<DOC>
[1997 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:43781.wais]


                                                        S. Hrg. 105-190


 
                    PRACTICES AND PROCEDURES OF THE
                        INTERNAL REVENUE SERVICE

=======================================================================

                                HEARINGS

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                     SEPTEMBER 23, 24, AND 25, 1997

                               __________

                                     
                                     

            Printed for the use of the Committee on Finance

                               _________

                      U.S. GOVERNMENT PRINTING OFFICE

 43-781--CC                 WASHINGTON : 1997


                          COMMITTEE ON FINANCE

                WILLIAM V. ROTH, JR., Delaware, Chairman

JOHN H. CHAFEE, Rhode Island         DANIEL PATRICK MOYNIHAN, New York
CHARLES E. GRASSLEY, Iowa            MAX BAUCUS, Montana
ORRIN G. HATCH, Utah                 JOHN D. ROCKEFELLER IV, West 
ALFONSE M. D'AMATO, New York         Virginia
FRANK H. MURKOWSKI, Alaska           JOHN BREAUX, Louisiana
DON NICKLES, Oklahoma                KENT CONRAD, North Dakota
PHIL GRAMM, Texas                    BOB GRAHAM, Florida
TRENT LOTT, Mississippi              CAROL MOSELEY-BRAUN, Illinois
JAMES M. JEFFORDS, Vermont           RICHARD H. BRYAN, Nevada
CONNIE MACK, Florida                 J. ROBERT KERREY, Nebraska

            Lindy L. Paull, Staff Director and Chief Counsel

      Mark A. Patterson, Minority Staff Director and Chief Counsel

                                  (ii)



                            C O N T E N T S

                              ----------                              

                           SEPTEMBER 23, 1997

                           Opening Statements

                                                                   Page
Roth, Hon. William V., Jr., a U.S. Senator from Delaware, 
  chairman, Committee on Finance.................................     1
Moynihan, Hon. Daniel Patrick, a U.S. Senator from New York......     4
Grassley, Hon. Charles E., a U.S. Senator from Iowa; member, The 
  National Commission on Restructuring the IRS...................     6
Kerrey, Hon. J. Robert, a U.S. Senator from Nebraska; co-
  chairman, The National Commission on Restructuring the IRS.....     8
Graham, Hon. Bob, a U.S. Senator from Florida....................    12
Conrad, Hon. Kent, a U.S. Senator from North Dakota..............    14
Gramm, Hon. Phil, a U.S. Senator from Texas......................    16
Bryan, Hon. Richard H., a U.S. Senator from Nevada...............    17
Nickles, Hon. Don, a U.S. Senator from Oklahoma..................    19
Lott, Hon. Trent, a U.S. Senator from Mississippi................    21
Rockefeller, Hon. John D., IV, a U.S. Senator from West Virginia.    22

                        Congressional Witnesses

Hoyer, Hon. Steny, a U.S. Representative from Maryland...........    10

                            Public Witnesses

Lane, Joseph F., enrolled agent, chairman, National Government 
  Relations Committee, the National Association of Enrolled 
  Agents, Gaithersburg, MD.......................................    23
Woehlke, James A., Director, tax policy, New York Society of 
  Certified Public Accountants, New York, NY.....................    29
Goldstein, Robert L., chairman, Relations with IRS Committee, New 
  York Society of Certified Public Accountants, New York, NY.....    29

                           SEPTEMBER 24, 1997

                           Opening Statements

Roth, Hon. William V., Jr., a U.S. Senator from Delaware, 
  chairman, Committee on Finance.................................    33
Murkowski, Hon. Frank H., a U.S. Senator from Alaska.............    34

