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White House Ends Resistance To Hill Plan for IRS Overhaul

By Albert B. Crenshaw
Washington Post Staff Writer
Wednesday, October 22, 1997; Page A01

The Clinton administration yesterday abandoned its opposition to a congressional plan for a wide-ranging overhaul of the Internal Revenue Service, clearing the way for the proposal to become law as early as next spring.

The latest version of the proposal, unveiled yesterday by House Ways and Means Committee Chairman Bill Archer (R-Tex.), "is now on balance a workable plan and one that we can support," Treasury Secretary Robert E. Rubin said.

Archer's committee is expected to approve the plan today. House and Senate leaders said they anticipate easy passage.

Although congressional Republicans were crowing about the White House reversal, Clinton administration officials clearly hoped the agreement would defuse a potentially damaging issue in next year's mid-term congressional elections.

The plan, which has been the focus of a months-long battle between the administration and Congress, would create an oversight board made up of government officials and private-sector experts to review and approve the agency's operations, long-term strategic plans and budget requests.

It also would give taxpayers a variety of new rights when dealing with the IRS and would shift the burden of proof from the taxpayer to the agency when disputes reach the courts.

The measure would affect taxpayers directly in several ways: It would make it easier for taxpayers to recover costs and damages when the IRS pursues them wrongly; it would make it easier for innocent spouses to obtain relief for tax liabilities created secretly by a spouse or ex-spouse; and it would extend the attorney-client confidentiality privilege to accountants and others authorized to practice before the IRS.

The proposal grew out of recommendations made by a commission, created by Congress, that spent more than a year studying the IRS in the wake of revelations about the agency's disastrous attempts to modernize its computers and other internal problems.

For months, the Clinton administration had strongly opposed certain aspects of the proposal, particularly the oversight board. Treasury Department officials called the board unworkable and fraught with potential conflicts of interest by board members who might have personal tax agendas or links to large corporations with important tax interests. The White House also objected to the original bill's proposal to strip the president of the power to hire and fire the IRS commissioner and give that authority to the new board.

However, White House officials said yesterday that last-minute changes, including preservation of the president's appointment power, had made the bill palatable, though they vowed to continue to work for "improvements."

At the same time, political strategists noted that recent Senate Finance Committee hearings on IRS abuses had tapped into a flood of public resentment about the agency, and that continued administration resistance played into the hands of the Republicans politically.

The White House reversal came after administration officials sensed they were losing the debate and Clinton personally consulted with Sen. Bob Kerrey (D-Neb.), a co-chairman of the commission, to try to find a way out of the political box.

"We've been sitting here for two weeks trying to say, `We're on to this and we're working on this,' and that clearly was not breaking through," said a senior administration official who spoke on condition of anonymity. Frustrated by the situation, he added, the White House took a second look at the congressional plan. "We began to realize the range of differences between the two approaches was really not that great and we decided to find a way to square the circle," he said.

The official acknowledged that the Republican attacks on the IRS had uncovered legitimate problems that need addressing. "If you scrape away the barnacles of a crusted bureaucracy, you find out the [problems look] pretty much the same whether the Republicans are running it or whether we're running it," he said.

But in compromising, the White House hoped to shift the debate away from IRS management. "Then you can have a general global debate on tax reform," the official said.

That is a debate in which the Democrats feel they hold more solid ground because they can seek to portray any large-scale revisions of the tax code as dangerous for middle-class taxpayers.

The White House switch also came after other Democratic leaders had begun embracing the Republican bill. House Minority Leader Richard A. Gephardt (D-Mo.) announced his support for the bill yesterday after Republicans agreed to maintain the president's appointment power. The other changes that Rubin seeks are "not as important as the changes that have already been made," Gephardt said.

Gephardt was clearly aware of the public sentiment about the IRS. "Too many Americans are losing confidence in our tax system," he said. "Today we're striking a blow for reform."

Archer exulted in the administration's shift. "I'm glad that President Clinton has completely changed his position," he said in a statement. "Today's victory is another example of what a difference a Republican Congress makes."

Archer said he expected the measure to pass before Congress quits for the year, which may be as soon as Nov. 7. Senate Majority Leader Trent Lott (R-Miss.) said he expected the Senate to consider the bill early next year, while the Senate Finance Committee uses the rest of its time this year to consider the nomination of Charles O. Rossotti, chairman of American Management Systems Inc., to be IRS commissioner.

Staff writers Helen Dewar, John Yang and Peter Baker contributed to this report.v

© Copyright 1997 The Washington Post Company

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