May 1, 1998 CONGRESSIONAL RECORD — SENATE S4027 Training and Literacy Act, and the vised they were not and the General Mr. COVERDELL. Mr. President, I Senate proceed to its consideration. I Accounting Office said they were. On ask unanimous consent that the order further ask unanimous consent that all the same occasion, on or about early for the quorum call be rescinded. after the enacting clause be stricken March, the Internal Revenue Service The PRESIDING OFFICER. Without and the text of S. 1186, as amended, be issued an interim memorandum to its objection, it is so ordered. inserted in lieu thereof, the bill be read employees, and they quote me saying Mr. COVERDELL. Mr. President, we a third time, and a vote occur on pas- the disclosures ‘‘are a result of General have now been joined by my distin- sage of H.R. 1385 on Tuesday, May 5, at Accounting Office review requested by guished colleague from Ohio, who was 5:30 p.m. myself to examine random audits.’’ talking to me moments ago about The PRESIDING OFFICER. Without Then they told their employees that hearings he held in his own home objection, it is so ordered. during fiscal years 1994 through 1996, State. I yield up to 15 minutes to the The bill (H.R. 1186) as amended, was ‘‘the IRS did not randomly select re- Senator from Ohio for his remarks. ordered to a third reading and was read turns for audit from either the popu- The PRESIDING OFFICER. The the third time. lation of all taxpayers or all returns. Chair recognizes the Senator from Mr. JEFFORDS. I ask unanimous IRS has about 40 audit sources which Ohio. consent that, at 4:30 on Tuesday, there are programs and techniques used to Mr. DEWINE. Mr. President, I thank be 60 minutes of debate equally divided select potentially noncompliant re- my colleague from Georgia for holding in the usual form for closing remarks turns for audit. IRS audit sources do this session where we have a chance to prior to the vote on the passage of the not rely on random selection from the talk about the problems connected bill. I further ask unanimous consent population of all returns but IRS se- with the IRS. He has been a true leader that, following passage of the bill, the lects returns having characteristics in- in this issue. Senate insist on its amendment and re- dicative of potential noncompliance.’’ This is a matter of great importance quest a conference with the House and Here is the key point, right here in and interest to the taxpayers across the Chair be authorized to appoint con- the publication from the IRS. There this country. Mr. President, it is be- ferees on the part of the Senate. I fi- are three little dots, and then it says, coming clearer every day that we sim- nally ask unanimous consent that S. ‘‘No taxpayers outside of these six sub- ply have to reform the IRS. The facts 1186 be placed back on the calendar. populations were selected at random of IRS abuse are, by now, well known. The PRESIDING OFFICER. Without for audit.’’ Dot dot dot. As the hearings continue, we get more objection, it is so ordered. Mr. President, the ‘‘dot dot dot’’ is information every single day. The es- Mr. JEFFORDS. I yield back the re- this sentence: ‘‘IRS officials did iden- sential facts are very disturbing. mainder of my time, and I also have tify six projects involving subpopula- In 1996, the IRS answered only 20 per- authority to yield back the remaining tions of taxpayers with indications of cent of its phone calls. time of the minority. noncompliance from which taxpayers An IRS report released in January of The PRESIDING OFFICER. All time were randomly audited,’’ Dot dot dot. this year showed that one out of every is yielded back. Now, the tax system is complicated four IRS revenue officers and super- f beyond belief. Everybody knows the visors felt pressured to achieve en- story where they gave a similar family MORNING BUSINESS forcement goals. Tax collection statis- to 50 accountants. It was an exercise tics were used to evaluate the perform- The PRESIDING OFFICER. Under that some major publication went ance of employees—and the district of- the previous order, the Senate will now through. They all turned them in. Not fices were ranked on how much taxes begin a period of morning business. one of the 50 turned it in the same way, The Chair recognizes the Senator they collected—collected from us. and not one of them was correct. In 1993, the IRS gave incorrect infor- from Georgia for 1 hour. So it is easy to make administrative mation to taxpayers a stunning 8.5 mil- f errors. I have to tell you, Mr. Presi- lion times. In 1987, the GAO said that INTERNAL REVENUE SERVICE dent, ‘‘dot dot dot’’ is not an adminis- 47% of the calls to the IRS resulted in trative oversight. ‘‘Dot dot dot’’ left Mr. COVERDELL. Mr. President, the incorrect information. out this sentence intentionally. It A recent survey actually found that hearings that the Senate Finance Com- quoted everything else in the para- mittee has been conducting on the In- one out of two Americans would rather graph but left that sentence out. be mugged than audited. ternal Revenue Service—the adjectives If the American taxpayers did that, that have been used to describe it are they would be in deep trouble. This is MAUREEN SCHAEFFER I recently held a hearing in Toledo on ‘‘startling,’’ ‘‘stunning,’’ ‘‘unbeliev- why there is no credibility anymore. the issue of IRS reform and tax reform. able.’’ I do believe most of the Amer- They just don’t have any credibility. One of the witnesses was Maureen ican public who have seen this unfold There are a lot of good folks over Schaeffer, from Lakewood, Ohio. before their eyes are aghast at some of there. I have met them; I know of Maureen told us she was married for the assertions and allegations that them. A lot of them have been very co- twenty years to an abusive, alcoholic have been made. operative with our office trying to husband. He was the sole wage earner Recently, I became very concerned solve problems. But there is just no and handled all of their tax matters, that the IRS was still conducting ran- credibility. It is this kind of behavior— and she signed all of their joint tax re- dom audits. They indicated to me that in fact, this is sort of tame. they were not. So I asked the General It is this kind of occasion that has turns. She worked in the home, raising Accounting Office to verify to me that caused an outraged population to call their seven children and caring for his random audits were not a tool of the on a Congress to do something bold, to invalid mother. After twenty years of Internal Revenue Service. A report was bring this kind of behavior under con- marriage, Maureen realized the nega- issued dated February 1998: ‘‘Report to trol. tive impact that he was having on the Honorable Paul Coverdell, U.S. Mr. President, that is exactly what is their children—so she filed for divorce. Senate, Tax Administration, IRS Use going to happen in this Congress. The At the time of the divorce, Maureen of Random Selection in Choosing Tax IRS is not going to be the same institu- knew that her ex-husband was being Returns for Audits.’’ tion by the end of this Congress. audited by the IRS, and in the settle- On page 2, at the very top, it says, Mr. President, I think the Senator ment agreement reached between them ‘‘IRS officials did identify 6 projects in- from Ohio will be here momentarily the ex-husband assumed responsibility volving subpopulations of taxpayers and we will hear from him regarding for all back taxes. with indications of noncompliance his hearings on the Internal Revenue In the summer of 1996, the ex-hus- from which taxpayers were randomly Service. band filed for bankruptcy. His only selected for audit.’’ Let me repeat I suggest the absence of a quorum. creditors were his ex-wife—Maureen— that—‘‘from which taxpayers were ran- The PRESIDING OFFICER. The and the IRS. Shortly after the filing of domly selected for audit.’’ clerk will call the roll. the bankruptcy, Maureen was notified I made a public statement of deep The assistant legislative clerk pro- by the IRS that she owed $150,000 to the concern about the fact I had been ad- ceeded to call the roll. IRS. One week later, the IRS gave her S4028 CONGRESSIONAL RECORD — SENATE May 1, 1998 another notice—this time to inform major problem, because when these grandchildren. However, because the her that she owed an additional cases are not resolved at an early farm acreage is their largest asset, the $100,000. She contacted the IRS’s tax- stage, they end up going to Tax Court. effect of the estate tax will be dev- payer advocate’s office in the Northern In Mr. Sulewski’s practice, he has astating. District of Ohio. She was told that had approximately 100 cases that have We also heard the testimony of Rob- they would contact her after they gone to Tax Court, yet only one case ert Koerner, the former president and looked into her case. When she did not has gone to trial. Clearly, these are— general manager of Koerner Farms—a hear back from them, she called back, very often—matters that do not need 300-cow dairy farm in Williams County. only to be told that they were not al- to go to Tax Court. Robert Koerner and his brother owned lowed to work on her case. Fifty percent of the cases going to the farming operations jointly, until In February 1997, the IRS seized the Tax Court could have been settled be- his brother’s family wanted to sell funds in Maureen’s Individual Retire- forehand—if employees did not have their half of the business. Most of the ment Account. Seizing this money this pressure to move the file off of land had been held for a long time, so would settle the back taxes and pen- their desk. there were appreciable capital gains on alties owed—but it would also create JOSEPH WELTON the property. As a result of the tax an additional tax liability for Now let me describe the testimony of consequences of the sale, Mr. Koerner Maureen—because she will now owe Joseph Welton. He and his wife filed was unable to purchase the half of the taxes on the early, although forced, their taxes on time for tax year 1995. business being sold by his brother. withdrawal of her IRA funds. Two months aftr filing, the Weltons re- Mr. Koerner testified that his family Last year, Maureen attended the ceived a refund check in the amount of would still be in the farming business if Problem Resolution day in Cleveland, $1,943.00 and a letter from the IRS stat- not for the tax code. This is nothing sponsored by the IRS. ing that they had overpaid their taxes. less than a tragic situation—one that Problem Resolution Day was an ef- Mr. Welton was surprised to receive the will only be repeated unless we in Con- fort on the part of the IRS to be more refund so he called the IRS to check on gress take further steps to reform in- taxpayer-friendly—an opportunity for it. The IRS employee told him that heritance taxes. taxpayers to discuss their problems they were in fact, due a refund, so the Edd Auld is the Vice President and with IRS employees who had the power Weltons cashed the check and spent General Manager of ROCO Courier & to take care of the problems. the money. Several months later they Delivery, Inc. in Toledo. He testified But when she asked the IRS, ‘‘Why received a letter from the IRS stating that the tax code is so complicated and did you let my ex-husband get away that the refund was erroneous and that time-consuming that he finds he is un- with this for all of these years?’’ the they needed to repay the money within able to comply with it on his own. As IRS representative responded that 30 days. The Weltons entered an in- a result, he is required to hire an out- ‘‘you are easier to get money from.’’ stallment agreement with the IRS and side accountant each year so that the Mr. President, that response by the they are now repaying the IRS at a business can be in compliance. The IRS reflects an attitude we need to rate of $55 amount that he has spent on account- change. We need an IRS that shares the As of July 1997 they have paid the ing firms over the years would have values held by hard-working tax-pay- IRS $330.00. Of that amount, $79.33 was paid for an additional two delivery ing Americans. And that’s what the applied for penalty, $124.17 was applied trucks that would generate an addi- bill developed by the Chairman of the to interest and $126.50 was applied to tional $75,000 to $100,000 in income each Finance Committee, Senator BILL principal. Mr. Welton, understandably, year—which would have created new ROTH, would accomplish. objects to the penalty that he is jobs and additional tax revenue for the If Congress passes Chairman ROTH’s charged every month. government, new jobs for Ohio and for bill, future spouses would not have to Let me note, Mr. President, that his our country would have been created. face the kind of nightmare experience complaint has been addressed in Chair- THE REFORM BILL Maureen Schaeffer had to deal with. man ROTH’s legislation. Specifically, Mr. President, I found our Toledo The bill provides for proportionate li- there is a provision in the bill that hearing both valuable and informative. ability for spouses. Innocent spouses would eliminate the failure to pay pen- The witnesses told us what it’s like for could choose to avoid joint and several alty while the taxpayer is in an install- hard-working, tax-paying families to liability—and be liable only for tax at- ment agreement. live with the IRS and under today’s tax tributable to their own income. The TAX REFORM code. They want change, and we owe it bill also includes a provision to waive Mr. President, my hearing in Toledo to them to get the process of change the 10% addition to tax for early with- focused not just on reforming the way under way. The first installment of drawal from an IRA or other qualified the IRS does business, but on fun- this process of change is represented by plan when it is used to address tax li- damental reform of the tax code itself. the important legislation sponsored by ability. Let me say that as I travel my home Chairman ROTH. JAMES SULEWSKI State of Ohio—I am sure my colleague But let me stress that it’s just the At our hearing in Toledo, we also from Georgia has the same experience beginning. There are a number of very heard the testimony of James in Georgia—there is a tremendous interesting ideas on how to reform the Sulewski. Mr. Sulewski is a former IRS amount of interest in meaningful and tax code. We should continue to ex- criminal investigator who is now a tax true and legitimate, fundamental Tax plore these ideas, and discuss them attorney in private practice—and he is Code reform. with the American people. The tax- a man with tremendous insight into I was pleased to hear from a number payers of this country know that the the workings of the IRS. of Ohioans who offered their views on tax code is too complex and too cost- He was particularly concerned with how to make the tax code simpler, and ly—and they want to replace it with a some of the criteria on which IRS em- less burdensome on families. tax code that is fair, simple, and hon- ployees are evaluated. One of the cri- We heard from Terry McClure, a thir- est. teria is how long a particular case is in ty-five year old farmer from Paulding Perhaps the simplest way to overhaul their hands. In his opinion, this causes County, Ohio. With his father, he oper- the IRS would be to overhaul the tax many employees to develop what he ates a 2,500 acre farm raising soybeans, code itself. Taxpayers spend nearly $157 called a ‘‘hot potato response.’’ In this corn and wheat. The farm has been in billion a year to comply with the tax case, the employee gathers the mini- his family for five generations. Terry code. The tax code also costs the tax- mal amount of information necessary and his family are understandably con- payer a great deal of time not to men- to move the case off of his or her desk. cerned with the difficulty of passing tion a great deal of anguish, and a As a result, cases are often passed on the farm on to future generations with- great deal of worry—it costs Americans three to five times before they are re- out losing large parts of it to the es- an estimated 5.4 billion hours just to solved, when—in many cases—they tate tax. They, like so many family comply with the code. could have been resolved by the first farmers, would like to pass the farm- The 1040 EZ form—the least com- employee to see the file. This is a land on to their children and their plicated of all tax forms—requires 31 May 1, 1998 CONGRESSIONAL RECORD — SENATE S4029 pages of instructions! The Internal tention of every one of the American be, and then implement what it takes Revenue Code has over 5.5 million people and to Members of Congress the to cause those results to be different. words of law and regulations—and the need to make change. And, hopefully, Again, in the case of government, as IRS sends out 8 billion pages of forms that will happen. Up until now it seems opposed to often in the private sector, and instructions each year. And the to me, this agency, as is the case with we are not result driven. We do not tax code keeps getting more com- many agencies, has sort of insulated measure it by what it is we want to ac- plicated. themselves from public opinion and has complish. We simply measure the proc- The bottom line is we have a tax code sort of set themselves aside from the ess. And that ends up not doing what that Americans rightly believe is com- mainstream of America. Frankly, that we would like to do. plex, unfair, confusing and perhaps is relatively easy to do in a bureauc- I think it is fair to say the IRS is out even dishonest. These are some of the racy. It seems to me that is one of the of control. The hearings we have had reasons I am a cosponsor of the Tax reasons that we need somehow to get certainly would substantiate that. I do Code Termination Act—which would more nonbureaucratic input into this not think many people would argue sunset the tax code at the end of 2001, system. with it. We have to do something that permitting the Congress to write a tax Do we need to collect taxes? Of will cause the IRS to be more account- code that is simple—fair—and honest. course, we do. Are our tax collectors able to taxpayers. And this goal is too I look forward to working on this ever popular? Of course not. But never- important to be partisan. Hopefully, it issue throughout this session, and in theless there is a way to do this job will not be. I hope we do not find our- the years ahead, in the hope that the that is more accountable to taxpayers. selves smothered with extraneous result will be a tax system that truly That is what we seek. amendments with other kinds of ideas. represents the values of the American I have been working very hard at a I think we ought to focus on how we people. number of agencies. One of the things make this IRS collection business work Let me again thank my colleague that strikes me in terms of what goes better and not be diverted by using this from Georgia for putting this block of on in government as opposed to the pri- bill for lots of other things. time together so that we can come to vate sector is there is really no built-in I think we also need to recognize the floor today in the U.S. Senate to discipline. In the private sector you are that IRS reform is a part of a changing talk about an issue that genuinely con- competing with somebody. If you do tax culture that is maturing, I believe, cerns all Americans, concerns the peo- not do the job, somebody else does it. in this country, certainly is maturing ple of the State of Ohio, and the people So you are required to be relatively ef- here. And this is one of the components of Georgia. It is something, Mr. Presi- ficient, or else someone takes the of changing this whole tax scene in dent, that I think Congress should heed work. You are required to please the which we live, making it simpler, the words of the American people on people you serve, or they go somewhere frankly, reducing taxes and making the —‘‘It is time for change.’’ else. Of course, that is not the case in collection a system that is consumer Thank you very much. I yield the government, and particularly in the friendly and at the same time enforces floor. case of the IRS. the law. I think we have to recognize Mr. COVERDELL. Mr. President, I I think it is important that we do that that is what is done. appreciate the remarks by the Senator this. I have been involved in trying to So our agenda is simple and should, from Ohio. He has had a busy morning. take activities that could better be indeed, be simple. We have to ensure I want to take just a second to com- done by contract and by individuals in that the IRS serves the American peo- pliment him on his work in terms of the private sector in all parts of gov- ple and not the other way around. That the workplace that he described here ernment. But I have to tell you that is our task. We need to consider this this morning. This is a piece of legisla- this is one that has insulated itself a legislation of restructuring. Again, it tion about very complicated Federal great deal. We need to do something is sort of interesting that as you seek programs which passed out of the com- about it. to make some changes to produce dif- mittee unanimously by every Repub- We find the same kind of threaten- ferent results in government, it is very lican and every Democrat. It is a real ing, the same kind of criminal intimi- difficult; the reaction you get almost credit to the tenacity of the Senator dation going on in HCFA, in health generally is: Oh, things are OK. We from Ohio. care at the moment; trying to do some- don’t need to change anything. Mr. President, I yield up to 15 min- thing about fraud and abuse, which ev- There is no incentive to change in utes, again, on this question of the eryone supports. But the idea of chal- the bureaucracy. And that is what overhaul of the IRS to my