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  •   IRS Reform Effort Advances on Hill

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    By Albert B. Crenshaw
    Washington Post Staff Writer
    Wednesday, May 6, 1998; Page A04

    The Senate moved closer to passage of a major overhaul of the Internal Revenue Service yesterday as backers unveiled a way to offset the large revenue losses that are expected to flow from the bill.

    Sen. William V. Roth Jr. (R-Del.), chairman of the Finance Committee and a principal architect of the measure, indicated he would add a provision that would allow more Americans over age 70½ to convert a portion of existing individual retirement accounts to recently authorized Roth IRAs.

    Such conversions are estimated to generate enough taxable income to raise more than $8 billion in revenue over five years, according to the Joint Tax Committee. The bill has been estimated to cost $18.3 billion over 10 years, and the Roth IRA provision would help close much of the remaining gap in paying for it. Roth would close the gap by also restricting some corporate write-offs.

    The measure had been fully funded for the first five years by closing a loophole involving corporate deductions for vacation pay to workers, but under Senate rules bills must be paid for 10 years into the future. The Roth IRA provision would become effective in 2005. However, the short-term gain eventually will result in long-term losses to the Treasury, experts say, because the Roth IRAs shelter investment income.

    Roth IRAs, named after the senator, are new this year. They are funded with nondeductible contributions, but unlike regular IRAs they are tax-free when the money is withdrawn. Because of this and because they are free of many other restrictions applied to traditional IRAs, they are proving very popular.

    The IRS bill has wide support from all sides of the political spectrum, but its path to passage has been slowed by the funding issue.

    After two rounds of widely publicized Finance Committee hearings into abuses by the IRS, Democrats as well as Republicans have been clamoring for reform of the agency. Even President Clinton, whose administration spent months trying to prevent the reform effort from undercutting the agency's ability to collect taxes, joined the chorus last weekend, calling the IRS an "unaccountable, downright tone-deaf agency."

    The bill, as unanimously approved by the Finance Committee, would:

    Restructure the IRS. It would set up a nine-member oversight board, including six members from the private sector, to set policy and strategy for the agency, and it would direct the commissioner to reorganize the agency around types of taxpayers – individuals, large businesses, small businesses and so on. This would end the current geographic structure in which all units deal with all kinds of taxpayers. The bill would also move a large number of the agency's internal affairs investigators to a new Treasury inspector general for tax administration.

    Increase personnel flexibility. The measure would grant the commissioner new powers to hire top people and transfer workers within the agency. It would also allow higher pay for certain employees and give the commissioner the authority to give bonuses and other incentives to valued workers.

    Boost taxpayer rights. The bill would give extensive new rights to taxpayers who deal with the agency. It would shift the burden of proof from the taxpayer to the government in court cases and suspend penalties and interest in certain cases, particularly when the agency does not act promptly. The bill would also ease the burden on so-called innocent spouses who find themselves liable for taxes incurred by their spouse during a marriage and it would strengthen the taxpayer advocate by making the office more independent of the IRS.

    © Copyright 1998 The Washington Post Company

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