                            Public Witnesses

Davis, Shelley, author of ``Unbridled Power'' and former 
  historian for the IRS, Manassas, VA............................    35
Schriebman, Robert, author of eight books on IRS practices and 
  procedures, adjunct professor of tax practice and procedure, 
  University of Southern California Graduate School of 
  Accounting, Rolling Hills Estates, CA..........................    38
Burnham, David, author of ``A Law Unto Itself: Power, Politics 
  and the IRS''; co-director, Transactional Records Access 
  Clearinghouse; associate research professor, Syracuse 
  University's Newhouse School of Public Communication, 
  Washington, DC.................................................    42
Hicks, Katherine Lund, Apple Valley, CA, accompanied by James 
  Hicks..........................................................    75
Savage, Thomas, Lewes, DE........................................    82
Ballweg, Monsignor Lawrence, New York, NY........................    85
Jacobs, Nancy, Bakersfield, CA...................................    87
Strauss, Bruce A., Florida.......................................   105
Larsen, Darren, California.......................................   108
Patnoe, David, Camario, CA.......................................   112
Lilly, Lawrence, G., St. Augustine, FL...........................   116
Long, Jennifer, current employee of the Internal Revenue Service.   120

                           SEPTEMBER 25, 1997

                           Opening Statements

Roth, Hon. William V., Jr., a U.S. Senator from Delaware, 
  chairman, Committee on Finance.................................   141

                        Administration Witnesses

Dolan, Hon. Michael P., Acting Commissioner of the Internal 
  Revenue Service, Washington, DC................................   198

                        Congressional Witnesses

Willis, Lynda D., Director of Tax Policy and Administration 
  Issues, U.S. General Accounting Office, Washington, DC.........   245

                            Public Witnesses

Witness No. 1....................................................   142
Witness No. 2....................................................   146
Witness No. 3....................................................   150
Witness No. 4....................................................   152
Witness No. 5....................................................   155
Witness No. 6....................................................   156

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Ballweg, Monsignor Lawrence:
    Testimony....................................................    85
    Prepared statement...........................................   255
Bryan, Hon. Richard H.:
    Opening statement............................................    17
Burnham, David:
    Testimony....................................................    42
    Prepared statement...........................................   256
Conrad, Hon. Kent:
    Opening statement............................................    14
Davis, Shelley:
    Testimony....................................................    35
    Prepared statement...........................................   259
Dolan, Hon. Michael P.:
    Testimony....................................................   198
    Prepared statement...........................................   261
    Letter to Senator Moynihan, dated September 30, 1997.........   280
    Responses to questions from Senator Nickles..................   282
Goldstein, Robert L.:
    Testimony....................................................    29
    Prepared statement...........................................   283
Graham, Hon. Bob:
    Opening statement............................................    12
Gramm, Hon. Phil:
    Opening statement............................................    16
Grassley, Hon. Charles E.:
    Opening statement............................................     6
    Prepared statements..........................................
      286, 288...................................................
Hatch, Hon. Orrin G.:
    Prepared statement...........................................   288
Hicks, Katherine Lund:
