have agreed to make installment payments.

* Require that the Joint Committee on Taxation analyze all tax legislation as it is submitted and identify provisions that would complicate or simplify the tax laws significantly.

* Require that a joint congressional panel representing the tax, appropriations, and government-oversight committees hold two annual hearings on IRS progress toward reform.

The Senate is expected to hold more hearings on the IRS and to act on legislation early next year.

The general theme of the House measure reflects goals that business has long fought for--fairness, taxpayer rights, simplification, improved management and efficiency at the IRS, and much greater accountability by that agency to Congress and to the public. (To express your views on the IRS, see Where I Stand.)

Even President Clinton, who initially fought many of the key proposals for overhauling the IRS, recognized the overwhelming degree of public support behind the move for change. He is now committed to signing a reform bill.

Overhaul of the management, administration, and operation of the present income-tax-collection system is a crucial goal that must be achieved. Taxpayers--businesses and individuals--will settle for no less.