Senate OKs change in IRS Driven by outrage over agency abuses, bill passes, 97-0

Burden of proof shifts

Taxpayers would get new rights in disputes over what they owed

May 08, 1998|By LOS ANGELES TIMES

WASHINGTON THE NEW YORK TIMES AND ASSOCIATED PRESS CONTRIBUTED TO THIS ARTICLE. — WASHINGTON -- Responding to a groundswell of public fury at one of the government's most-maligned agencies, the Senate unanimously approved legislation yesterday that would restructure the Internal Revenue Service for the first time in decades and give taxpayers an arsenal of new rights when they have disputes with the agency.

The 97-0 vote was a rare display of bipartisanship at a time when most issues before Congress -- especially tax matters -- have split lawmakers along party lines. The political momentum behind demands for change at the agency is so strong in this election year that no one, not even President Clinton or his IRS commissioner, is defending the status quo.

The bill would subject the IRS for the first time to oversight by a management board dominated by private citizens. It would shift the burden of proof from taxpayers to the IRS in civil court cases and suspend penalties and interest charges in drawn-out tax disputes.

A similar bill already has been approved by the House. Minor differences will be worked out in a conference committee and Clinton is expected to sign the final legislation.

"No agency touches the lives of Americans more than the IRS," said Republican Sen. Pete V. Domenici of New Mexico. "Yet one out of every two Americans said they would rather be mugged than be audited by the IRS. This bill should reverse that prevailing view."

"It will make the IRS more accountable to and respectful of taxpayers," said Senate Minority Leader Tom Daschle, a South Dakota Democrat. "It will help transform the culture of the IRS to make customer service a top priority."

Democratic Sen. Barbara A. Mikulski of Maryland said the IRS moved unfairly against veterans organizations and volunteer firefighters in her state. Any agency that does that, she said, "is a culture desperately in need of change."

Although the bill makes significant changes in the IRS, it falls short of the more extreme demands being made by some Republicans to "end the IRS as we know it" and completely revamp the tax code.

'Business as usual'?

Indeed, some senators raised questions about whether the citizen oversight board would really change the way the IRS does business or whether it ultimately would go the way of many other well-intentioned but ultimately irrelevant government advisory panels.

"It's business as usual," said Republican Sen. Frank H. Murkowski of Alaska.

Not voting on Senate passage were Democrats Daniel K. Akaka of Hawaii and John Glenn of Ohio, as well as South Carolina Republican Strom Thurmond.

And while few lawmakers openly questioned the idea of strengthening taxpayers' rights, the Clinton administration and nongovernment analysts are worried that several of the bill's provisions, such as the suspension of some penalties and the shifting of the burden of proof, may discourage voluntary compliance and make it harder for the IRS to nail tax evaders.

But such reservations have been largely washed away by the political tidal wave of support for the bill in this election year.

The soporific subject of IRS restructuring got a big shot of political stimulant last fall when the Senate Finance Committee conducted a high-profile series of hearings spotlighting allegations of mismanagement and abuse of power in the agency.

Among the problems exposed: a $4 billion computer foul-up, harassment of innocent taxpayers and agents being pressed to meet arbitrary quotas.

The public response to those hearings was so great that the IRS reform bill was pulled out of the legislative backwaters of Capitol Hill and transformed into the cornerstone of the Republicans' anti-tax agenda. As support snowballed, Clinton abruptly dropped his initial opposition to the House version of the bill and Democrats criticized Republicans for not bringing it to the Senate floor quickly enough.

Sponsors are hoping that, by restructuring the agency and giving taxpayers new rights, they can begin to turn the IRS from a fearsome tax collection behemoth into a more consumer-oriented, taxpayer-friendly institution.

Under new management

The bill aims to improve management of the IRS by establishing an oversight board consisting of nine members: six private citizens, the Treasury secretary, the IRS commissioner and an IRS labor union representative. The board would set policy and strategy and approve any plans to reorganize the agency.

Of the 120 million tax returns filed every year, about 2 million are audited. Only about 25,000 of the cases end up in tax court. Most are settled before going to trial.

One of the biggest changes would suspend penalties and interest charged to taxpayers if the IRS does not inform them of problems in their returns within one year. Penalties also would be suspended in cases where the taxpayers agree to pay back taxes in installments.

Another major change would require the IRS, not the taxpayer, to JTC bear the burden of proof in civil tax court. Under current law, an IRS ruling against a taxpayer stands unless the taxpayer can prove it is wrong. The bill shifts the burden of proof to the IRS, so long as the taxpayer cooperates and provides requested information.

For the first time, the bill would extend the concept of attorney-client privilege to accountants and other tax professionals. To address highly publicized cases in which individuals have been held liable for big tax bills run up without their knowledge by their husbands or wives, the bill creates protections for so-called innocent spouses who can show they were ignorant of financial decisions made in their names.

Pub Date: 5/08/98

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