    Testimony....................................................    75
    Prepared statement...........................................   289
Hoyer, Hon. Steny:
    Testimony....................................................    10
    Prepared statement...........................................   294
Jacobs, Nancy:
    Testimony....................................................    87
    Prepared statement...........................................   296
Kerrey, Hon. J. Robert:
    Opening statement............................................     8
    Prepared statement...........................................   298
Lane, Joseph F.:
    Testimony....................................................    23
    Prepared statement...........................................   299
Larsen, Darren:
    Testimony....................................................   108
    Prepared statement...........................................   307
Lilly, Lawrence, G.:
    Testimony....................................................   116
    Prepared statement...........................................   309
Long, Jennifer:
    Testimony....................................................   120
    Prepared statement...........................................   311
Lott, Hon. Trent:
    Opening statement............................................    21
Mack, Hon. Connie:
    Prepared statement...........................................   312
Moynihan, Hon. Daniel Patrick
    Opening statement............................................     4
Murkowski, Hon. Frank H.:
    Opening statement............................................    34
Nickles, Hon. Don:
    Opening statement............................................    19
Patnoe, David:
    Testimony....................................................   112
    Prepared statement...........................................   313
Reid, Hon. Harry:
    Prepared statement...........................................   316
Rockefeller, Hon. John D., IV:
    Opening statement............................................    22
    Letters from Lawrence Summers................................   317
Roth, Hon. William V., Jr.:
    Opening statements...........................................
      1, 33, 141.................................................
    Prepared statement...........................................   323
    San Francisco IRS District, chart relating to................   325
Savage, Thomas:
    Testimony....................................................    82
    Prepared statement with attachments..........................   326
Schriebman, Robert:
    Testimony....................................................    38
    Prepared statement...........................................   330
Strauss, Bruce A.:
    Testimony....................................................   105
    Prepared statement...........................................   332
Willis, Lynda D.:
    Testimony....................................................   245
    Prepared statement with attachments..........................   334
Witness No. 1:
    Testimony....................................................   142
    Prepared statement...........................................   348
Witness No. 2:
    Testimony....................................................   146
    Prepared statement...........................................   350
Witness No. 3:
    Testimony....................................................   150
    Prepared statement...........................................   352
Witness No. 4:
    Testimony....................................................   152
    Prepared statement...........................................   353
Witness No. 5:
    Testimony....................................................   155
    Prepared statement...........................................   355
Witness No. 6:
    Testimony....................................................   156
    Prepared statement...........................................   355
Woehlke, James A.:
    Testimony....................................................    29
    Prepared statement...........................................   283


