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The IRS — 10 Years After Reform: What's Working, What's Not, What's Next


Washington, D.C.

Friday, July 18, 2008


Tax Analysts

Senate Finance Committee

Villanova University Law School

Washington Council, Ernst & Young

National Taxpayer Advocate

Senate Finance Committee

Squire, Sanders, and Dempsey

Caplin & Drysdale

Internal Revenue Service

Van Scoyoc Associates





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(10:03 a.m.)

MR. BERGIN: Good morning. How is everybody this morning? I'm Chris Bergin, the president of Tax Analysts, the publisher of Tax Notes Magazine, and many other fine print and online products in the area of federal, state, and international tax policy and administration.

I want to welcome you to the latest in Tax Analysts' series of discussions on key issues in tax policy and tax administration. We have been holding these discussions for five years now. In fact, our first conference was on the fifth anniversary of the International Revenue Service Restructuring and Reform Act of 1998. And here we are again.

Today, 10 years after that reform, we want to assess where we are and where we're going. We will look back a bit with our first panel, but we also want to concentrate on the present and the future.

Throughout the conference today we want to share ideas and, if we can, build consensus on what should come next — legislatively or otherwise.

This morning I am particularly honored because for the first time we are holding one of our conferences in this wonderful room in this beautiful old building on Capitol Hill. I'd like to thank Mary Baker from the Senate Finance Committee, who is one of our speakers today and who helped us secure this site. Thank you.

We have a distinguished group of speakers, as you know, and I know you are as eager to hear from them as I am. I, unfortunately, have to cover a few housekeeping items. I'll do that quickly and we'll get down to business.

First, as we do for all our discussions, we are recording this event, which is fairly obvious this time, and we will post a transcript on our Website.

Second, for media purposes, we are on the record. So throughout the day, if you are recognized for a question or a comment, please state your name first. Even if I know you and you don't, I'm going to ask you for your name. We don't need hand-held mikes, so feel free — I'm told — to speak up. And finally, in case you didn't notice, we have food and drink on the tables along the back wall there. In a couple of hours what's there will be replaced by lunch. As my grandmother said, please eat up.

To get things started I will introduce our first speaker, who has agreed to take a few questions when he's finished. I will do the same for our second speaker, who I hope will also take questions.

Then we will move to our first panel. We will have two.

I am delighted to have with us the IRS Commissioner. And I want to especially thank him for coming. I have it on good authority that the only thing standing between Doug Shulman and his vacation is us.

So, I appreciate you very much for giving us your time and delaying your vacation.

Douglas Shulman was appointed by President Bush and confirmed by the Senate, becoming the 47th IRS Commissioner on March 24th of this year. He previously served as vice chairman of the Financial Industry Regulatory Authority, and before that with the National Association of Securities Dealers. He was also senior policy adviser and then chief of staff of the National Commission on Restructuring the IRS.

Please join me in welcoming Commissioner Shulman.

MR. SHULMAN: Thank you, Chris.

And thanks for having me here. Actually for me this is a special event. It's kind of a round trip.

As Chris said, I — actually, I'll tell you a story I was thinking about driving up here. I was a management consultant and an entrepreneur at the Kennedy School when I got a call saying there's going to be this IRS Restructuring Commission; you ought to come down. And they wanted to interview me for the chief of staff job. They were thinking of finding somebody from outside of Washington, outside the tax world to do this.

So, I came down and I first met with Bob Kerrey — Senator Kerrey — and Sheila Nix. And then I was being sent over to see Rob Portman and Barbara Pate at the time.

And my first meeting was in the Hart Senate Building. And I got done with the meeting and Sheila Nix walked me out and said, you know, really nice to meet you. And I said, how do I get over there? Do I need to take a cab? And she said, no, no, no. You can walk. And she told me — and apparently there was a phone call made and they said, god, this guy really doesn't know Washington.

He asked if you need to take a cab.

So, I mean, this is a true round trip to come back. My first meeting was over here in the Senate, and I'm back. I greatly enjoyed my time on the commission, and it really is nice to see so many people in this audience who I remember.

Before I get into a discussion of the Act, let me just make an observation, which is — I think we would all agree — that the IRS is viewed as a very competent tax agency. In fact, as I've now gotten to know commissioners from around the world in the tax arena, I would say the U.S. tax system and U.S. tax administration is known as the gold standard. I think we all think there's room for improvement, but it's good for me to remember when I come here.

I also have to tell you I'm incredibly impressed by the leadership of the IRS. The dedication to public service of the people I've seen at the IRS. I've had a chance to travel around the country now and meet workforce at all levels in lots of locations. And we really have a highly motivated workforce who understands their mission.

It's been a privilege for me to walk in as IRS commissioner and be part of giving away money with stimulus. I will tell you that stressed our system, but it's quite impressive. Late enactment of AMT. Late enactment of extenders. You drop stimulus on top of filing season, and the IRS — from where I sit, and having come in for four months and watched it — is an agency that delivers quite well. And I'm very proud to lead it.

Let me turn to the Restructuring Act. What I want to do is make some observations about the Act, talk a little bit where we are now, and where I think the IRS needs to go vis-a-vis some of the spirit of the Act.

As you all know, the Act was a landmark in the history of the IRS. It contains many detailed provisions, including 71 new taxpayer rights. As I reviewed the Act to prepare for this — it actually was quite interesting for me to actually pull that thing out, and pull out the Commission report, and read through it, and think about it after four months on the job at the IRS.

I would say it's pretty easy to get lost in the trees and miss the forest. And what I'm going to do today is try to talk about as the big, broad, structural issues.

One of the clear mandates of the Act was for the IRS to dramatically improve service to taxpayers. No one can argue that this was not the right thing to do. In the 1990s, service at the IRS had fallen to unacceptable levels. Getting through on our toll-free system to talk to our assister was a daunting task. And adding insult to the injury of waiting to get through was once a taxpayer got through, often information was given out that wasn't right.

In this area, the IRS has shown dramatic improvements. I won't take you through all the numbers except to say in 2007 our toll-free assister level of service was 82 percent and tax law accuracy was 91 percent. If you went and visited what we call our JOC, our Joint Operation Center in Atlanta, it is the state-of-the-art call routing technology and the people there are as professional as I've seen in call centers in the private-sector. It's a lot easier to get through and there's better service.

But, back then the phone was the main way you got through. If you wanted to get through another way you'd use America Online, dial-up, have it go (off mike). You know, now a lot more people are using the Internet.

Our Internet site had 215 million visits last year. It was the tenth most visited business Internet site in the world last year. And it's quite a good site now.

You can get information you need. I think the next generation is really building on the tools we have. It's not just for information. It's also to get some things done. Right now we've got, where's my refund. We had 32 million people go on our site last year and find out how much their refund was going to be and where they're going to get it. We had, where's my stimulus payment. I think that's part of the future of service — is to make sure the interactive tolls on the site continue to be developed.

I also want to talk a little bit about enforcement. In the years following the enactment of RRA, there were marked declines in certain areas of IRS enforcement.

I think there are a lot of reasons for this.

But importantly, I believe that the IRS has now appropriately refocused on its enforcement efforts. I think that the IRS has worked very hard over the last 10 years since I really was there, to make sure we had the right balance between service and enforcement. And I've been very public in saying I don't think it's an either/or proposition. There are a lot of taxpayers who need seamless service from us, and we should be a world-class service organization.

And there are taxpayers who don't want to meet their obligation to their fellow citizens. And we need to have a strong enforcement presence for them — for people who are trying to evade the law.

The Act also addressed a number of governance issues. Perhaps most notably, it created a board. I have experience in working with boards, and I believe a board can be very helpful. And in my time as commissioner, I found the Board to be a valued resource. I'm very grateful for their support and guidance, and I look forward to working with them on strategic issues going forward, which was really the genesis back at the commission of the reason to create a board.

Perhaps the most dramatic change brought about by the Act was the structural reorganization of the agency. When the Restructuring Commission report was issued, the IRS was geographically based with a national office in Washington and field offices across the country. The field consisted of four regions. Within those four regions were 33 districts, 10 service centers, and 2 computing centers.

In January 1998, Commissioner Rossotti then unveiled a plan to reorganize around taxpayer segments. And the Act validated this concept. I think most people in this room are now very familiar with the four major operating divisions — wage and investment, small business/self-employed, large and mid-size business, tax-exempt and government entities.

There's also a criminal division which was there before.

I think a lot of people would agree that this new structure has accomplished quite a bit. I will say, I've been part of I was a consultant in my past. I've been part of corporate reorganizations. Moving boxes is never a panacea, but I think this has been net positive for the agency.

By focusing on taxpayer segments, the operating division can tailor its programs that are best suited to meet the needs of their taxpayer base. This new structure also allows the IRS to be effective at reacting quickly to emerging compliance issues. For example — I should welcome Rob Portman. Good to see you. For example, I believe that the recent success that the IRS had in combating tax shelters was in part attributable to the fact that we had organized LMSB. Prior to the reorganization, the responsiblity for the issue was spread throughout a lot of different regions and districts which may not have had the structure and the resources to put together the entire whole. Those regions and districts — they had people in the exam activity responsible for abusive tax shelters, but also for correspondence audits, and the earned income tax credit.

LMSB, on the other hand, was very focused on major taxpayers — could bring expertise and focus to this area. I think the same can be said of the current successes we're having in the international arena.

Again, we have the ability centrally to focus on abuse of cross-border transactions on abuse of wealthy individuals trying to evade their taxes. And at least at the national level we have the ability to have that focus.

Many on the commission were concerned that some of the structural issues would ultimately — that some of the structural issues that were enacted in the legislation, though, would create a different kind of stovepiping and parochialism. And while the district structure had some shortcomings, it did allow for a better understanding of IRS employees about what their colleagues did. Revenue agents and exam managers dealt on a daily basis with collection managers, revenue offices, people from the ombudsman's office. And so there was a nice synergy of people working together across the agency.

Some of this changed with RRA, which created the four operating divisions.

And it made adjustments to the structure of the taxpayer advocate and the chief counsel.

In my view, to ensure that the current structure truly meets the intent of focusing on taxpayer needs, we're going to need to reinforce the notion of one IRS. From the taxpayer's point of view, we're the IRS. The taxpayer could not really care less in many ways whether you're a SB, SE, LMSB, Counsel, the Advocate's Office. They want to have resolution with the IRS.

And I think it's important that our entire operation be seamless and consistent, while also respecting that each of the different parts that make the entire IRS provide a critical piece of tax administration.

Another thing we're going to need to keep focusing on going forward is the taxpayer experience. We must not only meet legal requirements, and I've told really all of our employees this — we have to walk a mile in the taxpayer's shoes and help them navigate the system.

There are many critical components to taxpayer service. But let me highlight two.

First, I think we need to resolve issues at the earliest moment possible. And I'm talking about if the issue is resolved in a way the taxpayer doesn't like or it's resolved in a way that's beneficial to the taxpayer. I think having some urgency — clearing our dockets so we can get onto the next thing and the taxpayer can get on with their business — is an important thing for the IRS.

An example I like to use is credit card companies. When you're three days late you get a call. Because of the way our system works, it can take a couple of years really to get into the collection — you know, deep into the collection pipeline. By then you've had interest and penalties and the issue is just compounded. And so the more we can do resolution early, I think the better we are as an agency.

And second, what I alluded to before — if a taxpayer is dealing with more than one business unit within the IRS, we have to coordinate to ensure that there is a quick handoff and that handoff is trouble-free, so people feel like they're dealing with the IRS.

The Act also recognized that tax law complexity makes it difficult for taxpayers to comply and difficult for the IRS to administer. The legislation proposed that the IRS have a seat at the table as tax legislation is drafted to offer their view of the administrability of the legislation.

While I understand that upon request of the Joint Committee on Taxation we currently provide a complexity analysis of proposed legislation, I think there is more that we could and should do to ensure that the policy goals of any legislation are administrable this year, next year, 10 years from now when it's really playing out with the American taxpayer.

I talked a little bit earlier about the need to balance service and enforcement, and I think in order to get that balance right we need to strive for sustained performance in our enforcement programs. We can't let our enforcement efforts diminish.

But I also believe we can't audit our way to full compliance. So to complement some of the current techniques, including the audit, we're going to need to drive for innovation in our enforcement efforts. We need to supplement the current tools we have with more third-party information reporting, soft notices that give taxpayers a chance to get back into the system quickly — maybe without all the formalities around it — as well as self-correction options for taxpayers to come back into the system.

Of course, all of our efforts depend on the people of the IRS. The IRS is going to continue, over my tenure here, to be challenged by large numbers of retirements and increased competition with the private and private sector for talent. Dealing with these workforce issues will be an important issue for me during my tenure as commissioner.

The Restructuring Act recognized the need for the IRS to be successful in recruiting and retaining talent. It gave the IRS some personnel flexibilities. Going forward we may need some additional flexibilities as we work to retain and promote our best people.

You may have heard I launched something last week called the Workforce of Tomorrow Task Force, which is — we pulled one of our best executives — she's going to report directly to me, and she's really going to work on workforce issues — Beth Tucker, for those of you who know her. I have a very straightforward goal in this arena. I want to ensure that 5 years from now when my term as commissioner is up, that we have the leadership and workforce ready for the next 15 years at the IRS.

Finally, we spent a lot of time on modernization at the Commission. Since the Commission, I've been involved in very complex technology issues in the private sector. I know from experience that technology at the scale of the IRS is difficult, it's expensive, and it is a nonlinear exercise. Any large technology effort is going to have some setbacks and it's going to have some plans that succeed.

That is the nature of the beast of trying to move forward with technology.

But regardless of what happens, we're going to need steady support for modernization at the IRS. The tax system, the American taxpayer, and $2.7 trillion of revenue into the Federal Treasury are going to depend on us having a steady hand and keeping moving forward with modernization.

In closing, I want to thank Chris Bergin, again, for providing me the opportunity to be here.

As he said, in about a half an hour I'm going to leave. My wife and kids are waiting for a drive to the beach, so I'm sorry I can't be here the whole time. I know from experience that your panelists are not shy, and they're entertaining, so I'm actually sorry I'm not going to be here. You know, all I would say is 12 years ago when I was working on the commissioner — working on the commission — working on the commissioner, too, I guess, always working on the commissioner. You know, when I was working on the commission, if you would have told me I would have been standing here as the IRS commissioner I would have told you that you were crazy. Probably a bunch of you would have said you'd be crazy. But now that I've been here four months, I must say that the IRS has really come a long way. And a lot of the spirit of the things we worked on are in place now. And it's an institution that I'm incredibly proud to lead.

So, I'm happy to take a few questions. I'm also honored to — this is my first time as IRS commissioner to actually share a podium with Rob Portman, who is a close friend and one of my heroes in Washington. I told a little story, Rob and Barbara, about coming down here for the interview, and Sheila Nix and Barbara Pate laughing about me not knowing that I didn't need to take a cab over to the House. And this is really a round trip being back here in the Senate where it all started.

MR. BERGIN: Any questions? Anybody?

SPEAKER: (off mike) that third-party tax collectors might not get funding from Congress. Is that a concern of yours or do you agree with that?

MR. SHULMAN: Third-party tax collectors?

SPEAKER: Yes, the outside collectors.

MR. SHULMAN: That's an issue that I know has lots of attention. And it's one that I've committed that I'm studying now.

So I really have no opinion at this point.

SPEAKER: (off mike) you talked about the balance (off mike) and taxpayer service, how much of where you are now is a result of kind of a natural ebb and flow of the IRS before resource and enforcement and then politically (off mike) back when it seems like the tax (off mike) is getting a little too heavy-handed. How are you going to deal with that perception going forward?

MR. SHULMAN: Well, I think, you know, as I said, I mean, I think people love to talk about pendulums. They like to talk about balance. They like to talk about ebb and flow. And I actually kind of try to stay away from this notion of the whole balance issue. I like to talk about both. I've talked to some of our employees about the tyranny of or. I mean, this is not an either/or situation. We interact with 125,000 individual Americans every year. We interact — I mean 125 million. My job just got easier. We interact with over 60 million businesses. We interact with nonprofit organizations. We are a major financial service institution that has to be a world-class service organization.

I tell our employees that when you come in to us, the way the taxpayer thinks about it is what was their last transaction.

What was their transaction like with their bank, or what was their online experience with And we have 100 percent overlap with the American people with every other service organization. And if people want — if we want the taxpayer to think that their government is competent, we have to have that be our aspiration about the service experience.

In the same respect, we bring in $2.7 trillion to fund the government. The whole system is premised on the fact that your neighbor is paying their fair share to enjoy the freedoms of the country, the economic benefits of this country — and everybody needs to pay. And there are some people who don't want to pay taxes. And people who don't want to pay taxes, we need to have rigorous programs to bring them back in the system, encourage them to pay, make it as easy and understandable for them to pay.