good col- lenging people, to threaten people, to makes it difficult. I am hopeful that we league, the Senator from Wyoming. intimidate people into doing it is not can move to do some of these things. The PRESIDING OFFICER. The sen- the best resolution. But that is not the We need to give people outside the bu- ior Senator from Wyoming is recog- best answer. So we need to find a way reaucracy some oversight of the en- nized. to do that. forcement so that when you bring in Mr. THOMAS. Thank you, Mr. Presi- In my opinion, the underlying issue, the view of citizens, you bring in the dent, of course, is the Tax Code. One of the view of people with expertise, so that, Mr. President, I thank the Senator problems that IRS has is to enforce a in fact, it can be made a part of the bu- from Georgia for arranging for time to very complicated, convoluted, exces- reaucracy which doesn’t automatically talk about something that, of course, sively voluminous and detailed Tax exist. is probably as important to Americans Code, and we need to change that. I We need to require the termination as any issue, and it is probably good to think almost everyone, again, is for of employees who have been involved talk about it shortly after the 15th of that change, but interestingly enough, in offenses, just like you do in every April. It is on our minds, and should be. as you talk about how specifically do other business, like you do in every So I am delighted that we are aimed you change it, then you find less una- other activity. We need to hold man- towards doing something next week, nimity. But changing the Tax Code is agers responsible and accountable. We doing something that almost everyone one thing that we must do which will should do that. It doesn’t seem like a agrees needs to be done; that is, to help in the tax collection but it isn’t strange thing, but it is difficult. The make some adjustment in the system the only thing. We also need to make people who are supervisors, who are in of collection of taxes; some adjust- changes in IRS, and that is what this is fact responsible to see that the job is ments with the IRS. Everyone knows about. done and done in the proper fashion, that it is needed. But it has been need- So there will be lots of ideas. The need to be held accountable to do that ed for a good long time, yet we have committee has a bill ready to go. The and, of course, have the authority to do not done anything. We have not done House has passed a bill. I think we will it as well. anything about it. We now have had, of find there will be different views as to We need to change the burden of course, hearings that have gone on for how best to do it. But I hope that we proof in Tax Courts, putting it on the some time both in the House and in the are driven, and I think we will be, by a IRS, not on the taxpayer. We need to Senate, which have brought to the at- vision of what we want the results to protect innocent spouses who are S4030 CONGRESSIONAL RECORD — SENATE May 1, 1998 caught up in some kind of marital di- are keeping up on this. I am convinced this computer-generated form that lemma in which the spouse is entirely that there will be something signifi- says: You have the following problem. outside of that income but becomes in- cant done to get the IRS under control. And then a series of codes. And you can volved. We need to extend, I suspect, The IRS Reform Act will overhaul take another document that is mul- the executive privilege beyond the the organizational structure of the tiple pages and look at it and figure same type that applies to lawyers to IRS. In order for any organization to out, perhaps, from that code, what you accountants and to other tax practi- perform its function well, it is nec- may or may not have done wrong. tioners so that we have a way for peo- essary for it to know its mission. When What a way to run a business. We ple to be able to communicate among I was in the Wyoming State Legisla- have computers. This thing is com- those who are helping them without ture, we passed an act that forced stra- puter generated. The computer could causing that to be part of the problem. tegic planning by all of the agencies, look up the actual reason if it was I hope this next week is productive, one of the most valuable things we keyed in there and list explicitly what as we think it will be; that we can have done. We forced them to say what they thought you had done wrong so come up with some real management it was they were trying to do. And then you would have ample notice of what principles that will convert this task, we asked them how can we tell if you the potential problem was, instead of this necessary task of tax collection get it done? that fear of being a criminal, for the into one that is more customer friend- That process was so valuable that in days that you wait until you meet the ly, that is more accountable, indeed, is a 3-week period we changed our budget- IRS person, who then asks you a series more effective and has the impact of ing process to a balanced budget, a new of irrelevant questions that you could getting this job done without the kind record for the State of Wyoming. I was have had exact answers for, could have of offensive activities we have seen so excited about what happened there maybe even submitted them by mail. happen. that I talked about having that happen Then there is the problem of dollar I appreciate the time. I appreciate in Washington. I have to tell you that thresholds. I had one client who had a Senator COVERDELL setting it up, and I I was delighted when I got here when I 58-cent difference on $2 million worth would like to yield to my good friend found out that Congress had already of reporting and it took 3 months and and associate from Wyoming, Senator passed a Government Performance and 10 letters to clear up that discrepancy. ENZI. Results Act. That is an act which says I don’t know how much the IRS ex- The PRESIDING OFFICER (Mr. to all of the agencies tell us what you pected to make off of a 58-cent error, THOMAS). The Chair recognizes the Sen- do and tell us how we can tell if you but I can tell you that their postage on ator from Wyoming. got it done—measurable goals, the first letter almost cost them more Mr. ENZI. I thank the Chair. I thank prioritized goals, goals that are re- than what they were trying to correct. my senior Senator. It is kind of Wyo- flected in a budget for the agency so Not very good management. ming day, talking about the need for that what they say they are doing is We talked about random audits that IRS reform. really what they are spending their the Senator from Georgia addressed I do rise this morning in support of money on. I didn’t feel there was a lot earlier. They also assured me they H.R. 2676, which is the Internal Reve- of emphasis on this new program, and a were not doing random audits but had nue Service Restructuring and Reform lot of dissension by the agencies, so I this terrible conflict because they can- Act of 1998 that was passed by the did some field trips just after the first not tell without random audits how House. of the year. I went to a number of the much money they are not collecting. That document, of course, has been agencies that had these Government They want to be able to go into peo- taken by the Senate and