        PRACTICES AND PROCEDURES OF THE INTERNAL REVENUE SERVICE

                              ----------                              


                      TUESDAY, SEPTEMBER 23, 1997

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 9:00 a.m., 
in room SD-215, Dirksen Senate Office Building, Hon. William V. 
Roth, Jr. (chairman of the committee) presiding.
    Also present: Senators Grassley, Murkowski, Nickles, Gramm, 
Lott, Mack, Moynihan, Rockefeller, Breaux, Conrad, Graham, 
Moseley-Braun, Bryan, and Kerrey.

OPENING STATEMENT OF HON. WILLIAM V. ROTH, JR., A U.S. SENATOR 
         FROM DELAWARE, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will please be in order.
    This morning we begin the first of 3 days of oversight 
hearings into the tactics, management, and inner workings of 
the Internal Revenue Service.
    There is no other agency in this country that directly 
touches the lives of more Americans, nor is there any agency 
which strikes more fear into their hearts.
    The threat of an audit, the awesome power of the IRS looms 
like the Sword of Damocles over the heads of taxpayers. As 
Chairman of the Senate Finance Committee, I want to know why. I 
wanted to understand where this fear came from. I wanted to 
know if it was justified.
    Our committee's responsibility is to provide the oversight 
of this agency. This is a responsibility I take seriously. So 
in January of this year, with the support of my friend and 
colleague Senator Moynihan, I began an investigation into how 
this agency conducts business with the American people.
    Let me assure you, there is no political bias, no partisan 
motive behind our investigation and these hearings. As I said, 
they were initiated some eight months ago. What we have 
discovered indicates that problems within the IRS are not 
recent, they cover several administrations.
    Let me also say that the IRS is made up of many fine men 
and women, men and women of great character and integrity who 
perform a vital and difficult job for this country.
    In reflecting upon our investigation, I found this to be 
especially true. I note that without the help of many such IRS 
employees, our investigation would have been incomplete.
    There is no doubt that the powers of the Internal Revenue 
Service are extraordinary. The IRS can seize property, 
paychecks, and even the residences of the people it serves. 
Businesses can be padlocked, sometimes causing hundreds of 
employees who are also taxpayers to be put out of work.
    In some instances, the first time a taxpayer is aware of 
any enforcement action by the IRS is when his or her bank calls 
to notify that funds have been frozen. The IRS can take these 
actions in many cases without giving the taxpayer notice or 
opportunity to be heard.
    This is an awesome amount of power to place in the hands of 
any government agency. Is it appropriate? Perhaps. But with 
such power there must be an effective counterbalance of 
responsibility. Why? Because the greater the power, the more 
extensive the damage that can be done if that power is abused.
    Any agency with such power must be above reproach, 
especially as that enormous power allows it to pervade the most 
sensitive aspects of our citizens' private lives. Congress has 
granted such power to the IRS. As a consequence, Congress has a 
fundamental responsibility to see that the IRS operates with 
the highest degree of integrity, honor, and ethics. As the Good 
Book says, where much is given, much is required.
    Unfortunately, our investigation today has found that in 
many cases such high standards are not being upheld. Over the 
course of the next 3 days we are going to see a picture of a 
troubled agency, one that is losing the confidence of the 
American people, and one that all too frequently acts as if it 
were above the law. This is unacceptable.
    Even high-ranking employees of the agency have come 
forward, at some risk to themselves and their careers, to speak 
with us. As a consequence of such risk, some employees who will 
testify have requested confidentiality, and we have honored 
that request.
    We have also talked with many private citizens whose lives 
have been altered by IRS actions. These men and women have 
related their sometimes tragic experiences, not out of 
vindictiveness or mean-spiritedness, but out of deep concern 
and a fundamental belief that such a violation of their civil 
rights should not have taken place, not in America.
    We have listened to these men and women and we are holding 
these hearings because one thing is certain: we cannot fix the 
IRS without knowing what ails the IRS.
    What we seek is constructive criticism, criticism with the 
intent to improve, not destroy, to protect, not denigrate. This 
is not IRS-bashing, it is oversight. There will be no condoning 
of tax protestors or any others who would misinterpret our 
objective to legitimatize anti-government attitudes or 
behavior.
    These hearings are about good government, about correcting 
problems within government, problems that are acknowledged by 
those whose lives are dedicated to public service.
    Responsible oversight is the best way to ensure that not 
only is the government meeting the needs of the people, but is 
the surest way of letting the people know that they have 
influence over, and a strong voice in, their government. That 
is what these hearings are all about.
    Just as the IRS is quick to say that no honest taxpayer 
should fear an audit, no government agency should ever fear a 
Congressional investigation into its activities.
    While it is imperative that Americans pay their fair share 
of taxes in an effort to establish and maintain necessary 