And when they decide not to pay, we need to have an enforcement presence.

And so my goal is we need to have both, and we need to do both well. And we need to innovate in both areas.

SPEAKER: You talked about the wave of folks who are retiring, leaving through attrition — are you satisfied with the compensation and benefits to compete for the workers you need at the IRS with the private sector?

MR. SHULMAN: The question was about the wave of people retiring — am I satisfied with the compensation and benefits, et cetera, of the IRS? I mean, first of all, you know, I would say that we have a lot of people at the IRS who could walk out tomorrow and double or triple their salary. I'm also a big believer that we have a very attractive value proposition for people at the early stage of their career, the mid-stage of their career, and the later stage of their career.

And that there's lots of reasons why people wake up and go to work every day. People want to be respected. People want to be challenged. People want to feel like they're doing something good. I mean, your workday is most of your day. So people want to make whatever living it is that they deem that they need to make for themselves, but they also don't want to wake up and be bored out of their mind or feel like they're not respected or feel like they're not doing something important.

And so I think the combination — I mean, you know, it's not for me to comment on the whole structure of wages and benefits in the federal government. That's above my rank. But, you know, I think we have a real attractive value proposition that we need to sell, and we need to be very focused on selling that. I mean, the IRS is a place you can do public service. You can learn an important technical skill. You can get a whole broad range of experiences. And anyone in this room, I have applications for after the conference.

MR. BERGIN: I think we have time for one more.

MR. STEUERLE: Gene Steuerle. It's been a while since I've testified before you on the Restructuring Commission. But I still have a fundamental question. It seems to me the IRS has always been organized around the tax return. So, all of its functions tend to follow from that focus.

Or even compliance with the tax return, statistics you pull up the tax return. The IRS has within it hundreds of programs that Congress runs. It has enterprise zones, and it has deductions for in-kind charitable contributions. It allows medical deductions and medical exclusions, pensions. You know, the whole gamut. And I watched commissioner after commissioner all of a sudden gets called before Congress on one of these issues. Oh, my gosh. What do we have? Calls the Research and Statistics Division, who are treated like stepchildren of the IRS, and says what do we have? And it's too late because there's no focus on it.

Or income credit, it took 20 years to even get the IRS organized to try to figure out.

It's still not a great report. It's a good report, it's not a great report, on what are the causes of noncompliance.

I'm just wondering whether you've given any thought how to actually approach all these programs in the IRS and move more towards meeting the responsibilities of the GPRA, the Government's Performance Review Act, and actually providing data.

Not necessarily analysis of whether they're good or bad, that's a policy issue, but just good data on what's going on in these programs. Who's getting the benefits from enterprise zones? What's happened? Can you really enforce discrimination groups? And figure out ways to report better to the public on all these programs and how the IRS can or cannot deal with them.

MR. SHULMAN: Well, it's interesting. I've actually spent — the head of our Research and Statistics shop, Mark Mazur is — I've spent a fair amount of time with him because I'm a big fan of setting goals, knowing where you're heading, and measuring them. And I'm trying to boil it down. One of my experiences from the commission when we were there, I remember there were thousands of measures. And if you measure everything, you're not measuring much. So I've spent a fair amount of time with Mark trying to figure out where I'm going to head. And frankly, I'm still in the process of working some of that out, how to measure it. And I also — I mean, I'll say to this community, the purpose of measures is to know where you're headed and be able to do it, not to judge and bang on everyone who doesn't hit every measure every time.

Because that's not realistic either.

And so, I think we do need to continue — when I talk about the taxpayer experience, it's analogous to what you're talking about. It's saying let's wake up and see what it feels like to interact with the IRS and run our programs around that, not around how we're structured and what we need to do internally. And I think the same of any program. I mean, I think you do well when you say — earned income tax, for instance. Why was it set up? How do we structure ourselves around it? What do we look like to the public around that? How do we have our people organized to execute it? How do we have our technology system support communication done around that? And then you need to see what your impact is.

So, I think we have a ways to go in that area. I'd love to talk to you more about it — some of those issues. I mean, it does — every time I go out and talk with a group of employees, they raise their hand and say, you know, it seems like every time there's a government program, it gets thrown to the IRS. And I think — you know, they ask me do you think this will go on forever and should we? And I said, you know, it's not really a should. I mean, it's the tax system. It's actually a pretty eloquent — you know, it's interesting. We did the stimulus program. So I don't spend a lot of time fretting about that. You know, I don't say bring it on; I also don't say go away.

I mean, I think we need to do our job well. We have to recognize that a lot of money flows through the tax system. And when we're given a program that has something besides just collecting money on the tax return, we need to execute that well and focus on it strategically.

MR. BERGIN: Thank you again, Mr. Commissioner.

MR. SHULMAN: Thank you.

MR. BERGIN: Thank you, Mr.

Commissioner, for spending time with us this morning.

Now it is my honor to introduce Rob Portman. Mr. Portman is on an incredibly tight schedule and will have to leave immediately after his talk. And I really appreciate you fitting us in here.

Robert J. Portman is of counsel for the law firm of Squire, Sanders, and Dempsey.

He was elected to the U.S. House of Representatives in 1993 and served there until 2005, holding such positions as chair of the House Republican Leadership, vice chair of the Budget Committee, and senior member of the Ways and Means Committee. He later served as the U.S. Trade Representative and director of the Office of Management and Budget. Before all that he served as a senior staff member in the White House of President George Herbert Walker Bush. He was also co-chair of the National Commission on Restructuring the IRS. I'm not sure how to introduce you, Mr. Portman, so I will say Mr.

Ambassador, Mr. Director, Congressman, Mr. Co-Chair, thank you for being here.

MR. PORTMAN: What Chris was trying to say in a nice way is I can't keep a job.

Listen, it's great to be here. And really, to see a lot of good friends who joined with us, you know, 12 and 10 years ago, Commission and legislation, respectively, to try to bring improvements to the service. And we have lots to celebrate and lots of work to do.

It's also great to see Doug up here. He's right. I never would have thought he'd be up at this podium as commissioner. The same is true of many other of his former staff members who are colleagues who I see here today.

But, seriously, he did a terrific job with the commission, and I'm proud to have him here because he understands some of the difficult issues.

Gene just raised a few. And some of the balance that has to be achieved. And without that perspective it's hard to do it.

It is hard to imagine that it was 12 years ago when we started the commission effort. I don't feel a day older. I'm sure you don't either. I will say I hardly recognize the dark haired young man standing next to his co-chair, Bob Kerrey, 12 years ago. It looks nothing like me. I don't know who that was. So I guess I've aged along with all of us as we've gone through this process.

But it's really, again, a wonderful opportunity to look back at that. You know, how did we get to where we are? Why did we do it? And sort of take stock of whether we are making the progress that we set out to make. And I want to thank Chris and Tax Notes for enabling us to do that. They were one of the few publications that actually followed our progress early on.

In fact, it's interesting, you look back at it. When we got started it was through an appropriations amendment — some of you will recall.

And people really didn't give the commission much hope or promise. And let's see, Don is over here from the Ways and Means Committee, who said, gee, I'm not sure the chairman or the chair of the subcommittee is really interested in this. Would you like to do it? But it was a great opportunity for me.

And again, I just look around the room. There's so many people who I owe a lot to. I see three former commissioners here: Don Alexander, Mort Caplin, and Sheldon Cohen. I want to thank them for their counsel as we went through it. Bob Kerrey is not here. His schedule is also crazy. He wanted to be here. But it was really a delight to work with him. He provided a lot of the vision that we'll talk about in a second. And the first executive director before Doug was Jeff Trinca, whom many of you know and you'll see him a moment from now on a panel where he will, as Doug promised, have some interesting and edgy opinions, as always. And Barbara Pate is here, who was my counsel on the Ways and Means Committee and really kind of took me through this whole process and continues to follow the progress.

She feels, as many of us do, that you know, there at the beginning we've got to be sure that it's working now. So I appreciate her continued interest and oversight.

Chuck (off mike), you know, Chuck was on the commission staff and then went on to be on the Oversight staff. And fellow commissioners — I see Bob Tobias right in front of me, which makes me a little nervous.

And there are other commissioners in the room. Are there any other commissioners who joined us today? Well, anyway, it was a really interesting exercise. Very un-Washington.

You know, with most of the commissioners from outside D.C., the discussions were very frank. We developed good relationships. We didn't always agree, but in the end we were able to come together with a strong bipartisan — nonpartisan, really — vote.

And a good example of how things can be done in this town, as we'll talk about in a second.

People said that this will be just another Commission report that will collect dust on the shelf. And I was very brave in my public comments at the time with Kerrey saying that's not true. In fact, I went out to the hardware store and bought a duster just in case the commission report did end up on a shelf. I wanted to be sure it wasn't collecting dust. Because I wasn't sure either, you know. And in fact, we were able to come up with recommendations that ended up being in legislation, which ended up making a huge difference for the service and for taxpayers.

For those of you who don't remember how we got here — and I wasn't here for the beginning of Doug's discussion — he may have gotten into this some, but by the mid-1990s, you know, the concern about the IRS had kind of reached a crescendo. And there were a lot of good reasons for it. Including the fact that phones weren't being answered. I remember being on the Ways and Means Oversight Subcommittee and hearing that half the phone calls coming into the IRS weren't being answered. That was during one period of time. Probably an exaggeration, but that was the kind of information that elected officials were receiving. And lots of complaints from their constituents, particularly on the service side.

And at the same time, of course, we had this computer system that really was — to be honest with you, it wasn't so much about service and the appropriations committee. It was about the appropriators not wanting to spend another billion dollars on a system that wasn't working. And so sort of saying, whoa, stop. You know, have we wasted a few billion dollars here, which at that time was real money. And now that I've been the OMB director with $3 trillion budgets, you know, it's much different.

But honestly, that really was sort of the spark that got the commission started.

GAO had issued a number of reports showing that not only did the agency not answer its phone, but when it did answer the phone, the answers were often wrong. And the notices the commission was sending out — or the Service was sending out at the time were viewed as confusing and, again, some of the issues Doug talked about in terms of the downstream costs of that to the Service.

So, that was the context. And the IRS had, at that time, focused on its funding for modernization, which made sense. And to the extent that was viewed as the answer to the question, then again it was, okay, the funding is being provided and we're still not making much progress. So the idea was to back up, take a look at reviewing the practices of the IRS, recommending how to modernize it, how to improve efficiency, and also focusing on taxpayer services.

The Restructure and Reform Act, again, which flowed directly from the commission's recommendations was pretty dramatic in the sense that it said the IRS needs to take a whole new direction. They changed governance at the agency, demanded a higher quality of service, and actually changed the structure of the agency. The Service and its employees, I think, should be commended because it's tough taking a big bureaucracy and making those kinds of shifts and changes. And at the time the recommendations came out and legislation was passed, many of us thought that honestly we'd lose some of the good people at the IRS with these kinds of dramatic changes.

That really didn't happen. You know, people stuck to it and it was hard.

And as always — Doug talked about pendulum swings — there were some pendulum swings back and forth. And so the people of the IRS, I thought, did a terrific job in embracing the recommendations and specifically the legislative letter of the law, but also the spirit of the law.

Let me just make a few observations about some of those changes. Governance, to start with. One of the things the commission focused on and the legislation embodied was the need for management at the top. And again, I think we're fortunate to have Doug there as Commissioner. He's got management experience. His leadership track record, I think, makes him the right kind of person for the job at this time. But importantly, we also called for a five-year term. And Commissioner Rossotti, as you all know, served out his full five-year term. Not always happily. He was there during a tough period.

But that was a terrific sign that we were going to have some continuity. And that the IRS commissioner term would run in a way that's consistent with management of the agency, and forward movement of the agency and not whatever political changes were happening here in Washington. And again, delighted we now have a commissioner in place for a five-year term. I think it's very important.

One of the other key findings of the commission was that the commissioner be given the authority and accountability that comes with it. So, we gave the commissioner authority. But also accountability to taxpayers, and importantly, to the Hill. And this means, among other things, the commissioner being able to choose his or her own team. In response to the first question that Doug got about being able to retain good people, Congress also, you know, loosened the reigns a little bit on compensation at the top, which was one of the most controversial elements of the commission and of the legislation. For those of you who don't realize this because you haven't yet been a member of Congress, members of Congress are very happy to have other government employees make less than them. But to make more than them turned out to be quite controversial.

But it made sense for senior-level executives to be able to attract them and to retain them.

The commission also recommended, as you all know, an outside board. This was quite controversial, unconventional. Again, it's not been perfect, but I think it was the right thing to do. And I think it's added exactly what we hoped it would. And those are three elements, as you may recall.

Continuity — the IRS had had a lot of stops and starts with reform, and one of the problems was the key reformers would come and leave.

And because of the staggered terms of the Oversight Board, it provides very important continuity in terms of the reform effort.

Second is expertise. One thing we found, and I think continues to be true, is despite all the good people I talked about who had been attracted and retained is that outside expertise is needed. And Doug mentioned information technology earlier.

And some of his background there. That is one example. But also in terms of service.

Major service organizations in this country are still ahead of the IRS in many respects.

And that's the kind of expertise the Board was meant to bring.

And then finally is accountability.

That they would set up measurements of progress and be able to — using that expertise and continuity — be able to have more accountability in the system to avoid having to have another commission.

I sometimes worry that to use the word oversight may not have been exactly the right word.

Board of directors is also not the right word. This is a unique creature of the commission and of the legislation. It's a public-private entity that is really not found precisely anywhere else in government. But it was more about strategic direction, which I think the Oversight Board has provided and can continue to provide — than it was about oversight of every function of the IRS.

I think establishing and maintaining consistent strategic direction is exactly what the board out to do, and I think the commissioner understands that. You can ask questions of some of our panelists here who are closer to it than I am today. But I think going forward that is a key role that the Oversight Board will play.

The Act also substantially increased the authority and responsibility of the national taxpayer advocate, which has been very important to taxpayers. And honestly, it's been important to members of Congress to kind of work more closely with the IRS through the taxpayer advocate.

The reorganization in the legislation called for the IRS to be reorganized around the customer segments. I think Doug has mentioned some of that. I won't go into great detail, but I think a good thing was it eliminated the geographically-based structure, which really was not working for the IRS or for taxpayers. And it was painful in many respects, and probably still is. But I think the IRS did reorganize well, and it's helped the agency both in terms of the enforcement side and of course, the service side.

I think it's now key that the IRS ensures that this new structure stays dynamic. You know, it can become stovepiped itself, and it can become calcified. And the IRS needs to be dynamic and customer-oriented. And to the extent things aren't working, to be more responsive. That needs to be altered. So, you know, a lot of this can't be set in stone, in my view.

The Act also called on the service area, as you know, for dramatic improvements in taxpayer service. If you look at the data, IRS has done that. By that I mean not just customer satisfaction — I know taxpayers hate to be called customers because we taxpayers don't have a whole lot of say about it — but the fact is if you look where the IRS now lands, it's not at the bottom of the pile anymore in terms of customer service or service organizations. In fact, it's relatively high up in terms of governmental entities. And service has improved.

Is there more to do? Absolutely. But the ability to reach a telephone assister and the accuracy of the information received have both increased substantially. Information and forms are now readily available thanks to the Web site, which I think is vastly improved. It's one of the busiest Web sites in government, by the way, which makes sense. But taxpayers are now able to do so much more with the IRS over the Internet, which saves them time. Saves the IRS time, leads to fewer errors, and therefore, helps with regard to the downstream costs I talked about earlier.

Doug talked a little about the need for quick handoffs, the need for earlier resolution of disputes, underpayments, and so on. Absolutely critical. And can there be more done there? Absolutely. But great progress has been made in trying to resolve issues quickly. And that continues to be, I think, probably the biggest challenge on the service side.

The electronic filing — we were maybe a little too ambitious in that with our goal of 80 percent of returns being filed electronically. But look back. You know, we have made a lot of progress. In 1998, 20 percent of returns were filed electronically.

Last year it was 57 percent. So we're not at 80 percent, but we're continuing to improve, particularly in certain areas. As you all know, there's been more of a doubling of the corporate and tax-exempt returns filed electronically. And all of this, I think, has resulted in the IRS not just being more efficient and not just having better data that's more accurate and detailed, but again it saved the taxpayers so much — because time, and effort, and money — because of the high error rate that we had through the transposing of numbers in large measure.

So this has been, again, a great improvement. Were we too ambitious at 80 percent? Maybe. Should that be adjusted? I leave that up to current members of the House and Senate to look at.

