Senate passes overhaul of IRS Lopsided vote sends measure to Clinton who vowed to sign it

Kinder agency is sought

July 10, 1998|By Jonathan Weisman | Jonathan Weisman,SUN NATIONAL STAFF

WASHINGTON -- The Senate yesterday overwhelmingly approved the first overhaul of the Internal Revenue Service in 46 years, sending to President Clinton a bill that grants taxpayers a slew of new weapons to battle a tax agency Americans love to hate.

Clinton is expected to sign the bill with all the fanfare he can muster, a remarkable turnaround from last year, when he opposed the legislation, saying it would expose tax policy to undue influence from big business while creating an even more intrusive IRS.

But two rounds of jaw-dropping Senate hearings into alleged IRS abuses aroused enough public outrage to overwhelm even the fiercest critics of the IRS reform bill. Two weeks ago, the House passed the bill's final version, 402-8. The Senate voted yesterday 98-2, with senators from Maryland joining the majority.

"This is one of the few times I've been here that I can actually say we've made a difference in the lives of people," said Republican Sen. Charles E. Grassley of Iowa, who ranked the measure's importance alongside last year's balanced budget agreement.

The White House chimed in with its own praise. "This bill will help give Americans an IRS that is not only off people's backs but is, more importantly, on their side," said Vice President Al Gore.

The bill would grant taxpayers new rights to battle the IRS, bolster the power of the Treasury Department's taxpayer advocate, curb penalties and interest charges for citizens who try to follow the law in good faith, and allow taxpayers to sue the government if overzealous IRS agents disregard tax law.

The legislation also would grant new powers to the IRS commissioner to hire from the outside and to fire career employees. It also would discourage Congress from further complicating the tax code and it would create an independent oversight board dominated by the private sector.

"This is really about an attempt to influence the culture of the IRS in the broadest sense," said Phil Brand, a veteran of the agency who directs IRS policies and procedures at KPMG Peat Marwick, the accounting and consulting firm. "The IRS has always viewed itself as a law enforcement agency. Now they're being asked to view themselves as a financial services agency with a tilt to customer service."

The bill also contains a $2 billion tax cut of sorts, a capital gains provision inserted during House-Senate negotiations last month that affects those who sell stocks. It reduces to 12 months from 18 months the period that investors must hold stocks or other assets to qualify for the lowest capital gains tax rate of 20 percent.

IRS reform was once seen by Republicans as a cornerstone of their bid to keep control of Congress this fall. The bill emerged from a report by a bipartisan commission on IRS restructuring. But Clinton initially opposed any legislation that granted so much power to an oversight board dominated by political appointees from the private sector.

That opposition crumbled after testimony in September from ordinary taxpayers such as:

The priest who described how the IRS harassed him for 18 months over an alleged $18,000 debt but refused to show him a tax return.

The woman who wept while laying out a 17-year battle over a tax bill owed by someone with a name similar to her husband's.

The IRS agent, Jennifer Long, who testified that the agency used "egregious tactics" aimed at extracting "unfairly assessed taxes, literally ruining families, lives and businesses."

The IRS was not allowed to tell its side of the story on any of these allegations, and federal investigators later called many of Long's charges groundless. But every lawmaker seemed to have a constituent tale of IRS harassment.

Democratic Sen. Barbara A. Mikulski of Maryland told of Veterans of Foreign Wars and American Legion posts in Maryland that "have been systematically audited" over the past half-dozen years for selling food and drinks to members' guests.

"Citizens deserve a dollar's worth of services for a dollar's worth of taxes," Mikulski said.

As horror stories poured into Washington, Clinton reversed his position last fall and endorsed the legislation.

Since then, Democrats and Republicans have crawled over each other to take credit for the bill, much to the irritation of many House Republicans who had hoped to portray Democrats as foes of IRS reform.

White House opposition might well have been futile, said Don Kettl, director of the LaFollette Institute of Public Affairs at the University of Wisconsin and one of the bill's earliest critics.

"This is an administration that just came back from Tiananmen Square," he said. "There, one individual could stand in front of a column of tanks. Here, it was clear that standing in front of this tank would just mean a flattened administration official."

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