government functions, it is equally imperative that the agency 
charged with the responsibility for this activity be fair, 
honest, open, and accountable. With this introduction, I 
believe it is important to outline how we went about conducting 
our investigation.
    Our objective from the beginning was to keep our 
methodology fair, yet still be able to get inside the agency to 
uncover the facts. In reviewing the treatment of taxpayers we 
took various cases to the IRS and reviewed every document that 
we could obtain.
    We interviewed the IRS employees involved in the particular 
cases. Over the next 3 days, we will hear about a number of 
these cases. We will hear from taxpayers, IRS employees. It is 
important to understand that these witnesses are typical of far 
greater numbers who have been moved to contact the committee. 
These individuals serve as a sampling that demonstrate the 
significance of problems and concerns with the agency. The 
facts will be startling.
    For instance, while the use of pseudonyms is forbidden by 
the Internal Revenue Manual, except for those in the law 
enforcement areas, criminal investigations, and inspection 
divisions, many revenue officers have been issued false 
identification credentials.
    While the IRS suggests that that is to protect agents from 
assault, I am concerned that it makes them unaccountable. Even 
members of the Metropolitan Police force here in the District 
of Columbia, despite substantial danger, wear their true names 
on their uniforms.
    In the next 3 days, you will hear about an audit called 
Blue Sky Assessments. These are tax assessments made against 
Americans that have no basis in fact or tax law. They can 
either be designed to hurt the taxpayer or simply raise the 
individual statistics of an IRS employee.
    You are going to hear a lot about statistics and quotas. We 
have learned that even at managerial levels the drive to 
achieve the appropriate statistic has caused problems in many 
areas of the country.
    While the use of quotas is specifically prohibited in 
rating the success of agents or officers in their jobs, it 
appears to be commonplace. I believe this is outrageous, a 
major problem that has become part of the agency's culture.
    Levies and seizures are also measurements of employee 
performance. In one case, we learned a revenue officer was 
counseled for not keeping his statistics up, so he seized 
several properties the next day. Some officers who are able to 
collect the full amount of taxes due are often rated lower than 
those who have seized property.
    Seizures may be done for status and promotions as much as 
for enforcement. Not only are levies and seizures measures of 
an employee's performance, but so is the number of cases 
referred to the Criminal Division.
    In other words, while there may be no basis in fact for a 
criminal referral, a taxpayer's life may well be turned upside 
down simply to keep an employee's or district's performance 
statistics up.
    Liens and levies may be filed against those whom the IRS 
knows have no liability for a particular tax. Parents, 
relatives, a company employee may have liens filed against 
their property or have a paycheck levied in order to get the 
real taxpayer to comply. This is called the whipsaw technique. 
This practice was explained to us, when we go after everybody, 
we know somebody will pay.
    Now, one of the most distressing things you will learn from 
this hearing is the preference to audit middle and lower income 
tax payers, as well as small mom and pop businesses. This is 
almost incredible to understand.
    Certainly it is not for the high revenue that these kinds 
of audits bring to the Treasury. So why are these Americans 
audited? Because it is easy. Most often, these are the 
taxpayers who cannot afford to pay back.
    Beyond learning about the fear taxpayers have concerning 
the IRS, I was very much concerned about how agency employees 
themselves feel. Many express fear of being retaliated against 
for speaking out against the kind of abuses I have mentioned 
here.
    We have heard in our investigation that the use of false 
allegations of wrongdoing against targeted employees takes 
place. In fact, just the number of times we heard the term 
targeting in relation to harassment of employees was stunning, 
and certainly if this treatment bothers the front-line 
employees of the IRS, it is devastating to the American 
taxpayer.
    Over the next 3 days we will hear more about these 
concerns, as Congress has given the IRS significant power in an 
effort to help the agency carry out its tremendous 
responsibility. It is also Congress' responsibility to ensure 
that such power is being used prudently, constructively, and 
with regard for the taxpayer employees of the agency.
    What we are learning suggests that there are problems and 
begs that Congress address three fundamental questions. First, 
does the IRS have too much power? Second, if Congress were to 
limit that power, what expectations do we have that the new 
limits will be more effective than the old? Third, how do we go 
about changing the culture of the IRS?
    What we seek to do is help the IRS get back to its mission 
statement. That statement reads, ``The purpose of the IRS is to 
collect the proper amount of tax revenue at the least cost, 
serve the public by continually improving the quality of our 
products and services, and performing in a manner warranting 
the highest degree of public confidence in our integrity, 
efficiency, and fairness.'' Well, this is our desire, to be 
certain the IRS is not only good for taxpayers, but that it is 
also good for government.
    It is now my pleasure to call on our very distinguished 
Ranking Member, Senator Moynihan.