But it's certainly something that ought to be looked at.

And incidentally, I didn't mention Senator Grassley earlier. Isn't it great that we have someone on the Senate Finance Committee who actually was a commissioner of part of this process and is still there, still following what's going on with regards to IRS reforms. That perspective, as I said earlier with regard to Doug having that perspective, is incredibly important. And I thank Senator Grassley for his continued interest in everything — from electronic filing to the service side, and certainly on the enforcement side.

With regard to enforcement, as you know, immediately after the Act was passed there was a decline in enforcement activity.

That concerned a lot of us, including some of the former commissioners who are here who I heard from. And I think by devoting resources away from examination and collection to improved service and implementation did hurt the enforcement effort. And over the past five years what I've seen is a balancing of that — a rebalancing, really. Because the enforcement efforts, as you know, have been revived. I think the proper balance is in the eye of the beholder, I suppose. And difficult to say whether we have just the right balance. As I said earlier, this is dynamic and always changes. But I think we have a much better balance. And I think, you know, Mark Everson's efforts in terms of enforcement were important in that regard. And I think we're back to a balance that certainly I feel comfortable with between service and enforcement, but needs to be constantly watched and tweaked.

In terms of tax legislation, as some of you know who filed it then, I was always pushing that IRS have a seat at the table when tax legislation was drafted to help address whether or not the legislation could actually be administered in the first place. And to try to push for simplification. I think this is probably in the policy realm still the biggest opportunity we have.

It's not easy. It's harder to do than I thought. And I think there has been progress through the reports that Doug talked about. The Act specified that the IRS should, indeed, have a seat at the table.

Sometimes that happens, sometimes it doesn't.

But simplification of legislation will have an enormous impact, not just on the lives of American taxpayers, but on the Service's ability to administer. And until we can get to greater simplification, all these other efforts we're talking about are going to be a big challenge because our tax code becomes increasingly complicated every year as Congress adds further complication.

With regard to administration, I do think there is a higher sensitivity to that in the Ways and Means Committee and the Finance Committee. I think that's been very helpful. But, you know, here's a place — and I hope this will come up in a later panel where we're going to have an opportunity going forward with a new Congress, with a new administration, to be able to once again sort of revive this effort for overall tax simplification. And specifically, having the IRS have a seat at the table to determine what is the best way to be sure that our tax system works better for the people we represent.

Again, I want to thank this group for coming together. It's a thoughtful group. A lot of people here, again, have enormous experience and have been willing to commit themselves to this effort over the years. And I thank you for that. The IRS Restructuring and Reform Act and the Commission before it may not have been perfect, and nothing is in this town, but I do strongly believe that it helped to improve the IRS. And move the IRS, a new IRS, into the new millennium in ways that is very helpful to citizens as they relate to what is arguably the most important institution of government to them because they all have to deal with it to the extent they're taxpayers.

I like the fact that Doug took taxpayers — not just 5 million taxpayers off the rolls as was happening in 2001, but 126 million off.

That's good.

But in the meantime, this institution is not only incredibly important to people in their day-to-day lives, but also for many people kind of represents government. And therefore, what we did through the commission, through the legislation, has an impact on their daily lives, but also their faith in or lack of faith in government. And I think in the mid-'90s we were fearlessly close, you know, to having a lot more tax protestors — to having a lot more people do what one constituent of mine threatened to do when he called me prior to my agreeing to Donna to be on the commission.

I got a call at the office in Cincinnati and it was a constituent who said

I just waited on the line for 45 minutes just to have somebody pick up the phone at the IRS. And I said, well, sir, that's fine. We can get you through. He goes, no, no, no.

I'm going to tell you what I'm going to do.

I'm not going to pay my taxes because you guys won't even answer the phone for me to ask a question so that I can pay my taxes. And I thought, that's interesting.

You know, this is a threat. This is a danger. That if the system isn't working, people lose faith and it leads to less compliance. And therefore, less faith by others who are paying their taxes and seeing maybe their neighbors or co-workers not complying. So, I think we made a big difference both in terms of, again, people's view of government and how it can work or not work in terms of really making a difference in people's lives, helping people.

And, of course, I will end my comments today with a very simple observation, which maybe won't surprise some of you. I think it's a good model. You know, this is an increasingly partisan town with hard edges. And increasingly we seem to want to divide issues right/left, Republican/Democrat, and not really roll up our sleeves and work on the tough issues.

And there are plenty of them out there.

Tough, difficult, important issues that we need to resolve together as legislators and citizens. And I think this is a good model.

So, I hope when people are looking back 10 years ago to the legislation, 12 years ago to the commission and looking at what we did as Chris writes the book through Tax Notes, I hope part of what you write is that although imperfect, this was a positive, constructive effort to move our country forward as a model for other initiatives that we ought to be taking in the public good.

Thank you all very much.

MR. BERGIN: Thank you, Mr. Portman. Just give us a couple of minutes. We'll set up the first panel.


MR. BERGIN: Okay, let's get started. As I said in my opening remarks, we have two terrific panels today full of lively people, as Mr. Portman pointed out. The first panel is going to look at the Restructuring Act — how it came about and how it's done over the last 10 years.

The second panel will look forward from now on. So let's get started with the first panel.

I'd like to introduce them in the order that I think they're going to go. Let me remind everybody that you can participate.

We want you to participate. We're eager for your participation in this discussion. If you want to comment or ask a question, just please state your name so we can keep this all on the record.

In the order that I think you guys are going to appear, Jeff Trinca to my right is founding vice president of Van Scoyoc Associates. He served as chief of staff to the National Commission on Restructuring the IRS. Donna Steele Flynn is executive director of the Washington Council, Ernst and Young. She was staff director of the House Ways and Means Oversight Subcommittee at the time when Congress was considering IRS reform. And Chris Rizek on the end, excuse me, is a member of Caplin & Drysdale. He served as associate tax legislative counsel at the Treasury Department and was the Clinton Administration's top tax policy official for what became the 1998 IRS reform law.

Without any more delay, Jeff, let's start with you.

MR. TRINCA: Thanks, Chris. This is the formally someone panel and the next panel are the someones. Is that how you divided them up?

Formerly powerful. The Restructuring Commission and its Report — it wasn't actually that big a report. It was actually quite thin, and one of my jobs was to shove most of the stuff back into the appendixes anyway. But it was something for everyone. If you look at it, some of our chief critics during our work — one is the current majority leader of the House — for years afterwards when he went to his subcommittee hearings at House Appropriations on Financial Services now it's called — Treasury, Postal in the old days — he would bring his copy of the Commission report. And he acted like it was a Bible.

If they were talking about the budget — stable budgets — he pulled it open and he turned to stable budgets and quoted from the report. If he were talking about customer service, he would pull it open and read from the customer service. Clean audits, technology, electronic filing, workforce, training — you could find a quote in there.

But I think folks lose track now — and I think my colleagues here will talk about some of that and why probably that's so. The restructuring commission spent most of its focus and time on governance. And those were the most times that Chris, and Ed, and I rolled around on the floor and beat up on each other — was about governance. And I think the thinking was that these other matters are all very important, but the issue is why can't the agency sustain a strategic direction. And that was really the question I think our guys dug into the most.

And so, today I'll focus on those which I think was really — it's the first title of the commission report. First title in the restructuring act itself. And was really seen as being the driver for all the rest of the report.

So what did we find? Let's go through the findings. What did we find as a commission and as a staff? First we started with Congress. And so this is where I'm starting to get to the point where I'm going to p-off everyone at every level of government. So I'll start with Congress.

MS. FLYNN: Be provocative.

MR. TRINCA: Thank you, Donna. We found that oversight tended to be disjointed, redundant, often superficial. That it focused on the mess of the day, sort of the political hubbub. Very little strategic direction, very little focus on how do we help the Agency be successful.

And that is a generalization.

There were good hearings. Ways and Means certainly did a number and for years kept the focus on customer service and brought those numbers year in and year out, and really kept that on the table. The Appropriations Committee clearly had gotten involved in TSM, Tax Systems Modernization, and the problems over there. And essentially had reached a conclusion before anyone else that basically the money had been wasted and there weren't really a movement. There was some new hardware operating old systems and old software, but there really wasn't any deliverables for the taxpayers and for rank and file IRS employees. So, congressional oversight was scattered and not helpful at the least. It was less than helpful most of the time.

Treasury. I did oversight in the early '80s of IRS and held a lot of provocative hearings. You might say invented provocative IRS hearings, although I think Dean capped off that tradition during his time. But I was surprised when I got the restructuring commission to find that there was actually an official at the Treasury Department who had a clear line from the commissioner. I didn't even know that that occurred.

I won't tell you which commissioner, but one commissioner told us, you know, while I was commissioner I reported really only to God, and he rarely called me.

So there was a sense that the commissioner sort of sat at the top of this agency, and as long as he wasn't dealing with policy issues he was pretty much left alone. And that there wasn't someone essentially to back him up, or her. So the Treasury, although I have to make an exception for Mr. Larry Summers, and I think it was sort of the crisis — that Mr. Summers probably spent as much time as deputy commissioner, I mean, secretary, in the role of the commissioner's job than anyone I actually saw. And he attended a lot of these closed door meetings and really did get into thinking about how do we help the IRS be successful. But other than that, Treasury seemed to just sort of let the IRS either go its own course and at times just sort of dangle in the wind when things got hot.

Commissioners. By the time the commission met and was meeting, the tenure for commissioners was about 2-1/2 years. So they'd go in, they would rewrite the org chart at the top, they would set a new direction, do two or three hearings, and then sort of go out the other side. So that was a problem. How do you keep any continuity of strategic direction when your chief, who essentially doesn't really report to anyone does on a chart, but did not really report to any particular organization or person, you know, was only going to be there for 2-1/2 years.

Clearly the top of the agency, when we looked at the executives, I mean, these people worked — I could not comprehend why they worked so many long, hard, dedicated hours. There really were some great people.

They were very knowledgeable. And they all came homegrown from the IRS. There had been one, I think, outside person brought in from another agency at the time. He lasted a couple of years. He was the chief financial officer, I believe, at the time. But no one else. Everyone else was homegrown.

Then there was this issue — I'm smiling at my deputy chief of staff over here, Anita, because she was the one that kept the squeaky wheel on this — the chief legal adviser to the commissioner doesn't report to the commissioner. The straight line goes to the general counsel of the Treasury Department. And there's a dotted line.

SPEAKER: He used to.

MR. TRINCA: Dotted line over to the commissioner. So, you know, I think in any big organization you have your lawyer — I had Armando Gomez, a great young lawyer.

And I would say, Armando, just get this done.

While we've got these legal issues, I don't want to know about them. Just figure out how to do it, and give me a memo, and I'll sign it.

So you've got your chief legal office, essentially, not necessarily working for the commissioner. You've got sort of an org chart that was built around regions, and districts, and that sort of thing. And there were some positives in that. There were some negatives. But it did result in a lot of middle management. So there were a lot of layers from the field up to the commissioner.

I can't remember exactly. Someone remembers the number, but it was quite heavy.

And the regions tended to be (off mike). But they were still good as Doug had pointed out.

Folks all sat around together.

They had each other's jobs at various times, and there was lots of shared information on how people did their jobs.

We went all the way down into the workforce. We did a number of studies. We had folks come in. Once again, a great workforce. But trained from the minute they get there to be afraid of change, be afraid of sticking your neck out of the shell, and really just sort of beaten down if you stepped outside the lines. So there wasn't a desire to sort of try something new because that would only result in something negative.

So that's essentially what we found. A lot of good people. Incredible.

And a lot of people trying very hard to do their job without really the necessary tools and training in place to do that. So what did they propose to do about it? Oversight, I remember, Doug was running this session on governance, and Bob Tobias over here let him get way off. He was going to let me bring them back on course, but Kerrey and Portman came back and said, You know what? We've got this great idea. What we're going to do is we're going to take all of oversight — all the authorization and budgeting for — Donna's laughing already — for the IRS and we're going to put it in one entity. There's going to be the Committee on the IRS.

Because it is all of the revenue of the government, and that's a great idea.

And we'll just have this. And I said, well, the problem is our pathway leads right through those committees to success.

So the first thing you want to do was propose getting rid of the committees. I don't think that's going to work very well.

So, what brainchild did we come up with? A joint hearing. The idea was to bring folks together once a year under the auspices of the Joint Tax Committee, which made me one of the least popular people for many, many years. At the Joint Tax Committee.

Carolyn Smith always pointed out how much work they had to do to do on that hearing.

Fewer and fewer members and other committees participate over time, and it died on the vine. So, our great experiment in sort of shared oversight went way.

Then the board. Obviously the board — the idea of the board was that — and believe me, we had these battles. And Ed Knight waved the constitution at us many times to try to scare us off, sort of like vampires and garlic. But what I think Bob Kerrey, who was really the author of the legislation that set it up, wanted an independent IRS. A number of governments set up in independent agencies and put a board on top. Canada, England, a number of other experiments in that direction. And that's clearly what he wanted, and probably a plurality of our commissioners had showed up with that same thought. That Treasury would lose the IRS and they would share tax policy, but that there would be — the governance of that agency would go through a board, the president would hire the board, and the board would hire the commissioner.

And that was really I think where a lot of folks wanted to go. Instead, we came up with some sort of hybrid. The hope was that everyone in concern would work to sort of establish — the statute has review and approve of a number of key elements that the board could come up with its own concepts of budgeting. But that the thought — I think this is where I really was — was that the Treasury is the department of the economy, at least it was in those days under Mr. Robert Rubin, and increasingly these days, as well — and that if you took tax collection out of that policy domain, you could have some serious issues there. So it wasn't bad to have them there.

Now, with Mr. Summers in place committed — let's give them a seat on the board, let them help select the board members, and then that way Treasury can influence and make sure things are — the right mix of people are in place that the board doesn't go too crazy sort of thing.

But yet that the board would really be the place where the buck stops here. And that was really the way that I think most people came out of there thinking. I'd be interested to see how Bob — because Bob sat through every one of those meetings — what he thought about that. But the union would have a seat on the board, the commissioner was added later. I mean, the thought was the Treasury would be there and that the commissioner was the CEO over on the other side. That the board — you know, the question really became how do we keep the board from mucking around and getting down in the weeds on everything. We didn't want them to be another oversight entity. There were enough oversight bodies already.

But how do we make this board approve of the strategic direction. And would be the sort of squeaky wheel; the pushback, if you would, with Congress; the place where Treasury said, well, you know, that's what the board came up with. You know, Congress, OMB, people of this country.

The board set, and thought, and approved of the commissioner's plan. It's their fault.

They're the ones that have the authority.

They're the ones that have the authority.

They're the ones that have the responsibilities for success.

And then the commissioner.

Five-year terms. That they would — and I think this is really key — that all of the top officials at the agency — all boxes led to the commissioner. And I was asked — the press called me about a dispute between a taxpayer advocate and the chief counsel's office. And I said, that's easy. What we intended was that they would go and be sitting at the table with the commissioner.

They would make their report, and the commissioner make a decision, because he's their boss. It was an easy answer. We'll leave that discussion later for where that is.

So, that the commissioner would be dedicated to the concept of having a mix of top officials in there. Because you cannot run the agency with outside people. You have to have the executives that are homegrown, that come up through the organization, but that there's a mix. That you bring in folks from the outside with different ways of thinking, with different expertise, and you bring them in there. And you have the ability to pay them to keep them around. I think you really did see this in the early years, and you may see it again with Doug.

I think I'm going to stop. My last thing I have on here, and there's nothing there, is what do we have 10 years later.

But I thought it would be better to just sort of throw that out right out in the crowd.

Right, Bob? And then these two, I think, have some opinions about that as well. But that's where I'd really like to go.

MS. FLYNN: Well, I'm not going to start off with that. I think most of you will recall that I worked for many years for Bill Archer, who upon ascending to the chair of the Ways and Means Committee in 1995, held his first press conference by announcing that he was going to rip the Internal Revenue Code out by its roots.

Unfortunately, that was interpreted by far too many in the press and in the Republican Conference in the House as rip the IRS out by its roots. So, we started out sort of — the speaker, Newt Gingrich and the then — chairman — incoming chairman of the Treasury, Postal subcommittee, Jim Lightfoot, cooked up a deal where they were going to go after the IRS budget with an ax rather than a surgical tool. And as the authorizing committee, the Ways and Means Committee, you know, I went to Mr. Archer and I said you can't let them do that. Because, you know, you may want to rip the Internal Revenue Code out by its roots, but the IRS is the agency that Congress has established to administer the code. You've given them their powers. You want the revenue. And until you change the code, you have to have an IRS that functions. And my fear was the types of budget cuts that were being contemplated to the Service by my party were going to really impair the ability to administer the tax code.