improved performance and results plans, and ple’s documents, who they have abso- based on the hearings that were held asked some more questions just to em- lutely no reason to suspect of any er- last year and are currently going on phasize a little bit whether they really rors at all, and review absolutely every here. understood what it was we were trying detail of their documents and force By passing legislation to reform the to get at, the question of how do we them to get detailed documents to IRS, Congress will take an important know if you got it done? back up things that we never require step in reforming what many Ameri- One of the agencies that I went to detailed documents for when you are cans believe to be the most feared was the Internal Revenue Service. I filing your tax return. They wanted to agency in the United States. This bill don’t think there is even the beginning look through absolutely everything of will overhaul the IRS organizational of the numbers to be able to tell what your personal life to see if maybe you structure. It will provide necessary they have done so they can tell if they didn’t file something so they can see protections for American taxpayers, are getting better. Quite frankly, from what the estimated error is of taxes and it will require greater accountabil- the testimony that we have heard, we not collected. That is an abomination. ity for our employees, the IRS employ- don’t want them getting better. Why do we want to know exactly how ees. There has been tremendous sup- We talked a little bit about the tele- much, within a few pennies, people did port in this body for making a change. phone conversations that they have. not pay? Their job is to collect the We talked about it at the end of last This is not as drastic stuff as was cov- money that was not paid, finding the year when we were appalled at the ered in the hearings. This is some nor- biggest offenders first. That is a very hearings that were going on at that mal stuff that people run into when specific task that auditors do regu- time. I hope people are tuning into the they are trying to get answers from the larly. Auditors figure out who the po- hearings that are going on now to see IRS. You call them up. A guy answers tential worst people are, and that is the real-life examples of what can hap- the phone on the other end and he tells from a very prescribed set of criteria pen with a bureaucracy out of control. you the answer to your question. You that give them indications that some- For any who are interested in the de- use that information and you have no body may have made errors on their tails of the hearings, I have a web site, backup for it, so if somebody later says taxes. Most of the time those would as do many of the Senators. That web that it is wrong, you are hung out to prove to not be true, because some- site the day after the hearings posts dry. It is your problem. times people really do have unusual ex- the testimony from those hearings. We I suggested maybe there ought to be penditures. They really do have un- are keeping careful track of it. There written confirmations sent when they usual business expenses. But when they are a number of documents that people give us an opinion, something that we do, they have to answer to the IRS. would be interested in reading that can attach to our tax document and That is a legitimate audit. But not a have some summaries of it. I have one save until that horrible day of an random one, going through documents in my hand called ‘‘The Lowlights of audit. And then we can say, ‘‘No, no, and details that nobody ever antici- Today’s IRS Testimony,’’ that even the IRS agent told me this. This is the pated needing to dredge up or being re- talks about a manager being pulled at data I relied on to file my taxes.’’ quired to get in advance. gunpoint from a shower by the IRS. I We talked about error notices. I don’t I have to say I think the new Com- know that the American public is keep- know how many people have gotten missioner brings a management per- ing up on this. I know my colleagues error notices, but if you do, you get spective instead of a tax perspective, May 1, 1998 CONGRESSIONAL RECORD — SENATE S4031 instead of an ‘‘audit the people’’ as- break. We put the American people in a result of the abuses uncovered last pect, and I look forward to changes tax trap. You have to work longer and year by the Senate Finance Committee that will be made on that basis. harder to pay your taxes, and if you hearings. Many people were shocked to I also asked the IRS if they were work longer and harder, you have more learn that a number of the due-process doing anything to suggest simplifica- taxes you have to pay. We do have to protections Americans take for granted tion of the Tax Code. This was a huge find a way to make filing easier, and in other legal proceedings do not apply revelation to me. We have a Paperwork that means fewer forms, that means to actions involving the IRS. This bill Reduction Act in the United States. It fewer instructions, that means less corrects many of those injustices. says that every Government agency is chance for making a mistake, and that Once this bill becomes law, the IRS supposed to be figuring out how to re- has to mean less chance for an audit. If will be required to provide notice to duce the paperwork that you have to you are audited, we have to have the taxpayers 30 days before the Service do—reduce the paperwork. I even IRS under control so that the taxpayer files a notice of Federal tax lien. A tax- checked to see who generates the most is the person who is in control, not the payer would then have 30 days to re- paperwork. It was no surprise. Sev- one who feels like they are going to quest a hearing from the IRS appeals. enty-five percent of all paperwork for jail. No collection activity would be allowed Government agencies is taxes. You The IRS reform bill makes some im- until after the hearing. The taxpayer know that if you fill out your forms. portant structural changes, which, I would likewise be able to petition the There are huge numbers of taxes. believe, will help to focus the agency’s Tax Court to contest the appeals deci- We had a couple of suggestions for mission. This legislation creates a sep- sion. ways that we thought there might be arate board to oversee the management Finally, the communications privi- just an additional little explanation and operations of the IRS. lege now granted only to attorneys right on the tax form, so people would This board will include six ‘‘private would be extended to accountants. understand what they were filling out. life’’ experts who will bring their col- That means you could ask your ac- Better there, instead of going through lective private-sector experience to countant a question about your taxes, pages of documents. The EZ–1040 form such tasks as reviewing and approving and when he gave that answer, you has a 33-page instruction manual, and the agency’s strategic plans and budget could rely on it not being passed di- you still have to be an accountant to requests to make sure everything rectly on to the IRS. He would be in understand that instruction manual. matches up. The board will also have your corner for sure. It needs to be that I thought maybe just a couple of lit- ‘‘big picture’’ authority