   OPENING STATEMENT OF HON. DANIEL PATRICK MOYNIHAN, A U.S. 
                     SENATOR FROM NEW YORK

    Senator Moynihan. Mr. Chairman, let me thank you and 
congratulate you on the hearings that we have now commenced. I 
have been a member of the Finance Committee for getting on to 
21 years, and I do not believe we have had an oversight 
hearing.
    Oversight is our responsibility, and we are carrying it 
out. There is surely room for improvement in the Internal 
Revenue Service, and where we so determine, we should move 
legislation in a fairly rapid order.
    But I think it is also important to point out that a great 
deal of the problems of the IRS come about because of 
legislation which we ourselves have passed. There are now 9,451 
pages in the Tax Code. In August, as not many of you will 
forget, we added 820. I mean, you could hurt yourself if you 
tried to lift it. That is a pattern we do not seem to be able 
to break out of in order to address this as well.
    I happened to have had the privilege for many years to know 
Erwin Griswold, who was dean of the Harvard Law School, 
Solicitor General, who wrote the book on American taxation.
    He tells how, as a young man in the Solicitor General's 
Office in the 1920's, he found himself being asked to do some 
work on tax matters. He said he thought of going to the 
Solicitor General, telling him I did not know anything about 
taxes, but I decided to go to the library instead.
    He would write to me, because he insisted right to the end 
of an old and distinguished age that he make out his own tax 
returns. He would tell me exactly how many hours it took. His 
last letter was April 12, 1994. It had taken him 98 hours to 
make out his relatively simple tax returns, and this was a man 
who knew as much about the subject as any man living.
    Well, all those IRS employees face the same problems Erwin 
Griswold faced, and they need our help as well as our 
oversight. I am happy to offer both. I think your theme of 
power and responsibility is exactly right, sir.
    Welcome, and let the games begin.
    The Chairman. Thank you very much, Senator Moynihan.
    There is no question but what the complexity of the tax 
laws make the job of administration and enforcement very 
complicated and difficult. At the same time, it must be 
administered in a way that is fair and civil to our American 
taxpayer.
    Because we do have two votes coming roughly, I think, at 
9:30, I thought we would call, next, upon our two colleagues 
who are going to speak, as well as Congressman Hoyer, because I 
know he has to go back. Then afterwards, we will call upon the 
members for their comments about these hearings.
    At this time, it is with a great deal of pleasure that I 
call upon Senator Grassley, who was chairman of the Taxpayer 
Rights Tax Force of the Commission on Restructuring the IRS. 
Next, we will call on Senator Kerrey, who of course was 
chairman of that important commission.
    Finally, as I said, it is pleasure to have here the Ranking 
Member of the House Appropriations Subcommittee on Treasury, 
Postal Service, and General Government.
    Gentlemen, I would ask that each of you restrict your 
remarks for 5 minutes, as we do have a very full schedule.
    Senator Grassley.

 OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR 
FROM IOWA; MEMBER, THE NATIONAL COMMISSION ON RESTRUCTURING THE 
                              IRS