So, that was the backdrop sort of in which the restructuring commission came about. I think I worked with the staff — and with Jeff, and with Anita, and with others; George came to see me numerous times throughout their deliberations. And when the commission report was issued, I sort of saw my responsibility as lead counsel to do the dance between Rob Portman, Rep. Nancy Johnson, who was the subcommittee staff director and wanted to drive the train, and Bill Archer, who was the full committee chairman. And each wanted to have their own imprimatur.

Mr. Portman and Mr. Benjamin L. Cardin introduced legislation that for them embodied the recommendations of the commission report.

It was H.R. 2292. Mr. Portman wanted very badly for that to be the base bill that we used for markup in the committee. And I had to explain to him, no. Bill Archer gets to have some say. But, when we sat down to draft the chairman's mark — and it was a model that I wish Congress can continue today we had the Republican staff. We had the Democratic staff.

We had Treasury. We had Joint Committee. We had IRS. And we had leg counsel. All in the room. John Staples, Elizabeth Wagner, Chris, John Buckley.

And we worked it through. You know, there were certain things that Nancy Johnson wanted to add. Rob, in his remarks, raised the point that maybe we were too aggressive in terms of enforcing electronic filing. That was her mandate. I pleased with her do not make it a mandate; make it a goal. Do not make it 80 percent; make it 60 percent. I got nowhere.

So the reason we have an electronic mandate of 80 percent of all individual tax returns — Nancy Johnson. That was her imprimatur on the bill. Bill Archer wanted to prove the burden of proof. And so our goal as those who were drafting and trying to serve all of these masters was how could we change the burden of proof without changing the burden of proof and still make Bill Archer happy. I think we did that.

And I think the chairman's mark that went before the Ways and Means Committee developed on a totally bipartisan basis — while it made some changes to the restructuring commission's recommendation — really embodied the spirit of the restructuring commissions recommendations.

We went along with your recommendations on governance on personnel flexibilities. You know, we went a little overboard maybe on taxpayer rights. But adhered to the spirit.

I probably brought more personally to the table in terms of the taxpayer advocate because of my personal experience, both in Mr. Archer's office as his legislative director and then, you know, spending years as the Subcommittee on Oversight staff director and having every congressman in the world send us their hardest tax cases. And I felt very strongly about the taxpayer advocate. I told National Taxpayer Advocate Nina olson on my way over I was going to have some remarks about this. They have no reflection on her whatsoever, but come from the perspective that I had 10 years ago with a very different IRS that had district offices and district directors. And at the time, for a local problem resolution officer to be successful in solving a taxpayer's problems, the district director was the local problem resolution officer's strong right arm.

But the local problem resolution officers didn't have a career path in the IRS. They were treated as the poor stepchildren. They had lower pay. They couldn't rise within the Service unless they went back to Collection or Exam and rose that way.

And so what I wanted was for the taxpayer advocate service throughout the IRS to be more independent, to have a career path, to be more respected. I don't think that I — my personal view where I was coming from thought that the taxpayer advocate and that line of authority should be separate from the IRS because to me it was the connections made with your colleagues throughout the Service that enabled you to reach early resolution.

And the separateness of the function, to me, creates an appearance of adversarial nature between the taxpayer advocate service and the IRS. And you can get backs up, and resistance, and all of that.

So, when the Senate went down the road of creating sort of a separate independent taxpayer advocate, I tried to convince Bill Archer and Rob Portman that, well, if you're going to do that — even though I'd already left — you should at least have a five-year term limit on the taxpayer advocate so that there's turnover and new thought coming in as well. Because you're making it separate. And you're going to create bad feelings within the service.

And you need a way to let that out. So that was something that I felt, at the time, 10 years down the road does it still make sense? I don't know.

Anyway, we had our markup in Ways and Means. It went well. The Democrats were a little resistant. They really didn't like this whole notion of an independent board.

They didn't like the notion of private sector people having anything to do with the IRS.

For me, private sector involvement was critical because how in the world were Jim Lightfoot and Newt Gingrich every going to have buy-in unless they had private sector telling them it was okay.

So, part of it was — I saw it as protection for the Service. I saw it as the board — you know, what you had in the years before that — the IRS sort of developing its thoughts on the budget that it would need in order to administer the tax laws. And the administration tamping down and saying we're not going to give you that much money.

And then Congress saying, and we're not going to give you as much as the administration has requested. The board's view — the most important role that I saw for the board was to validate the budget that the Service would need to do its job. And to have the private sector validating that. And the board should be very high level, and help the service, and help the commissioner validate the strategic plans for the service.

I never thought it made sense for the board to be down in the weeds. And so I think the board needs to be more high level than it is. But, anyway. I think we got it through on a bipartisan basis. It was a good model. And then the Senate held their hearings. And I'm going to be very provocative here. I'm going to make my old friend Mark Prader mad. But, you know, you can always find taxpayer horror stories.

They happen. I think they happen less now.

But one of the things that congressional staff has is 6103 authority. You can find out if the horror story is really a horror story. They put out a parade of taxpayers claiming terrible things about the IRS. And with my 6103 authority, I was able to learn a lot about a lot of the taxpayer cases that they presented. A lot of them had no validity whatsoever. I mean, there were problems. There were problems that didn't get resolved because of computer problems.

It wasn't people problems. And Senator William V. Dr. Roth, you know, god bless him. Not to speak ill of the dead, but I thought vilified a very fine public servant in the deputy commissioner of the IRS, Mike Dolan. And nobody stood up and defended him because everybody was so freaked out by the politics and the appearance of those damn hearings.

And the Senate went a completely different direction. And I decided I didn't want to be any part of it, and I left. So, at that point I'll stop.

MR. BERGIN: Well said. Chris, do you want to bat cleanup?

MR. RIZEK: Sure. Well, first off I want to thank Tax Analysts, both for sponsoring this conference, which is fun for all of us and interesting, but also for the great work they do in covering the tax system. You know, they say journalism is the first draft of history. And I went back and was looking yesterday at some of the coverage in Tax Notes of this process so I could refresh my recollection. And you got it right uniformly. But you really do provide an invaluable service for the system. I think everybody in this room reads you first thing in the morning. And I want to thank you for that.

MR. TRINCA: Chris, I remember distinctly Rob Portman saying who is that really irritating reporter, Ryan Donmoyer. I always remind Ryan of that.

MR. BERGIN: In the interest of full disclosure which is what we're all about, I was the editor of that publication.

So I'll take the beating.

MR. RIZEK: I wanted to talk about three things. And I want to look at this starting with where they were, but looking at it a little bit slightly broader perspective as sort of a process. I want to talk a little bit about the administration's approach because I think that's the hat I was wearing. I want to talk a little bit about the process of the legislation, following up what Donna was saying.

And then since I'm the only person on this panel — and I think really on the other panels, although Les Book and Nina have been practitioners, as an active practitioner now — talk a little bit about how I perceive it to have worked out and how the new IRS works. And I think that will feed to some of the questions Chris is going to ask at the end.

My role — remember, I was in the Office of Tax Policy. And as Jeff said, the administration really didn't view this as a tax policy issue, which I think was unfortunate in some respects from very early on. But this was viewed, even by the administration, as a governance management, government efficiency reform process. And part of the walk down memory lane I took yesterday afternoon in preparing for this was to look at the — remember reinventing government? Does anybody remember that from the early '90s? To look at some of Vice President Gore's national performance review reports, the first of which came out in 1993.

I was blessedly not in the government then.

But putting customers first was Chapter 2. And right in there on the second page of that presentation was something about customer service standards at the IRS with a number of recommendations at the back, which I think if you go and compare to what ultimately was enacted in the bill, became law, what, four or five years later.

By 1995, when the third report was done, and I unfortunately did have to review this one, they had the service revolution with Larry Westfall from the IRS Modernization Program — Larry's not here, right? Cited in there about everyday in the country works from 8 a.m. to 5 p.m. That's when our call centers are open. Imagine that. We can't get together with people.

You know? It's sort of pretty obvious things in there. And again, a number of reinvention ideas that were done at the back.

So my first point about the commission and the process here is that it was kind of an outgrowth of what I think really was a consensus process that something needed to be done to improve service at the IRS. And I think everyone agreed on that basic proposition. How you get from that to this legislation is a tangled and tortuous tale, though.

And I want to discuss one of those points that Jeff landed on. You know, Ed Knight, who was then the general counsel of the Treasury was — and I think this is a fair statement even though Ed's not here to defend himself — I think his role on the commission was to be fiercely protective of the president and the executive branch, and the Department of Treasury's prerogatives with respect to managing the single — well, second most important governmental function, which is raising the revenue that pays for national security and all the services we have.

And he felt, and I think I can safely say Secretary Rubin, Larry Summers, and the president himself felt very strongly that that was a core executive government function and that they had to have control over that function. And part of the tension in the commission process came from Ed and a couple of commissioners who felt the same way banging heads with some of the commissioners who felt that privatization to a greater or lesser extent of that process would be a good thing.

And that was the source of a lot of the tension. When I get down to talking about specific line items I think you'll see that. But you see that in things like the board, the national taxpayer advocate, the chief counsel lines of authority, the appointment of the commissioner. All of those things. A lot of the tension there came from that basic fundamental — I won't say disagreement, but you know, conflicting concerns.

That leads me to the second point I want to make, which was this was really a political process. I was stunned to hear Rob Portman say it was un-Washington, because I think it was absolutely Washington. This was the most-Washington process I've ever participated in. I was very happy to do it.

When I left Treasury I had about eight bankers' boxes of documents, starting with the legislation that enacted the commission, through all the hearings, through the legislation, through all my e-mails back and forth with Donna, and phone calls, and notes.

And when I walked out I was like, that's a political science Ph.D. in a box right there.

Somebody who took this process — it is a quintessential political process in D.C.

It's a classic case study of how the sausage gets made in Washington. And Donna rightly points out that the administration initially, based in part on the concerns I expressed that Ed was sort of the focal point on, resisted this process somewhat. And it was staffed primarily by IRS liaison and by employment-type people in the Treasury. Not by tax policy. I didn't have an awful lot to do for the first year and a half of this process. Which was fine with me. I had other things to do. Donna and I had done 1996 T-Board and we saw it implemented the at Treasury and the IRS. The '97 Act happened during all of this process. And that had a few things in it. So, we were very busy at Tax Policy. And this wasn't a Tax Policy issue. But on some of these basic fundamental reorganization points, the administration was initially resistant. And then when they sort of realized which way the wind was blowing — they started getting ahead of the process.

They tried almost to coop the process.

Secretary Rubin appointed advisory boards. I remember I had a conversation with Ed Knight.

He said, can we do advisory boards in the districts? I'm like, sure. You just have to work through the 6103 problems. But, sure, you can do that.

And they appointed in 1997 — even before the Roth Finance hearings — a commissioner who was not a tax professional.

Who was confirmed at about the same time and sworn in in November of 1997. They were working on computer systems modernization.

They knew that was a problem. Everybody knew that was a problem. They were working with the taxpayer advocate to get the degree of authority and the taxpayer assistance orders worked out a little bit.

And as this process was developing, Donna, and I, and I think the entire tax policy community was sort of reaching a consensus bill. And that consensus bill, I think, was largely reflected in the House version of the legislation. And as Donna pointed out, the hearings in the Senate Finance Committee in September of 1997 completely changed the dynamics of this process. I still have stripes on my back from those hearings, as I think do a number of people in the IRS. I think — I don't want to again be extremely critical of our friends on the Senate Finance staff, but I think even they recognize now that those hearings were not fair. You know, the people behind screens with the modulated voices.

You know, I mean, it was silly.

The IRS wasn't going to be persecuting these people. There were systemic screw-ups.

Everybody knew that happened occasionally.

But some of them actually, to a tax practitioner, were relatively innocuous. I mean, one of them had been solved before the hearing. You know, the priest who got the wrong — and the payer advocate in Georgia had intervened and done the right thing, and solved it. The only problem was a weekend had passed before it got fixed. It wasn't really a real serious problem. And yet, the administration, for reasons I still to this day don't fully comprehend — although saying mea culpa to Congress as we saw in yesterday's United Bank of Switzerland and tax haven hearings is always the right political move — they chose just not to push back at all.

And what happened to those of us, including myself who were very concerned about some of the tax policy issues that were on the horizon in the House bill that we saw coming at us in the Senate bill, is that reluctance to push back led to a lot of things that, shall we say, have turned out to be problematic. And I think most of the things that are problematic about restructuring — about the Restructuring Act in 1998 — came at the end of that process after those hearings. And because the administration was cowed, frankly, into acquiescence to anything that was proposed — you know, it was a good time to go to the Senate Finance Committee with your pet proposal. If you wanted an accountant-client privilege, by god, now was the time to get it. And they did.

If you wanted Innocent Spouse Review, we had a very modest, and I thought effective, built on the '96 and '97 acts in the House bill. And literally, the last thing in the conference between the Senate and House on the conference — I remember this to the day; my wife and I were talking about it on the way in — was Innocent Spouse Relief. The House had this bill. The Senate had this separation of liability that the details really hadn't been worked out on.

And Bill Archer said to Bill Roth, Bill, why don't we just do both. And Bill said, Bill, I think that's a great idea. And they looked around at the staff and the staff was cowering in fear because we were like, how are we going to do both? And we did. Over the weekend we put that bill together. And it was a mess.

And Innocent Spouse turned out to be a mess.

And it's taken Congress, I think, two times to revisit it to work out some of the kinks.

I remember distinctly sitting in that drafting session. And I patted myself on the back a little bit. I think I was the only person in that room who had ever set foot in a tax court. And I said at one point, well, how is the tax court going to have jurisdiction on this? And if you go back and look at that parenthetical in whatever it is 6015E — there's a parenthetical that says, and the tax court shall have jurisdiction. Because they didn't know how so they just wrote a sentence in there to do that.

And it was that sort of not attentive detail — attention to the details at the end of the process that caused a lot of the problems with the Restructuring Act.

MS. FLYNN: And if I can just interrupt.

MR. RIZEK: Sure.

MS. FLYNN: I would say that the hearings so changed the dynamic that the House didn't even feel it could push back.

Anything the Senate wanted to do was going to get done. And, you know, I went to Mr.

Archer and Mr. Portman and I begged them don't do some of this stuff. And they said the administration is not even pushing back.

How do you expect us to push back if we can't even get the administration to push back.

MR. RIZEK: That's exactly right.

And Donna and I had that phone conversation a dozen times on a dozen different issues. I can't push back because I'm not getting backing, and I can't push back unless you push back. And it just didn't get any push back.

And I'm going to take away from this two sort of consequences or observations. And then we can talk about the specifics. One is — this is going to seem like such an obvious truism to everyone here.

But consensus bills and legislation as a whole can take on a life of their own. They can grow arms and legs and take on a life of their own in a charged political atmosphere. And a charged political atmosphere frequently leads to bad judgment. I think that's what Rob Portman — one of the things he was saying there. And I don't think we have to look farther than a certain middle eastern country for confirmation of that view that a charged political atmosphere is not a good way to make policy.

Secondly, and related to that, the policy — particularly tax policy — and this is extremely self-serving and I recognize it.

I mean, if anything, literary history has told us recently it's that we come from our own point of view. But you know, tax policy is best made by the tax policy professionals.

MS. FLYNN: Amen.

MR. RIZEK: And when you have people who aren't tax policy professionals making tax policy, as much of which happened in the Senate side at least in the revisions to the bill after the sort of consensus House version, you get things like that parenthetical that Judge James S. Halperin and the rest of the Tax Court have had to figure out what it means.

You know. And you don't get carefully considered conclusions.

And that's unfortunate. And I hope everyone here, particularly those of you who are like Hill staffers, would take that into account and think about those two points because those are really critical when you're messing with the tax system, which as I said is one of the core functions of the government.

MR. TRINCA: Let me make just a couple of observations. One is I think Rob was actually talking about the commission because there you had a number of folks that the Treasury had appointed. The union, Mr.

Grassley and Bob here arm and arm. You know, it was — yeah, I know, I ruined his reputation within his world.

But, I mean, the hours that those guys spent in closed-door, open hearings, field hearings, you know, I mean, was incredible. And while Treasury was — another observation. That's one thing I'll say. What he meant when he said was we took the politics out of it. I think there was an overly abundant concern on the part of the Treasury Department that this was an attack on the president.

There was, you know, special prosecutors in every corner of the government and when we got special subpoena powers and, you know, I had the subpoena pen on my desk, you know, oh, my god, Ed Knight, you know, drug me around in Treasury and beat the tar out of me. And we never once issued a subpoena. And I told him if we did it would be a failure in communications.

