In the early 1990s, Congress told the IRS to crack down on tax cheats-but then said the agency was being too tough on ordinary taxpayers. Now, following the 1998 IRS Restructuring and Reform Act, some members of Congress say the IRS is getting too soft again. IRS Commissioner Charles Rossotti said Wednesday that he is trying to get the pendulum to stop swinging.
Before the reform act, "a good deal of the management approach was numbers-driven," Rossotti said at a Senate Finance Committee hearing. Since the act, "we went from very numbers-driven to no numbers." Concerned by that, Rossotti said, "our purpose is not to swing a pendulum back and forth a few degrees."
In 1999, the IRS diverted resources from enforcement efforts to improvements in customer service required by the 1998 act. In addition, middle managers were restricted from using dollars collected as a performance measure for tax collectors and employees became concerned about a provision of the reform bill saying they could be fired for mistreating taxpayers.
The result: Enforcement revenue fell by $5 billion, or 13 percent, from 1996 to 1999; seizures of property fell from 10,000 in 1996 to 161 in 1999 (down 98 percent); levies fell 86 percent and lien filings were down 69 percent, according to David C. Williams, the Treasury Department inspector general for tax administration.
Several senators said they were alarmed by the steep decline in collections from delinquent taxpayers.
Sen. Kent Conrad, D-N.D., who was previously a tax administrator in his state, said the purpose of the reform act was not to curtail enforcement activities, but to make certain that due process is followed.
"I think we have had an overreaction," Conrad said.
"There is nothing in the reform act that says the IRS is not to enforce our tax law," said Senate Finance Committee Chairman William Roth, R-Del.
Rossotti, along with Williams and National Taxpayer Advocate W. Val Oveson, said the drop in enforcement was a temporary result of the IRS focusing its resources on reform act provisions. Rossotti said that the IRS is still developing a new performance measurement system that balances the need to enforce tax laws with the need to treat taxpayers fairly. He added that the training IRS provided employees on the reform act contributed to the fear employees had about being fired over charges of taxpayer abuse. Rossotti now is trying to convince employees that only egregious cases of abuse will lead to termination.
Oveson said Congress needs to give the IRS time to develop a balance between service and enforcement.
"We have already seen the backlash begin: news reports decry the lack of enforcement, and different corners of society call for a return to traditional compliance approaches and a reversal of the new direction towards stronger taxpayer service," Oveson said. "It is imperative that we stay the course and see the changes through."
Sen. Daniel Patrick Moynihan, D-N.Y., noted another problem: The IRS has not estimated taxpayer compliance levels since 1988, leaving the agency without crucial data that could tell managers where to focus enforcement efforts. Rossotti said his staff is working on ways to collect such information without intruding on taxpayers' privacy, a complaint that led the IRS to stop collecting compliance data 12 years ago.
In a light moment at the hearing, Roth noted that the IRS collected a record $1.7 trillion in tax revenues in fiscal 1999.
"Don't you wish you were a private corporation?" Moynihan asked Rossotti.
"I wish we had some stock options," Rossotti replied.
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