    Senator Grassley. Mr. Chairman, the issue is one of 
balance. The Federal Government, of course, needs to collect 
all of its revenue which taxpayers are obliged to pay. But 
taxpayers have certain rights that should not be abused. All of 
us should support a proper balance between the two. Yet, over 
the years such a proper balance has been lacking.
    It is for this reason that some of us seem to be advocates 
for the taxpayers without being mindful of the importance of 
revenue collection functions of the IRS. Any serious objective 
observer should acknowledge the necessity of balance.
    But when evidence mounts of IRS abuses and mismanagement, 
it is time to look beneath the surface and search for a 
systemic, cultural problem. We did that and we found them. A 
``we'' versus ``they'' mentality seems to exist, and that is 
not a healthy situation.
    This is not an indictment of the dedicated front-line IRS 
employees. Typically they do an outstanding, yet thankless job 
for the public. It is not they who should be the targets. 
Rather, it is the management culture, mindless of the fact that 
they are servants of the people.
    If allowed to persist, such a mind-set often leads to 
arrogance, unresponsiveness, disregard of one's rights, and the 
very kinds of things that we have been hearing from our 
constituents.
    When the Congress attempts to investigate, we are often 
derailed. A cloak of secrecy goes up. It is more veiled than 
even the most elaborate secrecy arrangements at Langley.
    In the language of the Federal Government it is called 
6103. That is the section of the Tax Code that prevents 
disclosure of taxpayer information. Designed to protect 
taxpayer privacy, it does much more. It also protects the 
privacy of those who abuse the taxpayers' rights, who mislead 
Congress, and who might use collection quotas in tax 
enforcement despite their illegalities.
    Such abuses occur when independent oversight is lacking. 
Oversight has a rather antiseptic quality about it. Hence, the 
commission's recommendations for an independent board over the 
IRS. This board would set appropriate performance standards, 
would measure performance, then reward or discipline managers 
according to that performance.
    Oversight means more general openness. The commission found 
that the IRS is a very insular organization. As a result, we 
have put forward a first step to make the IRS more open to the 
public and to the press. If we are to be successful in changing 
the culture of the IRS, a key ingredient is openness. The 
chairman of the commission, Bob Kerrey, was absolutely right 
when he noted at one of our hearings a point about the media. 
He said the media and the press are one of the key ways in 
which Congress finds out what is going on.
    So the commission, to encourage more openness as well as 
more accountability, prescribed the following three remedies in 
S. 1096. The IRS must be more timely and responsive in FOIA 
requests. The IRS must not abuse its authority under 6103.
    The commission found that the IRS did abuse its authority 
in hiding from the press the fact that the agency had provided 
false information to the Congress. The IRS must maintain and 
preserve records. It has not. Many requests by the commission 
for documents and data were met with a statement that such data 
no longer existed.
    Addressing these three areas of openness may not be 
headline-grabbing, but in my experience, together with other 
measures, these will help bring more accountability to the IRS. 
The IRS should be held to the same high standards that the 
agency itself applies to the American taxpayer.
    The commission did not call for the easy solution that 
often comes out of commission, to provide just more money. The 
IRS, until 2 years ago, had seen continual increases in its 
budget for 40 years. Indeed, the commission uncovered that 
hundreds of millions of taxpayers' dollars had been wasted. 
Clearly, the problem at the IRS is mismanagement, not money.
    S. 1096 is designed to address many of these management 
failures. I urge the committee to look favorably upon it. 
Meanwhile, the commission did not conduct serious oversight 
investigations to root out IRS cultural pathology. This is 
where the commission's job ended and the job of this committee 
begins with this week's hearings.
    Understandably, these are controversial hearings. The IRS 
is not used to be overseen. Untoward motives are assigned to 
our oversight efforts, like partisanship, but that is a tired 
argument. I intend to be an active participant in these 
hearings.
    In the 1980's, I was hardly partisan when I clashed with 
the Republican administration over defense issues, the same 
with the chairman of this committee. I have been overseeing IRS 
abuses as far back as the Reagan and Bush Administrations.
    In addition, I launched my efforts to oversee the IRS. I 
was joined by my close friend, David Pryor, a Democrat, and a 
close friend of the President's. We chose to make our critiques 
responsible instead of partisan. I believe the record reflects 
that. The charge of partisanship has no credibility with 
respect to oversight efforts. It will be a fair airing of 
questionable practices by an agency abusing its trust.
    I have learned over the years, Mr. Chairman, that oversight 
of the IRS is a step-by-step process, a long-term commitment. 
We learned of the agency's quota system back in the 1980's and 
we outlawed it. Suddenly, we find there might be an unofficial 
back-door quota system still in place. It seems like you put 
out a brush fire here and it pops up someplace else.
    The moral of the story is, history teaches the need for 
constant vigilance over the IRS. So, Mr. Chairman, I commend 
you for your leadership in holding these much-needed hearings. 
I would also like to say publicly how much I appreciated 
working on the commission with Senator Kerrey. His guidance and 
leadership produced a solid, credible effort.
    So, Mr. Chairman, I thank you for starting us down this 
road.
    The Chairman. Thank you, Senator Grassley.
    [The prepared statement of Senator Grassley appears in the 
appendix.]
    The Chairman. Senator Kerrey?