We worked out through facilitated means on how to work together, how to communicate, how we were going to avoid 6103 problems. Because we not once brought in We could have. We had the power to.

But once again, we saw that as a failure.

If we had to muck around on that level of issues, then we were failing. So that's what I think he was talking about on that.

I will say this, and it is my little shot at Treasury. Having lost a lot of weight and gained most of this gray hair and lost most of my hair during the process, that Treasury's sharp pointed opposition saved us. Because when we went in to see various members on the committee — Mrs. Dunn, I remember specifically — after we were done making our presentation she said, what? That's all you've got from a year of work is a stupid board? And a week later when Treasury voted against it with all sorts of she stood up in the committee and said this board concept is brilliant. And I will shove it down Mr. Rubin's throat. And it brought that sort of, you know, tension we needed to make the whole issue interesting.

So, that was.

MR. RIZEK: And when that happened, Jeff, that's I think when they put their finger up to the wind and said, oh, this is going to happen. We need to change course.

By that time it was too late.

MR. TRINCA: My favorite — here's an inside scene. My favorite scene in the world. I'm sitting there with Portman and Kerrey. And Rubin and Sommers come in with Ed and they sit down at this little table in Bob Kerrey's office. And Rubin says, damn it, Kerrey. I feel so strongly about this. If you get this thing enacted, I will resign.

And Bob Kerrey said, I can live with that.

And the Treasury guys go, you know, this is Bob stinking Rubin here. Do you know who you're talking to, Bob Kerrey? You know, with that in mind.

But that tension was — but what I think you missed were the late nights, the camaraderie, almost. I mean, you know —

MS. FLYNN: (off mike) was forged.

MR. TRINCA: So there really was this incredible input from a lot of folks.

And the process was we ran the final markup like a classic markup. It was back to Russell Long and Mr. Packwood and Mr. Benson.

I'd learned my lessons at that time. It was are you going to vote for this package? Yes.

Then staff will consider your amendments.

And I remember the gentleman from [The technology company] EDS proposing actually a quite brilliant amendment. And they said, you know, all those in favor say aye. And they said aye.

And all those in favor say no. And Bob Kerrey said no. And he said, and the no's have it.

And the staff leaned over. He said, no, I think we have that. And he said, shut up.

Shut up.

So if you had your seat at the table, you were — and this guy right here is the biggest example. You know, I mean, he shook hands with Chuck Grassley about there being a position on the board. And against this entire caucus, Mr. Grassley sat down in the middle of the road and did not budge until they got that seat on that board. And I was never prouder of a member.

MR. RIZEK: I think you're right, Jeff. In a lot of ways what came out of the commission process and the report were going to be consensus items. Now, I know there were dissenting views, including Ed's and Treasury's. But, for example, your success in pushing some of the controversial things to the appendixes and making this not about tax simplification because you may have noticed that hasn't worked out all that well.

And making it not about taxpayer rights, but having basically consensus items in the taxpayer rights provisions — those were all good judgments and conducive to that consensus-building process.

MS. FLYNN: And let me say just one thing. Jeff Trinca was a masterful chief of staff of this commission. Because — I mean, you did a great job. Because you had members who wanted to go much, much further, including that one. And you were able to forge a consensus, push the controversial stuff to the appendix, keep them from doing really stupid things. And so I just wanted to acknowledge your work.

MR. BERGIN: Let me try to move to questions and comments now. And I'll start.

Chris, in doing my homework for this I kept noticing again how often words like user-friendly and customer service are used. And while I think I get the concept of customer service, for those of us who were writing about tax at the time, calling it taxpayer or customer just provides wonderful fodder. And you could make several jokes over it.

But I got this question the other day, and I think I can quote it exactly since our names are the same. Chris, about 10 years after IRS reform, is the IRS really a kinder, friendlier agency?

MR. RIZEK: Yeah, I think the short answer is yes. I don't know, and it varies, issue by issue, and division by division, and even agent by agent. Whether that is entirely attributable to the restructuring process or the Restructuring Reform Commission report, or just that they've finally gotten the computer problems more or less under control to the point you can now at least get an e-mail to the IRS and back.

You know, that's something you couldn't do five or eight years ago.

So, overall, I would say the answer is yes. I think the reorganization, in particular, has been a little bit of a mixed bag. I think, for example, TEG and LMSB — it's largely been a success, but I think that's largely because they didn't really change that much. TEG basically operates in a lot of respects the way it operated 15 or 20 years ago. LMSB has basically just expanded the number of taxpayers of the old CEP program. It started with 1,500 or 1,800.

And has always been sort of the testing ground for new ideas and new administrative procedures in the Service.

I think the problem areas in the Service have generally gotten better. Again, the extent to which this is attributable to restructuring is always a question mark in my mind. But, you know, the service centers seem to be working better on balance. Small business I think is still — SBSE is still a serious — got some serious problems.

Collection generally works better. I think the increased access to installment agreements and offers and compromise that were legislatively mandated in the bill have definitely had a favorable impact.

On the other hand, I think some of those same areas have been complete disasters. I think effective tax administration offers and compromise is dead.

I mean, you can't get one. Nina [Olson] and I have talked about this in the past. I think, for example, user fees have gotten out of control on not just revenue rulings or receiving a private letter ruling, but on offers and compromise in the IRS. But on balance —

SPEAKER: That's more of a — that wasn't a restructuring —

MR. RIZEK: No, it is —

SPEAKER: We're not going to raise taxes. We're just going to charge people to get into a national park.

MR. RIZEK: Right, exactly. But on balance I would say the Service has become a more customer-friendly organization.

MR. BERGIN: Do either of you guys want to comment? MS. FLYNN: I agree.

MR. BERGIN: You agree? Okay.

MS. FLYNN: I mean, all the measures show that.

MR. TRINCA: Yeah, you don't have the hearings anymore about the phones not being answered and that sort of thing. That was part of pushing through the modernization at the technology issues.

It was changing business practices.

It was thinking differently.

I think — my hope is that Mr.

Shulman of all folks will be able to really help push through on that end and get those customer service measures to a place where everyone can really be proud. Although I think they should already be proud of them, actually.

MR. BERGIN: Workforce and culture issues were one of the big things in the Commission report.

And I was happy to hear several people comment about the wonderful people who work at the Internal Revenue Service and how hard they work, which is absolutely true and it's been my experience. When you enact something like what became called the 10 Deadly Sins, how does that help any culture? Donna?

MS. FLYNN: It doesn't. And to put that responsibility in the commissioner's lap, you know, where only the commissioner can take responsibility in the event that any IRS employee commits one of the 10 deadly sins was absolutely stealthifying to the Service. You know, when you combine that with — that collection changes — there was a period after — yes, I know the Service was focused on getting the customer service side of the equation right. But in terms of people in the field, no one was willing to take the least controversial action for fear that they were going to, you know, get their heads chopped off. So I think it was incredibly damaging.

MR. RIZEK: You know, some of us had the temerity or foolishness to suggest at the time that some of these ideas were not particularly well thought-through. Like CDP, for example. And I remember Sheldon and Don heckling me with questions.

And I'm going, no, that's not a really good idea. I have to admit it. And I got my head handed to me for that. I was lucky I still have it.

But, you know, and there was a four- or five-year hiatus in which the Service was completely lost in my view. They were still moving boxes around. Nobody was actually doing any work. Frankly, the IRS was a mess in 2000, 2001. I think compared to that, now it's vastly, vastly better.

I think part of that was not just focusing on customer service but getting back in the enforcement business a little bit, which has been good for my business, so I'm happy about that. But I want to say one thing about workforce. To me the single greatest threat the Service is facing right now is the brain drain of senior personnel.

I talk to revenue agents, and appeals officers, and even collection officers, literally every single day. And nothing delights me more to deal with a 25-year pro who knows exactly what they can do, exactly what they can't do, who tells me upfront what their position is going to be. I tell them upfront what our position is going to be. We try and work together to do that.

Regrettably, those guys are all leaving. And I think the biggest threat — and I want to put a pitch in here again for the congressional staff and for those of you who have influence with congressional staff — to help Doug Shulman get more funding and personnel on board. Because to me that is the biggest problem the Service is facing.

It's not the culture of the workforce these days, but just the brain drain of the workforce.

MR. TRINCA: But, you know, it's not just funding. They've got — if you look at the last five years, there's been some incremental growth in staff.

MR. RIZEK: Absolutely.

MR. TRINCA: Even though the numbers — they were supposed to be fairly significant. Can the agency hire, and train, and keep up with this big wave of retirements, let alone grow? And the other thing that you can see in the numbers is you have to take experienced people, those 20-year veterans, off the line to train the new people. And then they're retiring and the person they just trained becomes the trainer.

So you have got an incredible wave of problems with the workforce right now. And I think Doug is right. There are people who still admire and see the agency as a career path and will stick around with it. But the issue is — and it's not just the IRS. The IRS is competing against the FFA and all the others in just finding a contractor —

MR. RIZEK: Not the FFA. That's the Future Farmers of America. You meant the FAA.


MR. TRINCA: FAA. They're competing against each other for the same people.

MR. RIZEK: Right.

MR. TRINCA: So you're going to have an agency that's naturally going to shrink. And the bodies are not going to be there. And it's only partially a budget issue.

MR. BERGIN: Anybody here have a question? Sir?

MR. ALEXANDER: Don Alexander. I want to thank especially two very fine people who lost a lot of sleep going through those horror days of the 1998 hearings. I understand that the chairman of the Finance Committee refused to let IRS respond to the let's call them exaggerations as opposed to another word — on the grounds that IRS has done enough damage to these people already.

I will not let them do more. Is that correct, Donna?

MS. FLYNN: I don't think that Chairman Roth refused to let them respond.

Peggy actually, at one time, thought about exercising her prerogatives under 6103P, I think it is, where the commissioner can respond when you need to protect the integrity of the agency.

He did not give the IRS a seat at the table. It wasn't appropriate for the IRS to have a seat at the table next to the taxpayers, I don't think. The real failure, Don, in my view was in not properly screening it was putting on a horror show to begin with and not properly screening the taxpayers that you were going to bring forward as examples of IRS incompetency.

MR. RIZEK: Let me add as further evidence of my political tenure within the administration, I was suggesting, you know, maybe we ought to push back a little bit on these things. And the decision was made —

MR. FLYNN: With Treasury.

MR. RIZEK: Yeah. I will use the passive voice. I don't assign who made the decision. But the decision was made that, no, we were going to just take our lumps, and Mike Dolan was sort of thrown up there as a sacrificial lamb.

MS. FLYNN: Yeah, he was made the sacrificial lamb.

MR. RIZEK: Which I thought was exceedingly unfair. And I thought he was a standup guy to go ahead and sort of bear the brunt of the senator's wrath.

MR. ALEXANDER: You two did a wonderful job in standing up against the most irresponsible exercise in the legislative process that I can think of. And I remember back at least 150 years.


MR. RIZEK: Thank you. But I still have the stripes on my back from doing that.

MR. BERGIN: You mentioned before the priest they had testify. When I saw that I thought, oh, my god, it's literally the station wagon full of nuns they brought up against this agency.

Mr. Caplin.


MR. BERGIN: You need to tell us who you are.

MR. CAPLIN: I'm Mort Caplin, also a former commissioner of internal revenue.

One of the problems that I've had with the report, and of course, the legislation was the fact that the role of the tax system in a democracy was not put forth properly in terms of the citizens' obligations in this whole process. It's more than the IRS. And use of the word customer service just gags me (off mike). My goodness. They have an obligation, too. Nobody likes to pay any more taxes than they have to except Oliver Wendell Holmes.

But I really feel that there's not enough flavor of that sort throughout the report. Jeff, you mentioned about the chief counsel. And the reason why it was treated as it was. That dotted line goes back to Coleman Andrews. That's where the emphasis was put upon it. That was the first accountant we had as the commissioner of internal revenue. And Coleman Andrews didn't care much for lawyers. He was a leading accountant in Richmond, Virginia, and indeed, he later — he ran for President of the United States.

And his principal plank was the elimination of the income tax. As former commissioner (off mike). But as a matter of practice, it worked very well. Despite the dotted line, at least my experience, my chief counsel was my lawyer. And we never had any significant pullback from our own.

MR. RIZEK: Mort and I have talked about this in the past, but I want to make one comment on that. First off, I don't necessarily agree with Mort that the report should have focused more on the role of the responsibility of citizens to pay their taxes, but I do think that the political atmosphere, again, in this town over the last 30 years, which has been routinely anti-tax, has done a lot to undercut that sense of civic obligation. And I think that's unfortunate.

MR. BERGIN: I think it's a great point.

MR. TOBIAS: Bob Tobias. It strikes me, your lament, about the political process taking over at the end of the process. It's reflective (off mike) of one of the central issues in the commission report, and that is the failure of the secretary of Treasury and the deputy secretary of the Treasury to focus on public policy implementation. Because really what started the commission was a failure of management. A failure of management in the IRS to deal with modernization.

And a failure of credibility.

Because the secretary of Treasury and the deputy were doing what they were doing and weren't paying attention, and were focusing on public policy creation and not public policy implementation, they got way behind.

MR. RIZEK: I don't disagree with that at all, Bob. And, in fact, at the tax policy shop we routinely knew that. I used to dread when we would hear in the office, oh, we got another call from the White House Council of Economic Advisers, and they have an idea for another tax credit. Because I knew what was coming. What was coming was throwing another one of those social programs on the Internal Revenue Service that it was ill-equipped to do.

And that's just one example.

Modernization, computers, funding, all kinds of those things were examples. I agree with you entirely about that.

MR. TOBIAS: Here's my question.

It's not just the secretary. And the commission attempted to deal with that through the creation of the board and then, you know, Summers and Rubin got all excited about losing their authority, and rights, and all of that. But my question is sort of on a broader basis, because that's not just an issue in the Internal Revenue Service.

Political appointees do policy. They don't do public policy implementation.

So sort of my question to you is based on your background and experience, what would you advise a secretary to do differently to stay ahead of the public policy implementation issues? MR. RIZEK: I'm not sure I can speak for any department, even the Treasury Department on that. But from someone who is within the Treasury Department, I was — you know, I think I was the only person in the tax policy shop who really knew anything about tax administration. And that was always fairly scary to me, not to mention the rest of the world. Because there just isn't attention paid in the Treasury Department as a general rule on the biggest single function the Treasury has. Which is managing that 100,000 people who collect $2.7 trillion every year. They focus on markets, and international relations, and you know, saving Korea's and Mexico's economies, which Secretary Rubin, to his credit, did a fabulous job on.

But nobody pays attention to those things.

And so, the short answer, I think, is that Treasury Departments generally need at the upper levels, and including in the tax policy shop — I have always felt needed to pay more attention to tax administration.

MR. TRINCA: Well, I think the board was supposed to be the forum for that.

MR. RIZEK: Yeah, I think that was the thought process.

MR. TRINCA: And when my boss — in '86 Democrats take charge, look what we found. You know, the dog chasing the garbage truck. You are chairman of the subcommittee, Mr. David Pryor.

You're the youngest man on the — I mean the lowest ranking person. Guess what's left over? Oversight.

The new staffer, tax counsel, comes in, Norm Richter. Oh, yeah, and you've got these nice things. And, oh, I'm sorry. You know, everyone has to take tax administration for a while.

No young tax lawyer wants to be stuck, all due respect — I've been struck with it, too.

MR. RIZEK: Doing my job. I understand.

MR. TRINCA: It is the biggest dead-end in the tax policy world. You want to do foreign tax credits. You want to do corporate. You want to do Wall Street. You want to do all of that stuff. So, really Treasury tax policy, they get involved — and even since then, the things that they've been involved in in tax administration — reluctantly. It's like, oh, I just cannot stand these tax administration issues.

MR. RIZEK: And part of the problem is —

MR. TRINCA: There isn't sort of a pool of knowledge. And the board was intended — and I think the Treasury walked away from that. Not necessarily your Treasury, but in the last eight years they said — I don't think they've had a single deputy commissioner show up at one of their meetings. And at the same time you had a commissioner that turned his back on that board and went up and worked to actually get rid of it.

And so you had those sorts of signals. Congress suddenly found new love for the board and probably saved it because of that.

MR. RIZEK: There is a certain amount of self-selection that Jeff is pointing to as well that people who are in the tax policy shop or who are in the higher reaches of the Treasury Department, have not, as a general rule, been the kind of tax practitioner dealing with the IRS as an administrative agency. They've been the kind of tax practitioner who does deals, who advises taxpayers on foreign tax credits, and partnership issues, and corporate issues.

And actually doesn't get in the tax court and litigate or in the district courts and litigate.

