By Albert B. Crenshaw and Stephen Barr
But as Commissioner Charles O. Rossotti told the Senate Finance Committee of the need for the personnel provisions in the measure -- which the Senate will debate and possibly approve next week -- critics inside and outside government expressed concern that other parts of the legislation could end up making the tax agency even more intrusive.
The bill, approved by the Senate Finance Committee on a 20 to 0 vote last month and the ostensible reason for the widely publicized hearings on abuses, represents the most comprehensive effort in decades to overhaul IRS operations.
Committee Chairman William V. Roth Jr. (R-Del.) has said it is "aimed at protecting both taxpayers and employees against those inside the agency who have abused the awesome power of the IRS."
The Clinton administration backs most aspects of the bill. But some officials and private experts are fearful some provisions designed to help taxpayers could encourage more resistance to paying taxes in full and make the agency increasingly peremptory in order to meet stringent new deadlines. Administration officials are still negotiating with Roth's staff over the disputed provisions, so none would agree to be quoted by name yesterday.
Rossotti warned the committee the risk of at least one provision "potentially backfiring is real." He said the issues involved require "very careful and technical work."
The measure, which is much broader in scope than legislation passed by the House last year, contains many changes to the agency, and there is wide support for most of them.
The bill would establish a new oversight board to set policy and goals for the IRS. The board would be composed of people from the private sector but would include the treasury secretary and a representative of the IRS employees union.
The bill also contains provisions to attract better employees to the agency. It would allow the IRS commissioner to hire up to 40 people and pay them as much as the vice president (currently $174,500). It also would allow him to make special appointments of senior executives to jobs now reserved for senior career employees. And it would allow him to use various kinds of incentive pay, including bonuses.
The pay is particularly important, Rossotti said yesterday. He told the Senate panel that he is trying to talk several top people into joining the agency, and added, "I sure hope that legislation passes because I'm recruiting people based on it."
"Not everybody wants to work for the IRS right now," he added dryly.
Finally, the measure contains numerous provisions that would make it easier for taxpayers to prevail in disputes with the IRS and compel the agency to notify taxpayers of problems and respond to them promptly. Among other things, it would allow spouses and ex-spouses to opt out of joint liability for back taxes not attributable to their own income. This "innocent spouse" relief is meant to help thousands of mostly ex-wives who get hit each year for taxes run up by their ex-husbands.
But critics of the bill said some other taxpayer rights provisions would place substantial burdens on the routine practices of the agency and, in some cases, would inadvertently encourage IRS agents to spend less time trying to settle tax disputes.
One provision, for instance, would suspend the accrual of penalties and interest after one year if the IRS has not sent the taxpayer a "notice of deficiency" within a year. The suspension applies only to taxpayers who filed their returns on time.
Currently, the IRS selects tax returns for audit, the taxpayer meets with a revenue agent and, most of the time, the taxpayer agrees to pay a corrected tax. If the case cannot be resolved, then the IRS issues the notice of deficiency. That, in turn, allows the taxpayer to take the dispute into tax court.
Because of its staffing and technology problems, the IRS knows that it rarely contacts a taxpayer and completes an audit within a year, the critics said. As a result, they contended, the Senate provision will prompt IRS agents to become even more arbitrary and automatically issue notices of deficiency, even in cases where they suspect an agreement would be reached with the taxpayer.
The Senate proposal to turn off penalties and interest will cost the government about $5 billion over 10 years, budget estimates show. Critics also pointed to other provisions as posing problems for IRS field agents.
One would shift the burden of proof from the taxpayer to the government in court proceedings. That is already the case in criminal tax cases -- and in all other criminal cases -- but in civil law the burden of proof is typically on the party in possession of the relevant information. In tax cases that is the taxpayer.
Backers of the change, who include most committee Republicans, argue that present law amounts to "guilty until proven innocent." Critics say that since the courts already side with the party with the best evidence now -- and split the difference when it isn't clear -- the new provision is likely to be meaningless.
However, there is some uncertainty about what would happen in the absence of records. The bill would require taxpayers to keep records and to cooperate, but it also says that when the IRS uses statistics to determine income -- a technique often used when there are no records -- the IRS would have to prove the taxpayer's taxable income.
The other provision faulted by critics would establish formal procedures designed to ensure due process where the IRS seeks to collect taxes by levy against wages and bank accounts or by seizure of property.
The provision would allow taxpayers facing levies or seizures to demand a hearing before an IRS appeals officer not involved in the case. During the hearing, the IRS would have to justify its decision, while the taxpayers would be allowed to raise new issues or challenge the merits of their tax liability. Findings by the appeals officer could be contested by the taxpayers again in tax court.
Critics fear the proposed process would give taxpayers renewed opportunities to prolong proceedings or withhold information or hide assets from the IRS until both parties end up in court.
Supporters of the bill, such as Sen. Charles E. Grassley (R-Iowa), disagree. "An additional appeal right, a simple right to make your case heard, does not seem too much of an inconvenience considering the effect of levies" on taxpayers, Grassley wrote Treasury Secretary Robert E. Rubin this month.
Finally, some members of the Senate panel have been talking of adding an amendment to allow taxpayers to sue IRS workers individually. Rossotti said this might make it even more difficult to attract good workers.
© Copyright 1998 The Washington Post Company