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IRS overhaul cleared by Senate panel
The Senate Finance Committee approved a bill overhauling the Internal Revenue Service Tuesday night Computer glitches may delay implementation
April 1, 1998
Web posted at: 9:31 a.m. EST (1431 GMT)WASHINGTON (CNN) -- The Senate Finance Committee has unanimously approved legislation aimed at making the Internal Revenue Service more "taxpayer friendly." But problems with the agency's aging computers threaten to delay some changes for several years.
By a 20-0 vote Tuesday evening, the panel endorsed making far-reaching changes at the IRS and extending dozens of new rights to taxpayers. A vote by the full Senate is expected in late April after another round of hearings focusing on IRS problems.
Roth The bill is the Senate panel's first attempt at reforming the IRS since its well-publicized hearings last fall. The House passed its own version of IRS reform in November.
"I think it's a major step forward for the American taxpayer," said Senate Finance Chairman William Roth, R-Delaware, the bill's main sponsor.
Highlights of the bill:
- Shifts the burden of proof.
The IRS -- not the taxpayer -- would be required to prove its case once a tax dispute goes to court. Critics, including IRS commissioners, say this reduces incentives to keep records and would make the IRS even more aggressive.
"It will make tax controversies more expensive, more intrusive and more inconvenient for taxpayers," argued Sen. Kent Conrad, D-North Dakota.
However, Sen. Phil Gramm, R-Texas, argued the burden of proof item directly responded to the stories of taxpayer abuse the panel heard in dramatic hearings last fall.
"Shifting the burden of proof will change the way the IRS does business," Gramm said.
- Creation of an oversight board.
The Roth bill would create a new oversight board whose members would include executives from the private sector. The board would have power over law enforcement and collection activities and would have limited authority to review taxpayer records. The Senate agreed at the last minute to include the Treasury secretary and a representative from the IRS workers union on the board.
The Taxpayer Relief Act contains 285 new tax code sections and 824 amendments Roth and other Republicans had argued that guaranteeing a union seat on the board would give rise to potential conflicts of interest, since the union's interests might be at odds with taxpayers in general.
But Sen. Charles Grassley, R-Iowa, prevailed in his proposal for a union seat on the panel, arguing that the National Treasury Employees Union played a valuable role in a study commission that gave rise to the IRS bill.
- Waives some penalties.
Currently, when taxpayers are audited, they're not only responsible for paying outstanding, overlooked taxes, but also owe penalties and interest on those taxes. For many whose audits have dragged on, the penalties can be more than the original taxes owed. The bill's plan would suspend penalties if the IRS had not contacted the taxpayer within a year of the due date of the taxpayer's return.
- Protects spouses.
This provision would ensure that the IRS would no longer hold people responsible for the tax liability of their ex-spouses. The bill ensures that each individual is responsible for only his or her own income.
- Protection from property seizures.
The bill would implement safeguards for taxpayers from property seizures and require an IRS employee to get two signatures from their superiors before seizing any property. The taxpayer would also have 30 days to challenge a seizure before it occurs.
In the hearings last fall, one witness testified that the IRS seized a check made out to him from the state of Delaware and he had no recourse.
Cost still a problem
Critics say the one problem with the bill is cost.
The bill would cost $6.5 billion over the first five years, but no provision was made for the second five-year period, leaving a gap of $9.5 billion that would have to be paid for.
The committee turned down an attempt to raise tobacco taxes by 10 cents a pack and speed up the first phase of a tobacco tax increase in the 1997 tax bill to fully pay for the IRS overhaul.
Roth apparently is planning some "offsets" to raise the same amount somewhere else, but it is not clear exactly where those offsets would come from.
IRS Commissioner Charles Rossotti appealed to the committee to delay the implementation of any reform until January 30, 2000, so changes don't interfere with their efforts to fix computer problems related to the year 2000.
Furthermore, Rossotti said, IRS systems are unable to accommodate the changes with the speed necessary to make the proposal workable.
Roth said he would consider the plea but still pressed to have taxpayer rights provisions implemented as soon as possible.
"As far as I'm concerned, justice delayed is justice denied," Roth said. The committee agreed to prioritize the taxpayer rights provisions and meet with the IRS to work out a compromise.
Related stories:
- Gore urges rediscovering the 'service' in IRS - March 18, 1998
- IRS begins extended walk-in Saturday service - March 7, 1998
- Rubin angered by IRS' possible abuse of taxpayers - December 13, 1997
- IRS refunds a little good will - November 15, 1997
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