That may be a failure of that process as well. I've always thought that my 2,000 sections of the code matter just as much as the first 6,000, but maybe I'm wrong.

MR. BERGIN: With that I'm going to have to — one more.

MS. HORN RIZEK: Anita Horn Rizek.

MR. TRINCA: Are you going to thank me for the biggest thing I brought to you in your life? MS. HORN RIZEK: My husband.

MR. TRINCA: I brought these two together. Right here. Right here.

MR. RIZEK: At least something good came out of restructuring. Thank you.

MS. HORN RIZEK: I'm a former tax counsel for the Finance Committee, former deputy chief of staff of the commission, and current mom of three, wife of Chris Rizek.

My point tees off of, Chris, the tax administration comment. And one problem I had as tax counsel on the Finance Committee is that no one really — I think just a few, I'll say it that way — in Congress cares about tax administration, and know about tax administration, and want to deal with tax administration.

And you know, that restructuring legislation was coming down when we, the commission, we met with Senate Finance Committee staff, and it was just the commission. And I remember one person saying, oh, that's going nowhere over here — I believe was a comment made. And you know, then the hearings happened and that took over for even — took the staff over — those previous staffers who were saying it wasn't going to go anywhere — it took them.

MR. TRINCA: I think it was actually the (off mike) staffer who was the chief counsel on these issues.

MS. HORN RIZEK: Yeah, who put a lot of these provisions together that became problematic.

But I think that's leading into even your next panel's concern. Is that it doesn't — tax administration issues and policies matter more, affect more taxpayers, than a lot of the capital gains tax reductions, tax rate cuts, and a lot of other things, but yet they don't have the special interest money behind it. They don't have all of that political pizzazz to them. And so you don't have — it's hard to find members of Congress and staff people who want to look at it, pay attention to it, and push it through.

MR. TRINCA: They're all right here. Look at the whole thing. This is it.

Right here. These two. Right here.

MS. FLYNN: If tax administration mattered, would Congress have waited until December 12 to pass the AMT patch and dump onto the IRS the extenders, the AMT patch, and then come back in January and then stimulus? I mean, if they cared the least bit about the tax administration — I remember Bill Thomas used to say, tax administration, you know, I don't want to hear about tax administration. They'll just do it.

MR. TRINCA: The hero's award.

They should have the hero's award.

MS. HORN RIZEK: Say thank you to Senator (off mike) for being one of the leaders in the Senate and now Congressman Becerra in the House for sponsoring legislation and Taxpayer Protection Act. And I'll do my plug. I hope that others start to push harder.

MR. TRINCA: The most effective, not paid lobbyist in Washington, D.C. Right here. Right here, folks.

MR. BERGIN: Unfortunately, I'm going to have to end this panel. But it ends on a great note because that's exactly why we're holding this conference — to get more attention to tax administration.

Let me thank this terrific panel.

This was great. We're going to take a break.

We'll bring in the food, and we'll reconvene at 12:35.


MR. BERGIN: Please take your seats. Okay, welcome back everybody. Feel free to eat while we're having our conversation up here. Lack of room at the table. I'm going to stand at the podium.

True to form, I thought our first panel was terrific. This panel is as well.

The purpose of this panel — and I think the first panel really helps us here to get into what we're going to talk about now — the purpose of this panel is to try to figure out what comes next in tax administration and moving tax administration forward. I think the first panel made an excellent point of the fact that we don't pay enough attention to tax administration.

And that's the purpose of this conference — to get some attention on tax administration.

I'm happy to introduce our second panel, of distinguished guests of ours.

Nina Olson, to my right, is our tireless national taxpayer advocate. Les Book is professor at Villanova University School of Law.

Theresa, I guess — are you going to go third, Theresa? Okay, Theresa Pattara is tax counsel on the Republican side of the Senate Finance Committee, and Mary Baker is a tax staff professional on the Democratic side of the Senate Finance Committee.

Having made those introductions, I'm going to get out of the way and let this excellent panel do its work. Each will talk for about 10 minutes, and then we will open it up for questions. I'll try to take more questions than we did at the first panel.

With that, Nina, the floor is yours.

MS. OLSON: Okay, I think my job is to serve as a bridge in a way between the last panel and this panel because my entrance sort of to the national scene was during the restructuring panel — the commission and the hearings that followed in Ways and Means and Senate Finance. I had worked closely with commission staff and written a submission to the restructuring commission and had helped Janet Spragens with her presentation to the restructuring commission on the issues that low-income taxpayers — taxpayers who speak English as a second language — face in the tax administration side of the tax system.

And then I was invited by Donna Steele Flynn to testify before the Ways and Means Committee in September of 1997. And then was invited by the Senate Finance Committee to testify before them in February of 1998. And in both of those instances, I testified about the problems that the taxpayers I represented as the executive director of the Community Tax Law Project, that I encountered representing my clients who were low-income. And also to some extent the problems I saw in my private practice representing middle-income and small business taxpayers. Solely from a tax controversy and tax administration perspective. But primarily tax controversy.

And I have to say in full disclosure that there are many provisions in RA 98 that I look at as having been — you know, a provision has many mothers or fathers, but that some of them are very much mothered by me. And I believe that I had a hand in crafting collection due process and will take full blame for any problems that might have come up with. But I do think that that was ultimately a very positive thing.

I am concerned about the prior panel not really taking — you know, discussing — and maybe that's because they were all part of that process. From my viewpoint outside of Washington, D.C., being based in Richmond, Virginia, and never having lived in Washington, D.C. up until when I moved here to take this job — the hearings were very important to me. I mean, I discounted the people who put bags over their heads and testified behind digitized voices.

That was not what these hearings were about. To me, the hearings were about hearing from people who were involved with taxpayers. Trying to represent taxpayers before the IRS, and the kind of problems we encountered representing taxpayers before the IRS. How hard it was to get through on the phone. And yet, while you were trying to get through on the phone when there was a 42 percent level of service — the phones got picked up 42 percent of the time — that, you know, collection was still moving forward and taking action. And not nice actions. Even moving forward towards seizures of your retirement accounts, or seizures of your paycheck, or seizures of your personal residence, without a lot of safeguards in place. And not being able to stop collection while you were saying I don't owe this tax.

And those were the sorts of things that were very important for me to get across to the — both the panel and the tax-writing committees. What the impact of tax administration had on the low-income and moderate-income taxpayer who couldn't afford representation, and then also what it was like for those representatives who were representing those people, and how hard it was to get issues resolved.

I do have to say now that when I came on the job, the taxpayer advocate service was the entity that worked through all the cases that came in to the IRS — to the Senate Finance Committee as a result of those hearings. And people can argue about whether those cases — the taxpayers who testified at the hearings — had any merit or not, and I don't have an opinion about that because I was not involved in that. I can tell you, based on the information that I have seen and the cases that my office has worked, which were thousands, and tens of thousands, and tens of thousands. And I think we still have two left over still that are open today.

Those cases were a sign of what had gone wrong with the IRS. That people were focusing on collecting dollars. That was what the focus was. And the combination of poor taxpayer service, the taxpayers not being able to get in, and then the IRS having this focus on collecting dollars, caused bad things to happen to taxpayers who were trying to comply and converted those taxpayers into very angry taxpayers. Like the taxpayer who Rob Portman said this morning said, I'm just not going to file. You come and get me. And once you're in that position, IRS classifies you as a bad taxpayer. And you both get locked in this position where terrible things happen on all sides.

And I view that as a management failure of the IRS. And in going through those cases I saw that management failure over, and over, and over again. I was seconded by that management failure, interestingly enough, by a study that Charles Rossotti commissioned. He, very early in 1997 or 1998, asked three senior executive service members from outside the IRS — three top senior executives from the federal government in enforcement-type agencies — to look at what happened in some of these issues, these concerns that were elevated as a result of some of the hearings.

And what that report came back and said — and I have cited in past annual reports part of that study — was that it was a management failure. That directives came down from the national office saying what we are measuring, what we are looking at inside the IRS in terms of performance. And that the message as it went down through the ranks got translated into dollars, dollars, dollars, and more dollars. And management did not do its job in maintaining a clear, balanced message about how we operate the tax system.

And when left to its own devices, IRS does what its told to do. And if it's told to raise dollars, it will raise dollars.

If it's told to improve voluntary compliance, which will in fact raise dollars, it will do that. And it is management's responsibility to moderate that message and make sure it is an effective message that doesn't lead to abuses of taxpayers.

Now, I will also say about this that what I think is most instructive about RA 98, and the first panel basically said this — that, you know, no one pays attention to tax administration because it's not sexy.

And so the only way that it became sexy was by again having people put bags over their heads and tell about terrible stories.

Well, you know, we have been trying for the last four, five, six, seven years to get another T-Board bill passed. You know, additional taxpayer rights. We've had the Good Government Act. We have Congressman Basara's bill now — his Taxpayer Bill of Rights Act out. The Senate Finance Committee has tried over and over again — first Anita Horn Rizek and now these individuals on the Senate Finance Committee — Mary Baker, Theresa, everybody's been working on this bill.

It has no purchase. I am hopeful that we are not so cynical that we need to have people with digitized voices testifying before the Senate Finance Committee again in order to get a bill passed that brings about, you know, some refinements to some of these things and introduces some additional provisions that I view of as very important.

And to sort of do the segue into what we're going to talk — what this panel is sort of talking about, which is where do we go from here and what more needs to be done? I could go on and on about what I think is positive in the Restructuring Act, starting with my own job. But I think that it's more important to talk about some things that I've proposed recently.

In my December 31st annual report to Congress, which sometimes reads like a restructuring act, I proposed that Congress pass a Taxpayer Bill of Rights. And I think this goes to — maybe it was Mort's comment about — that the Restructuring Act left the taxpayer's role out of the equation. We have so many protections in our laws now for taxpayers that, in fact, the IRS often forgets about those protections because there are so many of them.

And taxpayers certainly don't even know they exist because there are so many of them.

And we had started working on this proposal to take something that was mandated in the Restructuring Act, Publication One, which tells the taxpayer about their rights within the examination and collection process. And it has to be sent to every taxpayer at a particular point in time — that this publication as so unwieldy and very difficult to read. There was lots of good stuff in it, but taxpayers didn't read it.

And I had this vision of basically coming up with 10 rights, like we have in our Bill of Rights in the Constitution. But it would pertain to taxpayers. What are their rights in plain English. And then under each of those 10 rights you would fit all of the provisions that were already in the law.

They pertain to the right to representation or the right to have a fair, you know, appeal administrative appeal, whatever. You know, you could put them in these buckets.

And as we started working then doing research, we looked around the world at the other charters that had been done in other tax agencies. And although the IRS is a premier, if not the premier, tax agency in the world, sometimes our position as a lead tax agency makes us hidebound and we refuse to look at what other tax administrations are doing that are novel and innovative. And I think in some areas we can really learn from the rest of the world.

And one of the things that the OECD, the Organization for Economic Cooperation and Development, had done back in the 1990s is they had surveyed all of their 30 or so members about what their bill of rights was like. Who had a bill of rights? Who had some kind of taxpayer charter? And then they published a practice note, which was sort of if you're going to do a bill of rights and you're a tax agency, or you're going to do a charter — a taxpayer charter here are some considerations you should have. And when I looked at that I saw very many things that I personally thought made a lot of sense and I had already put in my draft bill of rights.

But what was most fascinating was that there were not only rights that the taxpayer had, but there were obligations that the taxpayer had. And I thought, this is a very important document. What we need to pass is a taxpayer bill of rights and taxpayer obligations so that we articulate the social contract that tax administration is. That the IRS or the tax administrator will administer the laws fairly, protect taxpayers' rights, but taxpayers, on the other hand, have an obligation to come forward, be honest, keep records, be cooperative, etcetera.

So my proposal was to have 10 rights of taxpayers, and five obligations of taxpayers. And that formed the basis for a good government bill or a taxpayer bill of rights.

So now maybe I'll just let it go at that.


MR. BOOK: Thank you very much. My role today I view as being able to provide that ground-up perspective. In this morning's panel we heard about the lack of sex appeal associated with tax administration. Well, I come at this from spending the better part of the last 10 years directing a student clinic — a low-income taxpayer clinic — first up in Connecticut, and the last seven years in the Philadelphia area.

And I came to the world of restructuring about, I guess, initially in 1997 after having, at the time I thought the good fortune to stumble into a room at an American Bar Association Taxation Section panel in Washington, D.C., that was talking about tax clinics. And at that meeting, tax clinic pioneers were talking about the need to expand clinics and to ensure that taxpayers across the income spectrum had an opportunity to have a fair chance.

At that time I was practicing tax law at a large Wall Street law firm, and I did not see the connection at all really between my tax practice and the needs of unrepresented. Then Janet Spragens and Nina spoke. And when I first heard Nina, the first thing I thought to myself is why is this woman yelling at everyone in the room? Well, she certainly still yells. And while I was probably taken aback initially by the intensity, what the intensity revealed was a passion and a vision that she, and Janet, and a few others had about how the tax system could improve to address those without vast resources navigate a complex thicket of procedural and substantive rules.

With Nina carrying on at that same intensity — and I don't know how she does it and there are over 150 clinics around the country. And that as we speak, some person is likely meeting with a representative who is explaining, for example, what they can do to ensure establishing eligibility with the earned income tax credit to generate a refund that can mean the difference between affording this month's rent and not. That's a testament to the positive legacy of restructuring.

Shortly after that meeting, I left the law firm practice and entered the world of teaching and directing at a low-income taxpayer clinic. And my experience over the last 10 years has shown me that scores of taxpayers in both the pre-assessment and collection phases of the compliance process act in good faith. And the vast majority of taxpayers in IRS's compliance cross hairs are innocent in the true sense of the world, without the means to navigate an often mindnumbingly, complicated, and at times, scary process.

So earlier this morning we heard about some of the flaws in the legislative process. The legitax reform. How some of the reform's rhetoric that played to and likely exacerbated anti-government passions, and how Congress and the media portrayed the IRS employees as the villain, rather than the public servant that the IRS's employees are.

Despite the flaws of RA 98, we've always heard about its successes. Successes in my view that are rooted in the realization that IRS actions at times, and even with the best of intentions, fail to consider adequately the interest of individual taxpayers.

And this ties in, I think, with Commissioner Shulman's point earlier this morning about the need to walk in the taxpayers' shoes. And I think that's an important starting point in considering tax policy and tax administration.

So, given this at-times failure, there are four points I want to mention today about how tax policy, I believe, must take better account of those with limited voice and access to the tax system.

1. Tax return preparers can be agents of compliance, and the government can do more to facilitate this than just ramp up civil penalty regimes.

2. Changes since RA 98 and the Offer and Compromise program have drastically reduced the numbers of offers in a manner inconsistent with sound tax administration.

3. There are hundreds of thousands of taxpayers of good faith who, due to circumstances that are not their own fault — like medical problems, language barriers, literacy issues, and plain old fear of government, sometimes caused by experiences in other countries or cultures — are ill-equipped to handle normal IRS compliance procedures. While this was true prior to reform, these problems are often exacerbated by the increased emphasis on efficiencies associated with centralization that have resulted since reform.

4. Costs to repeal collection due process are misguided and have the potential to curtail the central rule of our principles and allow improper collection practices to escape appropriate scrutiny from the judicial branch.

Now, I reiterate highlight because I hope that this spurs discussion rather than this sinks like an 8 a.m. federal income tax lecture where my students are buried in their laptops and have their caps down over their eyes.

So I'll just elaborate briefly on two of those points relating to tax return preparers and Offers and Compromise. Now, tax return preparers are an essential part of taxpayer rights and tax compliance. Good preparers who work in the public interest help the IRS educate taxpayers and facilitate efficient electronic filing, an important mandate of the Restructuring Act. They help taxpayers comply with the tax laws, and they reduce the stress and anxiety often associated with the tax process.

Commercial preparers have grown significantly in the decade since reform, with now approximately 62 percent of individual filers using preparers, and even more lower income earned income tax credit individuals using commercial preparers. Of the approximately 1.2 million preparers who filed returns in 2006, over half of them are unregulated.

The limited data that the IRS has released relating to errors associated with returns generated by commercial preparers and widely publicized GAO mystery shopper scenarios showing significant errors, show significant errors among some commercial preparers. It is mindboggling that assuming taxpayers desire to be compliant, there are not significantly lower error rates among those who visit commercial preparers.

IRS and Treasury's recent advances in proposed rulemaking concerning the possible additional regulation of refund anticipation loans raised the question about how incentive might affect the intensity of preparer due diligence and preparer honesty.