over IRS en- way. We have to change some other tle additions right there on the page forcement and collection activities. agencies, too. People are afraid to ask would help people to get the answer Board members would not, however, be the EPA about potential pollution and to get it right and to get it easier. permitted to intervene in particular problems because they don’t want to be That is where the big revelation comes tax disputes. Moreover, in order to en- fined. They just want to stop the prob- in. The Paperwork Reduction Act is sure the agency’s autonomy from im- lem and correct it if there really is one. based solely on numbers of lines that proper influence, these board members But we have this Government fear of are removed from documents. That is would be governed by conflict of inter- asking a question for fear that it will what you get your credit for and that est restrictions. I believe this new come down on us with penalties and is all you get credit for. So there is no board, which will be comprised largely unusual actions by a Government agen- incentive whatsoever to make a form of people with experience in the private cy. The same thing happens with more understandable if it increases the sector, will help the agency meet bet- OSHA. If there is a safety problem, you number of lines by even one, not a bit ter the needs and the concerns of the don’t want to ask OSHA for sure, be- of incentive. In fact, there is a dis- agency’s customers—America’s tax- cause it might just result in penalties, incentive to do that. That is why you payers. not even an answer. That is the prob- find the huge documents explaining the The IRS reform legislation provides lem we have with Government. taxes that accompany what are consid- important safeguards for American ered to be relatively simple forms. taxpayers. For too long, the IRS has This would make the questions that There is a lot of room for improvement filled the roles of judge, jury and exe- you ask your accountant your ques- there yet. cutioner in collection actions against tions and your information, and you I am not putting all the blame on the taxpayers. This Reform Act would shift could feel secure that it would not be IRS on this. There is a difficulty with the burden of proof from the taxpayer the subject of the penalties by the IRS. the tax structure and it is up to Con- to the IRS in most court proceedings This change would provide taxpayers gress to get that tax structure as long as the taxpayer introduces with the necessary confidentiality and changed. It needs to be easier. It needs credible evidence relevant to determin- communications with their tax prepar- to be fairer. ing his or her income tax liability. ers whether or not they are licensed at- Our taxes right now are based on It would also place the burden of torneys. I believe these changes will kind of a policy. It is a policy that gets proof on the IRS in determining wheth- help rein in many of the intimidation put together as another person ex- er penalties should be imposed. The bill tactics used to target unsuspecting plains a policy to us. We have to decide expands the taxpayer’s ability to col- taxpayers. whether we are going to go with policy lect attorney’s fees when the IRS Lastly, the IRS reform bill will de- or just collecting money. Just collect- brings unwarranted actions against mand greater accountability from the ing money is a lot easier. I suggest, if them and allows taxpayers to recover 100,000 employees who work for IRS. It we are going to have a tax policy, we civil damages from an IRS employee if requires all IRS notices and cor- ought to really have a tax policy and he is negligent in the collection ac- respondence to include the name, the sit down and have that debate and talk tions. phone number, and address of the IRS about whether we are trying to pro- Taxpayers may also recover attor- employee whom the taxpayer should mote the American dream and have ney’s fees in civil actions against the contact regarding the notice. More- strong families and have home owner- IRS when the IRS engages in unauthor- over, this bill requires the IRS to ship and encourage investment and ized browsing or disclosure of taxpayer maintain complaints of any employee savings and encourage small business. information. It would also provide sub- misconduct on an individual employee And we can do that through a Tax stantial relief for innocent spouses in basis. Individuals will be responsible Code. And I really think we can do that collection actions based on past joint for their own actions. It won’t just be through a Tax Code and make the Tax returns by allowing the spouses to be passed off as an IRS problem. It will Code simple. And we have to do that. liable only for tax attributable to their prohibit the IRS from labeling individ- Right now we talk about stronger income. No one should be liable for ual taxpayers as ‘‘illegal tax protest- families and then we penalize mar- taxes they couldn’t possibly know ers’’ and maintaining lists of these in- riages; we discourage parents from about. dividuals. raising their own children; and we only Many of the taxpayer protection pro- The IRS will also have to disclose to give big business a health care tax visions in the Reform Act are a direct taxpayers in simple terms the criteria S4032 CONGRESSIONAL RECORD — SENATE May 1, 1998 and procedures for selecting the tax- Those are his volunteers; they do this conversation with you whether you payer for audit. I believe this will de- for nothing— want to or not. And he got to talking crease the ability of the IRS to target 80 percent at the end paid less than the IRS about an incident with IRS. He paid his innocent taxpayers and small busi- claim called for. taxes. They contacted him 3 months nesses for audits. Eighty percent. later and said, ‘‘You didn’t pay your Mr. President, the IRS Reform Act That is not a very good record. And 8 taxes.’’ So he went down to the office, will go a long way in reforming our out of 10—wham—who get hit with this and he said, ‘‘Well, here is my check.’’ Government’s tax collection practices. audit hammer do not owe the taxes. So They said, ‘‘We didn’t get it.’’ He said, By returning customer service and ac- you have taken that taxpayer who has ‘‘Well, here is the cancellation notice countability to the IRS, this legisla- the least ability to complete the with the Government certifying it got tion helps ensure that the American form—no accountants, no lawyers, try- the check.’’ ‘‘Hmm.’’ Well, they came taxpayers will be treated with the de- ing to do it themselves—and you make to find out that they applied the check cency and respect they deserve. I urge them the target of random audits. to his previous year’s taxes. So that my colleagues to join me in supporting He goes on to say—this was a story in would have triggered a refund, which the IRS Restructuring Reform Act. I the Marietta Daily Journal— they never sent him. And then they yield the floor. Auditing ‘‘pits one of the most powerful said—and this is the key one—‘‘Well, Mr. COVERDELL addressed the agencies in the federal government against we’re going to charge you a penalty Chair. people who don’t have the resources to de- anyway.’’ So they said he would have The PRESIDING OFFICER. The Sen- fend themselves,’’ said Blasi, who added that ator from Georgia. each year nearly 20,000 low-income taxpayers to pay penalty and interest rates be- Mr. COVERDELL. Mr. President, I in metro Atlanta receive audit notices. cause they applied the tax to the wrong thank my colleague from Wyoming, I asked him in the hearing—I said, year. He said, ‘‘That’s it. We’re going whose professional experience on these ‘‘What is the effect of that audit notice to court.’’ And they finally backed off. matters is evident in his presentation. on these people?’’ He said, ‘‘Chilling But that kind of activity has to stop. He makes an eloquent case for the re- and frightening, because they really Mr. President, I yield the floor and forms that are encompassed in the leg- don’t know where to go. And often be- suggest the absence of a quorum. My islation to be offered by Chairman BILL cause they have no resources, they hour has expired. ROTH, chairman of the Finance Com- only get in deeper and deeper trouble The PRESIDING OFFICER. Will the mittee. because they really don’t know how to Senator withhold? Both the Senator from Wyoming and deal with this agency.’’ He said, ‘‘Most Mr. COVERDELL. OK. I have talked about random audits and of these people end up paying more Mr. DEWINE addressed the Chair. our dismay about them being con- taxes than they really owe if they The PRESIDING OFFICER. The Sen- ducted by the IRS. A random audit is don’t have legal representation.’’ ator from Ohio. like Russian roulette. A random audit This is very discomforting. First of Mr. DEWINE. I ask unanimous con- means the IRS, even though your re- all, we said, ‘‘Do you conduct random sent to proceed for the next 15 minutes turn reflects no discrepancy, can reach audits?’’ And they said, ‘‘No, we don’t.’’ in morning business. in, pick it out with no cause and sud- And the General Accounting Office The PRESIDING OFFICER. Without denly be banging on your door. This said, ‘‘Yes, you do.’’ Then in a memo- objection, it is so ordered. ought not to happen in America. The randum to their own employees, they Mr. DEWINE. Mr. President, let me IRS should not be conducting random misquote the General Accounting Of- first again just congratulate my col- audits. fice and leave out the statement that league from Georgia on a great state- I introduced legislation last week says they do random audits. And then ment and echo what he has been saying that will prohibit the use of random the General Accounting Office says, this morning. He is the true leader in audits. We are told they are not being ‘‘And the target is low-income people. drawing the Senate’s attention and conducted, but they are. So we are They’re the principal target of the ran- public attention to the need for true going to legislate so they do not. I am dom audits.’’ reform in the IRS. very hopeful that at the end of the day, And you have three chances more of The stories that he referenced, that I the work of the Senator from Wyo- being audited in the State of Georgia was talking about earlier today, that ming, myself, and others will address than many of the other States. Well, we have heard about in Toledo, super- the issue of random audits in the final we have very rural and poor areas in ficially, may sound funny, but as he legislation. our part of the country. pointed out when he and I were talking This report that I received from the At the end of the day, by the end of about it, they are not funny, they are General Accounting Office shows that the 105th Congress, Mr. President, you tragedies. They are real human trage- 47 percent of these random audits were will not recognize the IRS. This Con- dies. occurring in 11 Southern States—47 gress is going to change this behavior. It is just hard to believe that the IRS percent in 11 Southern States. That We want fair taxes. We want taxpayers has gone on for so long in this country only represents 29 percent of our popu- to be held accountable. But this kind of unchecked. And I say to Senator lation, and that 85 percent of the ran- COVERDELL, if these are any dem- dom audits were directed at people who targeting, this kind of misrepresenta- tion, the kinds of stories we have onstration of the need for congres- make $25,000 or less—$25,000 or less. sional oversight, if there ever was an The first suspicion one has is, ‘‘Well, heard—everybody in this Congress has example of what hearings will really there’s a person who can’t defend him- heard this from constituents—bully accomplish, it is the hearings that self.’’ tactics, arrogance, confusion, informa- I have come to know over the years a tion that is incorrect, the chilling ef- Chairman ROTH held several months gentleman at Georgia State University fect. ago starting off with, when we saw the who is a pioneer in tax clinics. There We just heard the Senator from Ohio acting head of the IRS come in to that are very few of them in the country, talk about a person who was sent a hearing and in 5 minutes, the first 5 but he got a Federal grant several check from IRS. The fellow said, ‘‘Well, minutes of testimony, he changed more years ago and got one started. They I don’t think I am due that.’’ He calls IRS policy than has been changed in use university students to help low-in- them. They say, ‘‘Oh, yes, you are.’’ the last decade. That was a result of come people who have had trouble with Then IRS finds out they made a mis- oversight hearings. the IRS. They have 300 clients. He is a take, and they charge the man a pen- Frankly, this Congress needs to do wonderful gentleman. We just rewarded alty. That is incredible. more of that, not just in regard to the and honored him recently. His name is I met a fellow sitting on a plane—Mr. IRS but in regard to all Federal agen- Ron Blasi. President, I think I have run over my cies. It is part of our charge. It is part He appeared at a hearing we had, Mr. time. I do not know if the other side is of our responsibility. It is what we President. This is what he said: here, so I might talk for a minute or 2 ought to do. So I just again commend Among those low-income taxpayers rep- until they get here. my friend and colleague from Georgia resented before the IRS by tax clinic volun- I will close with this. This is one of for taking the time this morning to teers— these fellows who is going to have a talk about an issue that really affects May 1, 1998 CONGRESSIONAL RECORD — SENATE S4033 the American people and that the homes, and, as we heard, even ruin tions and enforcement are likely to American people are really interested some lives. Any abuse of that power is persist. If the Tax Code cannot be deci- in. We spend a lot of time on this floor intolerable. phered, it does not matter what kind of talking about things that are impor- Let me recount some of the things personnel or process changes we make tant, but I am not sure the average that have been uncovered as a result of at the agency. Complexity invites dif- American really thinks it affects their these hearings. We heard that a tax- ferent interpretations of the tax laws lives. Let me tell you, the IRS affects payer was hounded by the IRS for over- from different people, and that is where people’s lives, virtually everybody in paying his taxes. The IRS put one con- most of the problems at the IRS arise. this country. stituent through the wringer of audits Replacing the