- The Washington Times - Monday, April 10, 2000

Pete Sepp has been fighting for tax reform for 12 years as vice president for communications with the National Taxpayers Union in Alexandria.
The reform effort won a major victory two years ago with the passage of the Internal Revenue Service Reform and Restructuring Act, which mandated customer protection and efficiency improvements at the tax collection agency.
But promises of a kinder, gentler IRS have not been fulfilled, Mr. Sepp says. Though the number of audits have gone down, bureaucratic glitches remain rampant.
For this tax season, Mr. Sepp recommends that taxpayers get a confirmation either from the post office or private companies to ensure their returns have been received.
Question: What is the IRS Reform and Restructuring Act? What are some of its requirements?
Answer: Well, they basically center on provisions that give taxpayers remedies in court once they've been wronged by the IRS… . And among the reforms contained in the RRA, for example, taxpayers can recover a greater portion of their attorney fees when they take the IRS to court. It's now going to be $125 per hour, and that's indexed for inflation.
The burden of proof is switched in cases where the IRS takes the taxpayer to court after an audit, but the taxpayer has complied with every notice that IRS has sent. So in other words, if the taxpayer plays by the rules of the audit process and the IRS still wants to take that person to court, they have to prove their case against the taxpayer rather than the taxpayer having to prove his innocence.
The IRS board of directors was mandated by this law for the very first time, a private sector board that would have binding authority over basic strategic planning at the IRS as well as oversight of law enforcement activities. What it does is it has nine members, six of whom are selected by the White House and confirmed by the Senate. The three other members are permanent the White House commissioner, a member of the Treasury Employees Union and a member of the Treasury Department.
Also, the taxpayers advocate's office would be created out of the old taxpayer ombudsman structure. This office would have vastly increased powers to intervene on behalf of taxpayers who are not getting the service or satisfaction they needed from the regular IRS. It was intended by the law to give the taxpayer advocate a staff of attorneys as well as a budget of his own, and that's not quite worked out the way we wanted to see it.
Other procedures the IRS is not allowed now in most circumstances to seize a primary residence and settle a tax debt. That's pretty important, I think. The IRS employees who made seizures contrary to law or policy in the internal revenue manual would be immediately terminated. So there are penalties for employee misconduct in the restructure and reform act.
Yet another important provision was $6 million in funding from existing resources, not a spending increase. But $6 million was made available per year under that bill to set up low-income taxpayer assistance clinics, essentially a way to give attorneys the resources they need to help represent lower-income individuals.
One other important provision of the '98 act was a requirement for a tax-complexity analysis. In other words, for every bill introduced in Congress that would affect tax law, either increasing taxes or decreasing them, the IRS and Congress would sit down and produce a report on the administrative impact of each proposal in the tax code.
I should mention one more provision, and that is on the judicial side. Taxpayers prior to this law had a very difficult time covering damages when the IRS acted wrongly because they had to prove that the IRS acted recklessly and intentionally in harming the taxpayer. Out in the private sector, product liability cases are often won if a person just proves that a corporation was negligent or reckless. They don't have to prove that they meant it. And that was a big stumbling block because the IRS would simply go into court and say, 'We're sorry we ruined this guy and drove him to suicide, but we didn't mean anything by it.' And the case would be essentially dismissed. So now the standard is just reckless. They no longer have to prove intent.
Q: So this was two years ago. What's happened since then?
A: Well, it's definitely been a mixed bag.
We're beginning to see a pattern develop of improvements in one area and inertia or even retrenchment in another. There are really two kinds of abuses that we encounter when we're talking about the IRS. One is an abuse of collection authority, a rogue IRS agent swoops down on an unsuspecting business with a bunch of deputies armed to the teeth and it later turns out that person owes no money on their taxes. And they're cleaned out and the IRS agent gets a pat on the back from his pallies for putting the scare into a local businessman.
There are also abuses of bureaucracy. Somebody at the IRS commits a key punch error and suddenly rather then getting a $1,000 refund you owe $10,000 and their computers continue to spit out notices, and you can't get a human being on the telephone to stop these crazy things. And all of a sudden you have a threat to put a lien on your bank account. And you can't get them to just shut this whole thing down.
We have actually seen somewhat of a drop in the kinds of abuses of collection activity, but virtually no progress on these abuses of bureaucracy.
Q: How do you guys track abuses?
A: Through a number of ways. Obviously, as a well-known organization, we are often contacted by taxpayers who are experiencing difficulties with the IRS. The number of individuals who have contacted me regarding problems they've had with particular IRS agents, with audits gone bad, with rogue individuals who are out to get them, has decreased, I'd say by probably one-third. However, I have seen no such drop in the number of people who are contacting me with [bureaucratic] problems.
The General Accounting Office would pretty much confirm that outlook. If you take a look at their audit of the 1998 filing season, they examined the IRS' performance goals for things like getting refunds out on time, for handling taxpayer inquiries promptly and accurately. Well, they improved in some areas such as getting refunds out, but they actually went backward when it came to giving accurate advice over the telephone. It's down to 72 percent. So you are literally rolling a pair of dice when you call the agency for advice on the tax law.
That is the kind of bureaucratic abuse that the board of directors was created to address.
Q: But the board hasn't been formed yet?
A: That's correct. Here's the real kicker: this isn't a matter of interpretation. Here the law explicitly states that [the administration] has to have nominees submitted to Congress on a certain date, the board is supposed to meet on a certain date, and that date is two years past.
Q: Is anyone being held accountable at this point? Are they pressuring the administration?
A: Well, Sen. [William V.] Roth [Jr., Delaware Republican,] had been working behind the scenes to get the administration to provide a list of nominees. In the summer of last year, the administration floated a trial balloon of possible nominees, virtually all of whom were ex-government officials. So Mr. Roth expressed his extreme concern that this board would have absolutely no independent knowledge to bring to the table. Well, the administration then took about another five months to submit its list again.
That list came up in January of this year, but I learned just two weeks ago that a hold has been placed on the nomination at the request of an anonymous member of the Senate Finance Committee. I don't know who it is, and the rules in Congress say that they don't have to release that kind of information.
Q: We talked about general customer service. You mentioned that accuracy has not been great.
A: Yeah, the IRS has certainly made itself more available to customers. Access to the 800 number is slightly improved.
Q: And they have extended hours?
A: Yes. They have expanded as well as weekend hours in many IRS locations. They also have expanded hours for their hot line where you can get advice. The problem is, are you going to reach someone at the other end of the phone who's going to tell you the right thing?
And the restructuring and reform act helps in that it strengthened protections for when you get bad advice from the IRS. The very first taxpayer bill of rights said you were not liable for penalties if you get erroneous written advice. Now, you're not liable if you get erroneous written or telephone advice. Nonetheless, you are still liable for the interest.
Question: Overall, are we better off now than we were before or are things going to improve?
A: We have gone from a tax collection system that deserved a grade of F to a grade of C-. And we're not going to get into B or A category until forces outside the IRS act to get this board into place and to publicize in greater detail taxpayer rights.


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