Even industry participants implore that the IRS conduct additional research into the connection between, for example, refund loans and error rates. The market plays a valuable role in assisting Americans comply with their tax obligations, often at reasonable prices and often associated with quality service.

But the limited research in my personal experience in the clinic has shown that some Americans are poorly served by dishonest, and at times incompetent preparers. Recent legislative proposals mentioned before to license and regulate return preparers deserve careful congressional consideration. Additional regulation reflects the reality that merely ramping up the civil preparer penalty regime will not meaningfully address some compliance problems or at least facilitate it for preparers. And steps like increasing the reputational capital at stake for such valuable members of the tax system can only increase the gatekeeper-like role that preparers can increasingly play, especially for lower income and small business taxpayers.

Now, in addition to regulating preparers, I want to talk a little bit about Offers and Compromise, which was a significant part of the Restructuring Act.

There were parts of the Restructuring Act that addressed offers and collection alternatives generally. And RA 98 reflected recognition that offers can be a valuable compliance tool. From the IRS's perspective, they can generate access to equity and assets and monetize future income potential.

Between Fiscal 2001 and 2007, offer receipts declined by 63 percent, and the number of offers accepted declined by 70 percent.

The Taxpayer Advocacy Service has done meaningful work in the past few years highlighting the possible chilling effect of user fees and partial pay requirements that have significantly increased barriers to entry to the offer program. As a lead drafter of an ABA tax section comment urging liberal exemptions from user fee and partial pay requirements, I was, and even more so today, remain concerned that these policies preventing good faith taxpayers from accessing the offer program.

Driving people into bankruptcy and forcing people to remain below the radar and in noncompliance limbo.

Let me connect this again further to RA 98. RA 98 reflected a desire to encourage offers, and amended section 7122 to the IRC states that the IRS cannot reject an offer merely because the offer amount is low.

This right was meant to ensure that the IRS does not reject offers from low-income Americans just because the amount of the offer is low. It does not mean, however, that the IRS has to accept every low offer that comes down the pipe. But the spirit of this is that the IRS considers an individual's collection potential, irrespective of who that person is or how limited her resources are.

But here is the rub, and this is implied in this morning's panels as well. This legislative right is meaningless unless individuals can genuinely enter the offer process and articulate their collection potential. Throwing in user fees and partial pay requirements, even with an increased exemption level from 100 percent to 250 percent, will invariably prevent good faith and genuine submissions. I note that recent research indicates a significant amount of exempt-eligible individuals fail to complete waiver requirements, by the way.

Now, the articulation of an individual's collection potential is often not discussed, but this, too, I believe is key. Two recent and brief examples from Villanova's Tax Clinic illustrate this difficulty. In my, and now my successor Keith Fox's tax clinic class, at the start of the second month in our tax clinic we give students a fairly simple collection problem.

The problems asks the students to consider a possible offer and compromise for an individual named Steve Freshstart with limited assets and a checkered past but now a steady job. His collection potential is rightly $2,700 or so, and the students are supposed to recommend an offer and compromise based upon data's collectibility. Students have access to IRS collection material, training going into the exercise, and are familiar with IRS process and how to navigate the IRS's website and IRS forms.

This past semester, the collection potential that the five teams of students determined was 1, zero; 2, $22,000; 3, $32,000; 4, $42,000; and the fifth team could not get their way through the Form 656 collection worksheet.

Determining collection potential, even in straightforward cases and even with intelligent and trained law students, is difficult. Throw in some special and all too typical circumstances; for example, a recent case where the only asset we had to deal with was a rural couple's old car that they relied on to get to distant medical care. And there is no apparent place in the IRS's offer materials that would prompt an individual to request an offer excluding the equity from that limited vehicle.

So, now, what can be done? Raise some problems. First thing, positive IRS publicity about taxpayer rights, including in relation to offers, rights about waiving user fees and a better description of how circumstances can reduce collection potential integral to assisting taxpayers achieve the rights which are statually created.

Meaningful referrals to clinics are another thing that could be done to allow taxpayers to get access to the system.

However, these small examples illustrate the limitations of legislative reform if reform is not tied to proper agency emphasis and rights, especially those who are often facing other significant life barriers to full participation in the process.

MR. BERGIN: Thank you, Les.


MS. PATTARA: Thanks, Chris.

Senator Grassley, as many of you know, has been, and continues to be, a strong proponent of treating taxpayers fairly and with the utmost respect. He was a champion of the first Taxpayer Bill of Rights Act, the Taxpayer Bill of Rights II. As Mr. Portman mentioned this morning, he was a member of the commission, and he remains actively engaged in IRS oversight. While he is a strong component of taxpayer rights, he also believes that the IRS should run as effectively and as efficiently as possible.

And that's part of the reason why I'm here. My comments are going to draw from his continued interests in IRS oversight and taxpayer rights, as well as my experience as a seven-year veteran of the IRS in sort of, I guess, the Generation X mentality. And I'll talk a little bit about that later.

But I wanted to make clear for our friends in the press here that if you are looking for a direct comment from the Senator, our press staff is on-call, and they do have a pretty high level of service. So, feel free to give them a call.

To address the question of the title of this panel, which is where do we go from here, I wanted to focus on three of the key areas of the RRA 98. The areas I'm going to focus on are modernization, the IRS Oversight Board, and taxpayer service. And then talk about one of my personal interests right now, which is the human capital issue the challenges the IRS faces in human capital.

To start with modernization, I think that there are a number of successes, some of which don't get talked about, quite frankly, because they're behind the scene successes. I think the IRS has done an amazing job of improving its internal governance of managing technology projects.

When I say that, the hurdle now in the IRS to get a technology project through is pretty high, but it's a good one. They actually have performance goals and measures in place that each office division needs to run through and then has to continue to put the proposals up the chain of command. And you have people sitting at a high level talking about whether the technology portfolio makes sense.

It's more centralized. You know, being at the bottom level of that it was frustrating because every office in the IRS has great ideas for how technology can make their job better. And I think prior to RA 98 and the emphasis on the oversight of modernization you had a pretty haphazard approach. So I do think that that is a success. They do have a governance structure in place.

Talking from an employee point of view, they have actually improved internal customer service. Just the simple fact that right before I left to join Senator Grassley's staff officially in April, I got a notice that my laptop, that I only received just four years ago, was up for renewal is unprecedented in my opinion. They're trying to keep up with industry standards. Simple things like being able to deploy virus fixes remotely. Things that the private sector had been doing for years before the IRS got involved, I think is a success.

And obviously, I have a different perspective, because having joined the workforce in the mid-'90s and understanding the importance of technology was constantly frustrated by the lack of resources that were available to IRS employees in keeping up with what the outside had.

They've also, I think, been successful — and I don't know if this is part of RRA 98, but the technology workers are not subject to the normal GS schedules.

So I think they've been successful in recruiting some great people who are dedicated to the mission of the IRS and are extremely knowledgeable in technology issues.

Given all the successes, there still remain some challenges. E-file has not been where it needs to be, and that is something that they are working on and Congress is also working on. They cannot keep up with technology — at the rate that technology is moving in the private sector, the IRS is not keeping up with. Try as they might, they're still focusing on modernizing their systems from 40 years ago, which still needs to happen. But that project is so massive that they can't keep up with the day-to-day needs of technology and data. So, competing priorities, basically.

Just to highlight that point, when we talk about electronic filing, the capability of having all of the data available from all the returns serves a number of purposes. Right now the focus on e-filing is just getting taxpayers to e-file, whether they're corporate, or individual, or tax-exempt organizations. For the last 10 years the focus really has been on just getting the data in. They are now starting to turn to a need to increasingly focus on how you turn that data around internally so that agents have that data so that policy people have that data.

To give you a perfect example, we are, as we're developing legislation as I'm doing in my role now, we're coming up on a hearing on Indian travel government. Part of the topic of that hearing is the Indian employment credit and accelerated appreciation being used by Indian tribal governments. It's information that's being reported on returns, but information that IRS isn't capturing for one reason or another.

The emphasis has always been on what the statistics of income division can generate.

It's what Joint Committee on Taxation uses for their sources of information.

Well, statistics of income takes both paper returns and electronically filed returns and is in the process of transcribing both. Because the e-file system — the databases that capture the e-file data, they don't have access to. Similarly, agents or mid-level managers who are trying to do trending and compliance issues don't have access to return data.

So, they have some challenges in how they use electronically filed data that, obviously, one of the hurdles is getting to a much higher rate of e-file data. Fifty-seven percent of returns, I think, is a significant accomplishment. It's not far enough, and it's something that my boss supports. I think Senator Baucus, and there's general support for the government bill. Just politics of D.C. hasn't moved forward.

Moving on to the taxpayer service.

I think the question arose in this morning's panel about whether the IRS is kinder and gentler. I started in IRS in September of And I had spent about five or six years in public accounting before that and as a law clerk as I was going to law school.

And when people started telling me that we had to talk about customer service I was just like, what in heaven's name? I was lucky because I was in the Tax Exempt and Government Entities Division, and we clearly did not want to talk about those folks as taxpayers because they were not taxpayers.

So customer service made a lot more sense.

But, you know, as an individual who at that time really didn't have to interact with the IRS, if somebody came and told me that I was a customer of the Service I probably would have been very unhappy, to put it kindly.

But we borrowed — the IRS borrowed a lot of terminology that came from the private sector at that time, and that was one of them. State quota relationship management, customer relationship management.

And I think it's actually very exciting to see that they are following industry standards, or trying to match industry standards when it comes to customer service.

The fact that they're talking about level of service on the phone lines is a huge improvement. I think 82 percent is a good number. I don't think — there's room for improvement, and we acknowledge being on the Hill that that level of service is probably going to decline this year because of the late-breaking legislation, as well as the stimulus issues that arose.

But I do think that that was a success. I do think that the IRS is kinder and gentler. We now have training every year on — sorry, we — the IRS now conducts training every year on certain issues in customer service and the unauthorized access issues are part of that annual training. So they have made that — have made huge improvements, I think, in that area.

The taxpayer advocate's office, which my boss was a huge proponent of, I think has done tremendous work. I think there was a comment this morning about whether the integration of the offices overall in the IRS, the top-down approach — whether it was good or not. I do think the TEGE was a good model. You don't have people making decisions about denials or revocations of exempt status at a district level; you have it at a national level. You're setting policy at the national level and trying to communicate that down.

Similarly, you have a national — there's more policy in the taxpayer advocate's office on issues. They're doing more systemic advocacy, which I think is excellent. That being said, I think some of the items that have been reported on from the taxpayer advocate's office — and I apologize because I haven't had a chance to speak with Nina since I've taken on my position — makes us question whether there's a little bit of mission creep there.

A lot of the research and oversight work — there's a lot of research that's done by TIGTA and GAO, as well as the Office of Research and Analysis and IRS.

Are there efficiencies to be gained by sharing some of the workload? I also get a little bit concerned when I see the number — the caseload increasing in Nina's shop — because it makes me wonder is that another systemic issue. Is there more that should be done, especially by the point the taxpayer advocate gets involved it could be 30, 60, 90 days. Does that mean that something has to be done quicker and more efficiently at the agent level rather than by the time it gets to the Taxpayer Advocate's office? So, I think that there are still challenges, but I think overall there have been some great outcomes from the RRA 98 in terms of taxpayer service.

With respect to the Oversight Board, I think Mr. Portman hit on one of the things that I've very focused on and my boss is very interested in. The Oversight Board is a very unique creature, because it doesn't have pure independence, but it was set up to do — and I also don't like the term oversight, because to me it goes back to the fact that you've got GAO and TIGTA and a whole bunch — and CBO doing oversight of the IRS. But in the world of post-Enron where my boss has been very engaged in governance reforms at the American Red Cross, and the Smithsonian Institution, and the Nature Conservancy — very interested in how can this board be more engaged?

And I think that is a crucial question because it's tied into the question that everyone's been talking about about Treasury is engaged in tax policy. IRS, for the most part, has to be reactive.

It has to implement legislation.

It has to collect 140 million 1040 returns and 60 million business returns. I'm not sure if my numbers are right, but IRS, for the most part, is focused on its production.

It's a production environment, and it has to manage that.

And when you think about whether the Oversight Board can and should do more, there are a number of areas that I think that they can be of help. And given that they can't really do tax policy because that's the purview of Congress and Treasury, they can, I think, do a lot in the area of administrative policy. Right? Just talking about legislation and the extenders battle, which Mary and I are in the middle of, obviously, but we also realize it's a political football and we do the best that we can.

But, the IRS has to sort of be in position. They did an amazing job this year of balancing the stimulus payments and the late-breaking legislation during the filing season. But could the IRS Oversight Board have done more to — and not just in this particular situation — but can they look strategically down the road and say here's where Congress might be going with legislation. How can we try to pull out a crystal ball and look at what's coming down the road and help IRS prepare for that. It might be one way in which they could help.

Looking at measures for compliance efforts. I talked earlier about how the technology area has done in modernization.

They've done an excellent job of implementing goals and measures to monitor their technology portfolio. We don't find the same thing with respect to their compliance efforts. And I can use this as an example because my boss is very engaged in this debate about private debt collection agencies.

Nina's shop has reported on this.

IRS itself has admitted that they don't have measures in place to measure the effectiveness of a program. Granted, this is a congressional program, which that in and of itself sometimes makes it seem that they don't have to do that, but in this case they do. And there are similar programs where we would hope that they would increasingly take on that responsibility.

And I think the IRS Oversight Board can think about that and help manage the whole performance measures, especially because it relates to how the IRS administers the tax law.

6103, I think, is an interesting area. In light of where the last major legislation being in 1976, which is pre-Internet boom and technology boom, does that warrant revisiting? It's an area that's hotly contested. My boss is a huge protector of taxpayer rights and privacy, but at the same time, something I've been considering in light of the issues that we have with collections in general, you're in a situation where you can have credit reporting at the drop of a hat, and my $10 cellphone bill that's past due is immediately available, but tax debts are not considered in that category of a credit risk until you get to the levy and lien process.

So, 6103, I think — not just in that context — I think warrants an independent consideration on how it impacts tax administration and data sharing to improve collections and improve compliance both across the IRS and state issues.

And I also think they can be a huge I think the IRS Oversight Board can help strategically when it comes to the human capital issue. I was very excited to hear the commissioner this morning talk about his initiative to do his workforce — task force I can't remember what the language was that he used. But the IRS is not just competing with other government agencies; they're competing with private sector.

They're competing with accounting firms and law firms, as well as what other options graduates are considering these days.

So I'm just going to talk for a few seconds about what I think is a major problem for the IRS. Y2K was a huge buzzword 10 years ago. Right? And it's thankfully a concept that's gone out of our vocabulary.

And it was part of the IRS restructuring commission, what it addressed. And I think that human capital presents the IRS with its most significant challenge for this decade and for this century.

Jeff, I think, mentioned — Chris mentioned funding. Jeff said it's not just funding.

And I would agree with that. In an area where technology increasingly reduces the need for certain tasks — or improves the efficiency of certain workstreams, you then need to think about how you allocate your resources. Just like we did with technology folks, does it make sense to start thinking about how we rope in better accountants, and CPAs, and lawyers to commit to some level of public service? The model of 30, 40 years ago where folks joined the Service for an extended amount of time is no longer a reality. Having spent seven years with the Service and four years in public accounting, with a large public accounting before that, everyone of my peers — you know, seven years is a long time.

How do you manage that? And this is, again, not just an IRS problem; it's a government-wide problem. But IRS, particularly, I think, is in a need for — is in a situation where there's a tremendous need for well-versed accountants and lawyers.

And the fact that you might have people on the outside that are smarter than the folks on the inside is a tremendous — smarter, not in terms of ability but just in what they're doing in coming up with tax shelters and creating transactions — is a problem. And training and recruiting and retention are huge challenges.

I think with that — I'm looking at the clock — I will turn it over to Mary.

But I just wanted to throw out some ideas for discussion later.

MR. BERGIN: Thank you. Mary.

MS. BAKER: Thanks, Chris. This has been an excellent program. It's been really interesting for me to listen to all this. When all of this came down, I was at the IRS. And I believe I was in the position of motor vehicle industry specialist. And then as the reorganization of the IRS occurred, I was fortunate enough to be able to participate in a couple of the reorganization teams that had to do with the industry specialization program, which was later renamed the technical adviser program.

And then the TA Manager Program. So, it's been fascinating to me to listen to the war stories and to hear the reform from a different perspective than what I personally experienced as an IRS employee.

And I would also just like to say that the remarks that I make today are my own and not to be attributed to the chairman or to anyone else. We also have a press shop, so they would be happy to answer additional questions.

There's one thing that really hasn't been given much emphasis today, which I think in a good conversation about the IRS it needs to be addressed — is the tax gap.