existing code with a So I salute and congratulate my col- annually for 20 years and never found simpler, fairer, flatter tax would facili- league from Georgia. anything wrong. tate compliance by taxpayers, offer Mr. COVERDELL. I thank the Sen- Another person received a tax refund fewer occasions for intrusive IRS inves- ator from Ohio. in error from the IRS. Knowing that it tigations, and eliminate the need for (The remarks of Mr. DEWINE pertain- was an error, the constituent never special interests to lobby for com- ing to the introduction of legislation cashed the check, yet when the IRS plicated tax loopholes. are located in today’s RECORD under discovered its own error later, it de- The IRS reform bill, Finance Com- ‘‘Statements on Introduced Bills and manded the refund back with interest. mittee hearings about taxpayer abuse Joint Resolutions.’’) One family that had a lien placed on by the IRS, the Kemp Commission’s Mr. DEWINE. I suggest the absence of its house worked out a payment plan recommendations in favor of fun- a quorum. with one IRS agent, only to have an- damental tax reform, new proposals to The PRESIDING OFFICER. The other IRS agent institute foreclosure sunset the IRS Code, and the debate clerk will call the roll. proceedings. What is most galling to that sponsors of the flat tax and sales The legislative clerk proceeded to taxpayers is not that they have to pay tax have taken on the road in recent call the roll. taxes, but that there is virtually no re- months, will all help to move the tax- Mr. KYL. Mr. President, I ask unani- course when the IRS makes an error. reform discussion forward. mous consent that the order for the The cost of setting things right—hiring In conclusion, we can pass an IRS re- quorum call be rescinded. attorneys and CPAs—can be so high form bill to try to rein in the IRS and The PRESIDING OFFICER. Without that people agree to pay taxes and pen- make sure that it treats taxpayers fair- objection, it is so ordered. alties that they do not really owe. ly, reasonably, and respectfully. But Mr. KYL. Mr. President, I want to Another thing we found was the let us not fool ourselves. The IRS can- conclude this discussion of the Senate abuse that innocent spouses can suffer not be faulted for a Tax Code that is Finance Committee’s work in exposing at the hands of the IRS and current too complex and filled with contradic- problems with the IRS by commending law. By resisting calls from the other tory provisions. Until the Tax Code is simplified, the Chairman of the Senate Finance side to rush the IRS reform bill to problems in one form or another are Committee, Senator ROTH, for holding vote, we have been able to craft far likely to persist. We must use this op- the series of hearings to expose prob- stronger provisions to protect innocent portunity to begin the debate about lems in the Internal Revenue Service’s spouses. The legislation that will come fundamental tax reform. dealings with taxpayers. I also want to before the Senate next week would en- thank the taxpayers and IRS employ- sure that innocent spouses are respon- f ees who had the courage to come for- sible only for their own tax liability. EXPLANATION OF ABSENCE ward and tell their stories publicly. Al- It was two and a half months ago Mr. KYL. Mr. President, I would like though we all knew that there were se- that I came before the Senate to dis- to take this personal privilege of ex- rious problems with the way the IRS cuss the plight of a constituent of plaining why I was not able to vote last does business, it is safe to say that all mine, a woman who divorced in late night on an extraordinarily important of us were truly shocked at what we 1995. She paid her taxes in full and on issue before the Senate; namely, the learned from the hearings. time during the last two years of her expansion of the North Atlantic Treaty As Senator ROTH put it, we found marriage, but her husband apparently Organization, NATO. that the IRS far too often targets vul- did not. The IRS ultimately came after The vote, fortunately, was 80 to 19, nerable taxpayers, treats them with her for the taxes that her former meaning that the United States has hostility and arrogance, uses unethical spouse did not pay. It did not aggres- gone on record as supporting the inclu- and even illegal tactics to collect sively pursue the tax bill with him. sion of the Czech Republic, Hungary, money that sometimes is not even About two weeks after hearing from and Poland as members of this impor- owed, and uses quotas to evaluate em- my constituent, I sent Chairman Roth tant alliance. ployees. a letter identifying ways of improving When the debate started, I provided Its effort, obviously, is to try to the IRS reform bill, and on that short remarks which expressed my strong bring in more money. But I think all of list was a recommendation to make in- sentiments in support of that expan- us would agree that it is not an accept- nocent-spouse relief easier to obtain, sion. Throughout the debate, as amend- able behavior, and, therefore, clearly and to make it available retroactively, ments were offered, I spoke to several that kind of behavior will be dealt with or at least to all cases pending on the of them, attempting to defeat amend- in the legislation which we will be pre- date of enactment of the bill. ments that I thought would be det- paring. So obviously, I am delighted that the rimental to the expansion of NATO and I think it is also important to make Finance Committee has focused on the to our mission in NATO. the point that most IRS employees, issue of innocent-spouse protection and Fortunately, one of the first amend- like most other Government employ- has included provisions that better pro- ments adopted was an amendment ees, are not only law abiding and very tect my constituent and women across which I offered, which helped us to hard working but are very professional the country in similar situations. present a strategic vision in the discus- in what they do. They have, especially The IRS reform bill is a good bill, sions that would be ongoing with re- at the IRS, the very difficult and even and it deserves an ‘‘aye’’ vote. But let spect to the development of a new stra- thankless task of administering the us be under no illusion that even a tegic vision for NATO that reflects the code that, frankly, the Congress and good reform bill will solve the myriad beliefs of the U.S. Senate and reflects the President made extremely complex problems that exist. Our nation’s Tax our belief that the original purposes of and difficult to administer. It is filled Code, as currently written, amounts to NATO and the original strategic vision with contradictory provisions. It is thousands of pages of confusing, seem- should play a large role in animating often open to differing interpretations. ingly contradictory tax-law provisions. our assistance, with our fellow NATO Frankly, we have given the IRS tre- We need to reform the IRS, but unless members, in devising a new strategic mendous power in administering the that reform is followed up with a more mission. code, but it is power that can bankrupt fundamental overhaul of the Internal I say all of that as a predicate to families, can put people out of their Revenue Code, problems with collec- state in the most emphatic terms that