And the Treasury Department recently issued a report that the federal deficit for the first 9 months of this year is 268.7 billion. And if you annualize that, that works out to about $358 billion a year.

The IRS estimates that the annual tax gap, the amount of taxes that are legally owed, but not paid on time, is about $345 billion a year. So if you look at the annualized federal deficit of 358 compared to annual tax gap of 345 billion, it just makes you think what would happen if we were able to collect even a portion of that tax gap.

You would be able to increase tax revenues without raising taxes on anyone. And as any of you who follow tax legislation know, a big bone of contention, particularly with the extenders bill that Theresa mentioned, is on the payfor is it's not so much on the policy side, but on the payfors.

So, by increasing revenues without increasing taxes on anyone, I think that that deserves a serious look. It would also result in fairer tax administration. Nina has pointed out that, I believe — I don't know what your latest number is, Nina, but I know at one point it was about $2,600 per taxpayer burden that is placed on compliant taxpayers because of taxpayers who don't pay the taxes that they owe.

It would also result in a more competitive business environment. We're working on the credit card information reporting proposals — many of you probably know. And there are many merchants who actually are eager to have information reporting because they feel it's going to put them on a more level playing field than other merchants who do not pay taxes on all of their receipts.

In 2006, Chairman Baucus asked the Treasury for a credible and comprehensive plan to reduce the tax gap that included measures, and timelines, and specific goals.

And Treasury did produce that plan. It was released in August of 2007. It focused on many of the items that have been talked about today — service, enforcement, information technology, partnering with outside stakeholders, with volunteers. And we think that that is a good step in the right direction. And I think that sets the stage for going forward.

I see going forward as two tracks.

One, what we can do now and what we can do later. And I think that we need to be careful about not falling into the trap of pushing everything off on tax reform before we can improve tax administration. We need to look at what does the IRS have now that they can utilize to be able to improve tax administration with the laws that they have, with the processes that they have, with the authority that they have at this point in time.

And I think that one thing we need to take a good look at is how resilient is the IRS to be able to adapt to change, to adapt to new information technologies, to adapt to a more diverse society? And I think that a good start on that is going to be as the IRS is developing more new executives, the graying of the workforce, and as people leave, also provides an opportunity for the IRS to bring up new people, perhaps younger people, and also perhaps people that are not homegrown within the IRS as I think Jeff eluded to this morning.

Theresa and I just talked to the new Senior Executive Service group yesterday. And this is one of the things that we tried to emphasize with them is to take a look at the organization beyond just your discrete function. Look at it as a macro type of organization and don't just rely on if your numbers and your particular functions look good. Take a look at the opportunity costs of those numbers and whether or not that's the best use of the resources.

Even if the numbers are good, even if they're improving, maybe they could be used in a more effective fashion. The IRS is always going to have limited resources no matter how much funding it has.

So it's very important for IRS leadership to look — to assess programs in a responsible way with specific goals, with specific measures and timelines to be able to determine how effective they are.

And I would just like to — I know that there are folks from GAO here today. I don't know if there are any from TIGTA, but they have done very good oversight work in looking at programs that the IRS has and pointing out that in many cases the IRS does not follow its own processes and procedures, and may not follow — even if there are established goals or measures to assess a program — they frequently don't follow that.

And so they've done an excellent job of repetitively pointing out that that is a weakness of the IRS in assessing how it's using its resources for the next best use.

There are a number of other things I think that the IRS already has the authority for that they could do a more effective job. The preparer regulation is part of the good-government bill that's been percolating for quite a while on Capitol Hill. But there's opportunity to do better with the preparers with the tools that the IRS already has. The electronic return originator program requires as part of its background check that the applicants supply fingerprints, but the IRS does not check all of those fingerprints. The IRS tells us that they check about 25 percent of the fingerprints that are actually submitted.

And we understand that that's a fairly quick process. It takes a couple of minutes.

It's all done electronically. With the increased incidents of bad preparers absconding with people's refunds and doing all sorts of horribles, we think that it would be wise for the IRS to utilize the tools it has, the authority it has, and to do at a minimum the fingerprint checks. Another thing the IRS could probably do that would make the preparers more accountable is to assign individual preparer identification numbers to each preparer. It would make them much easier to track and be able to track noncompliance among returns that are prepared by a particular preparer.

The IRS also has penalty authority, and I know that there is conversation about the effectiveness of penalties. But a specific example of a penalty that the IRS asked for and has not utilized effectively is the failure to disclose a reportable transaction, Section 6707, Cap A penalty.

That penalty was passed in October of 2004 for returns that were filed after that date. And to date the IRS tells us that they have assessed less than 10 of those penalties.

So, that is a penalty that the IRS said was going to be a useful penalty to be able to slow down tax scams and schemes, but yet is assessing less than 10 since 2004.

That is a very effective tool that we think is not being used effectively.

Fed-state cooperation is another thing that the IRS has authority to do that we don't think is being utilized in as effective of a manner as it could be. I'll give you an example. We have learned about a program that's run out of Ogden where the state of California actually checks with the IRS to determine if certain license applicants are tax-compliant. And this pertains to employment taxes, not income taxes at this point. But it's our understanding that this program is raising several million dollars a year with a very, very small staff — small IRS staff dedicated to this. This is a win-win not only for the federal government, but also for the state governments. And we all know that they're scrambling for funds, too.

So, I think that there are a lot of opportunities for the IRS to partner with the states, with volunteers — assuming that there is sufficient oversight on those volunteer programs to make sure that the programs are run accurately and effectively.

And there are many other examples that I could give you, but in the interest of time, I think that this gives you a flavor that there are a lot of things that the IRS could be doing now.

They could be improving the transparency on their forms. It's very difficult to have a form changed. I've tried to go through that process as an IRS employee, and Theresa and I are grinning at each other because we've talked about this.

To change a form is kind of a difficult thing to accomplish at the IRS, but yet the increased transparency that could result from adding another line, perhaps on the Schedule C, for example, of cash receipts versus the credit card receipts, could really increase the amount of gross receipts that are reported and increase the rate of tax compliance.

A number of the other things I have on my list have already been covered. I do agree — someone mentioned today about early detection. The IRS kind of divides into pre-filing, filing, and post-filing. And I think more emphasis on pre-filing activities is something that has a lot of potential. I know that LMSB has a number of initiatives that focus on pre-filing. But it's like going to the doctor for a checkup. If you catch it early, it's a lot easier to cure.

And I think that a lot of the tax compliance problems could be in the same boat.

So that's what we can do now with what the IRS has. What are we going to do later? And I think that tax reform is something that's on everyone's mind. It's certainly a priority for Chairman Baucus. He has several overarching principles as he approaches tax reform of fairness, simplification, and a strong economy. And he's already started having hearings on individual taxes, small business taxes.

We're going to have a hearing next week on offshore abuses. I think you're going to see a number of roundtables that are going to be interspersed with hearings as we continue to develop a tax reform outline.

And he's committed to an inclusive approach that is going to take into account all the stakeholders that are concerned — academics, scientists, business, coalitions, the IRS, Treasury — all of those stakeholders should be involved in the process. And he's also committed to a bicameral and bipartisan approach to tax reform, because you have to get it passed.

In the end you can have all the good ideas in the world, but if you don't face the political realities of this town and get something enacted, it isn't going to go anywhere.

I think some of the key things that need to be addressed as far as tax reform or what is the IRS — and we've touched on that today. Is it just tax administration? Bringing in revenues? Is it to support public policy? To advance public policy? Energy independence? Retirement savings? Economic policy? Keeping jobs here in the U.S.? Keeping U.S. businesses competitive? All of those things are legitimate questions to be considered in the context of tax reform.

Another question is do you keep the system that you have? Do you just tweak the system? Do you broaden the base and lower the rates, for example? Or do you change to something entirely different like a value added tax or a national sales tax? The government — I anticipate a question that Chris is maybe going to ask — is when is good government going to be picked up again.

And I think the good government is something that is going to be addressed in the overall context of tax reform. Obviously, preparers who prepare 60 percent of tax returns are a key role in tax compliance and in helping taxpayers understand and meet their tax responsibilities.

Electronic filing. We need to explore how we can use electronic filing more effectively to reach that 80 percent goal. I would submit that we don't want to reduce that 80 percent goal because the electronic filing has many, many advantages. But I think that we need to figure out how we can get there.

Information reporting. Doug Shulman mentioned that this morning. We have the basis reporting proposal. We have the credit card information reporting proposal. IRS research shows 46 percent compliance without information reporting, and over 90 percent compliance with information reporting.

How IRS should be funded. Whether it should be taken as another line item in the budget or whether to acknowledge the return that the IRS receives — the IRS brings in the money that supports the infrastructure and keeps our economy going.

Business formats. C Corps, S Corps, partnerships. Should there be tax advantages built into those or should there be a more level playing field? And I'll just wrap up with permanence versus temporary. Every year we have to deal with the AMT patch. We deal with extenders. We spend a lot of our energy and a lot of our time not talking about advancing policy but renewing the same policy over and over. So, to what extent should those provisions be made permanent so that we can move on to other policy matters.

MR. BERGIN: Thank you, Mary.

Anybody on the panel have a comment? Nina.

MS. OLSON: Well, I'm just going to make a few follow-up comments. One thing that I've noticed about the IRS, and this has something to do with the way that the Taxpayer Advocate Service and the annual report interacts with the rest of the IRS.

When I first came onboard, Charles Rossotti said to me at one point, he said, you know, what's the difference between the Taxpayer Advocate Service and TIGTA and GAO? And I just sort of looked at him, like, Charles, you know, you're giving me a test question.

How am I supposed to answer that? And he said, well, you know, that TAS is also part of the solution. That you don't just identify the issue. But because you're inside the IRS you also have to be part of the problem.

And what I've observed since being in the IRS in 2001 and have learned so much more than I did from the 27-odd years that I practiced outside the IRS before I took this position, just from the way the IRS operates, is that, you know, the IRS — if you tell them to do something — they're really good at doing widgets. But they're not really good at dealing with discretion and judgment, which again goes back to my management issues. It's hard to get employees to exercise judgment and discretion. And it's easier to give them checklists of things to do.

Yet, the strength of our system, as Les has pointed out about offers and compromises, when we really do listen to people and we exercise this judgment and discretion.

And so a lot of what we're pushing is, don't just look at the problem that you've got to solve from the IRS perspective of we've got to get this job done and this is the most "efficient" way to get the job done because they're downstream costs. Well, the IRS doesn't like measuring those downstream costs. And so part of our job in the Taxpayer Advocate Service, as the statutory voice of the taxpayer inside the IRS, is to say, you know, think about the taxpayer — the impact on the taxpayer. And one way to force you to think about it that way is that we will do research studies, if you're not going to do them, to measure those downstream costs. Show where you're wasting resources your own resources — because you didn't solve the problem up front.

In fact, that's precisely what Commissioner Shulman is talking about walking a mile in the taxpayers' shoes. You don't even have to walk a mile; walk a few steps in the taxpayers' shoes. Getting to things sooner rather than later.

All of those things are really important. And what I've observed with the IRS is the first time we really raise an issue — the first year that we identify it or we raise it internally to the IRS, the IRS is often in a defensive posture. No, no, no, no, no, no, no, no, no, no. It's not a problem.

No, no, no, no, no. So then the second year, you know, we're discussing it further, and we're actually showing data.

And that's where our research is being done instead of the IRS doing it. We're saying look at these things. Here's a GAO report.

Here's a TIGTA report. Here's our own research that's showing — you know, your information is showing this.

And the third year they come back to us and they say, instead of us fighting this out in the annual report, can we sit down and have a team together? And that's — we've been here now long enough, since 1998 really we only stood up since 2000 — you know, we've been here now long enough that we're really — we're beginning to get the IRS coming to us and working with us as a team before it becomes a problem. It's not happening as often as I want, but it is happening.

MR. BERGIN: Thank you. We've got time for a couple quick questions. State your name.

MR. TOBIAS: Bob Tobias.

MR. BERGIN: Thanks, Bob.

MR. TOBIAS: I was pleased about your focus on Demand Side Management because replacing the 1960 system for the tax administration is critical. Everybody says one of these years it's going to crash. One of the years it is going to crash. 1960 is a long time ago.

Even for a guy like me it's a long time ago.

So, that's one thing. There's also recognition that DSM is really — addresses the problems you've all raised. The ability to have information available — to analyze it, to respond quickly, to respond to taxpayers quickly — is critical. Not withstanding all of that, the administration for fiscal 09 recommends $222 million or a $47 million reduction from last year.

Now, the Senate and the House recommend 282. The board recommended 407.

Now, my question is when will we be able to view DSM as an investment? As a real investment. Now, we have this intellectual idea (off mike) there will be a high return on that investment across the board. What do we need to do to translate the intellectual acceptance into dollars?

MS. PATTARA: I think part of the problem is IRS not telling their story properly. Because I think, and rightfully so, Congress is always interested in what's the waste in the dollars that are being spent.

And like I said, I do think that having been on the inside that there's a lot of good. And it's just a matter of kind of going back to what, you know, Nina just highlighted again — IRS still has challenges dealing with sort of a new environment and how to get past counting widgets and that sort of thing.

And as they now have these processes in place to measure performance and goals, with technology they actually have timelines to implement things. But I'll give you the perfect example. My first project when I started with the IRS was building a business case for why the 990 should be e-filed. It doesn't bring in revenue. You know, nobody apparently seemed to care. From the IRS's perspective, tax-exempt organizations were always the stepchild of the IRS. That being said, you know, where the focus has been in terms of data collection, you had to make a non-dollar-related argument for why it made sense.

And I don't know that the IRS has done a good job of making its non-dollar-related arguments for modernization. Talking in terms of where is the industry, where is the private sector in technology, and why are we still far behind? And that's part of it. And part of it is just politics. It's just pure politics of let's find a place to cut money and make sense from that. And I can't even speak to the administration's process for making proposals and increases or reductions, but this is sort of where ideally the IRS Oversight Board would have more of a voice in sort of saying here are some industry standards. Let's apply some of those concepts.

MS. BAKER: I'd just like to add that I think that as a result of what happened with modernization funds before, Congress was willing to give the IRS money to develop computer systems. And then as the IRS did squander many of those funds, Congress became more and more reticent to provide more funding. And I think that now you may be beginning to see that starting to inch back up — that the IRS has demonstrated they are becoming more responsible as they've tried to clean up some of the things that didn't work out very well — that they weren't very responsible for. They had contracts that weren't clear and succinct in what the terms were. The contractors were not really accountable.

But I think the IRS is turning that around. We did ask at the filing season hearing or the budget hearing — we did ask Secretary Paulson why they were cutting that budget. And he did not have a very good answer. And the chairman does understand the value of information technology. He thinks that that is key to the IRS being able to keep up with 21st century technology and what's going on in the tax world.

MR. TOBIAS: We would hope that when GAO says the IRS is doing a good job as they have done in the last 18 months, we know the role. When GAO says nothing is wrong, that's a rave review.

So, the IRS has been getting those reports for the last 18 to 24 months with respect to modernization. So we're hoping that will become part of the intellectual capital that members of Congress will use as they allocate to modernization.

MR. HALPERIN: My name is Jim Halperin. I'm chairman of the United States Tax Court. With respect to implementation of the 98 Act, I work a little further down in the weeds than I think most of the people on the panel. And I have at times directed Theresa and Mary. And with respect to — perhaps it's time that Congress look at implementation and some of the provisions.

Focus on the provisions we deal with — the collection of due process provisions, the innocent spouse provisions.

There are now 10 years of history of implementing these provisions. And I think everybody will agree there are problems. There are good spots, but there are many spots that need addressing. And I would simply suggest that the agenda of the tax-writing committees perhaps ought to include a retrospective look at how these provisions are being implemented and how they might be improved.

Because indeed, we're getting new provisions all the time. We now have the authority to review whistleblower claims. I know one of the conversations around the judge's table is what standard of review are we supposed to bring to these? Are they records review procedure where we simply look for abuse of discretion, or are we supposed to have a full-blown fact-finding hearing and trial on these issues. And I don't think they're clear from the statute. So I would simply suggest that maybe the agenda ought to include some review at this point. Thank you.

MS. BAKER: Thank you for the suggestion.

MR. BERGIN: I think with that — I don't see any more hands — somewhat long conference. Thank you all for coming. I want to thank our excellent panel here. It's been noted that tax administration seems boring. I would suggest that it's vital to running the country. And as we all know, there's a lot of smart people who care about it and are working hard to make it better. I hope that today we brought some more attention to these important issues. And thank you again for coming.


(Whereupon, at 2:02 p.m., the PROCEEDINGS were adjourned.)