OPENING STATEMENT OF HON. J. ROBERT KERREY, A U.S. SENATOR FROM 
NEBRASKA; CO-CHAIRMAN, THE NATIONAL COMMISSION ON RESTRUCTURING 
                            THE IRS

    Senator Kerrey. Thank you, Mr. Chairman. First of all, I 
want to congratulate both you and the Ranking Member for your 
balanced opening statements. I appreciate that very much. 
Holding these hearings is also very helpful. I would ask 
unanimous consent that my entire statement be a part of the 
record.
    The Chairman. Without objection.
    [The prepared statement of Senator Kerrey appears in the 
appendix.]
    Senator Kerrey. Mr. Chairman, this commission held 12 days 
of public hearings, we had hundreds of hours of testimony from 
taxpayers and tax experts, we had 300 private interviews with 
front-line employees. From my experience in oversight on both 
the Appropriations and on the Finance Committee, we had an 
unprecedented amount of access of the IRS.
    We found a number of things. First, the IRS is relatively 
efficient compared to other tax collection agencies worldwide, 
spending about half of 1 percent of total collections, which is 
substantially less than many other nations do.
    But there was a disconnect between that efficiency and the 
taxpayers' own view of this agency, and that is what we are 
dealing with here. It is very important to note that the 
dissatisfaction with the agency did not begin with our 
criticism of the agency, it began with the taxpayers' own 
evaluation of what the IRS was doing.
    In the area of services being performed, there is a 
breathtaking gap between what the IRS can do and what the 
private sector can do.
    Taxpayers do not compare the IRS with a tax collection 
agency in Australia or the Federal Republic of Germany, they 
compare it to what they can get with their ATM card. There is a 
tremendous difference between what the IRS can do and the 
private sector can do.
    Another big area that comes in for criticism is secrecy. 
Senator Moynihan has a new book coming out. I read the galleys 
over the weekend. It really is a first-rate historical 
examination of how secrecy has been built up inside of agencies 
after laws have been passed.
    Secrecy and power, it seems to me, Mr. Chairman, run hand-
in-glove. So this issue of secrecy that Senator Grassley has 
talked about was heard from consumers. The complexity of the 
Code is obviously something that we create. Then layer onto 
that the inability to apply technology. What started this 
commission in the first place was the wasting of some $4-$6 
billion of taxpayer money on a technology system that, in the 
end, did not work.
    So that was the first finding, that there was a disconnect 
between apparent efficiency compared to other tax collection 
agencies and what the consumers thought. Blame was evenly 
balanced between Congress and the Executive Branch.
    There was an awful lot of attention given to the fact that 
85 percent of the American taxpayers voluntarily comply, 15 
percent do not. But the 85 percent who voluntarily comply are 
unwilling to give the IRS more enforcement power when they 
appear to be exercising that power sometimes in a very 
arbitrary and capricious fashion, and in a way that is 
difficult for us to examine because of the survey issue I have 
mentioned.
    We recommended change in three big areas, Mr. Chairman, 
with S. 1096. First, we recommend the creation of an 
independent agency. Second, we recommend the creation of a 
complexity index against which we can measure our proposals 
dealing with tax proposals.
    Third, we recommended a series of things that Senator 
Grassley has already dealt with in the area of shifting power 
to the taxpayer by giving the taxpayer more access to the 
information and what is going on inside the IRS, in other 
words, by shifting from secrecy to openness.
    The common criticism that I have heard from opponents deals 
with the independent board in S. 1096. Those of us who sat on 
this committee and listened to the new commissioner of the 
Social Security Administration understand the value of having 
independence.
    The value of independence is, you can be more accountable 
to what the people are asking for rather than succumbing 
sometimes to just an ideological view. This independent board, 
has been called a take-over by American CEOs, giving corporate 
executives the opportunity to run the IRS. You will hear that 
over, and over, and over, Mr. Chairman and members of the 
committee.
    I want you to hear what our proposed law says. It says, 
``The composition of the board shall be 9 members, of whom 7 
will be individuals who are not full-time Federal officers or 
employees who are appointed by the President by and with the 
advice and consent of the Senate, and who should be considered 
special government employees, one shall be the Secretary of the 
Treasury and one shall be a representative of an organization 
that represents a substantial number of IRS employees who is 
appointed by the President.''
    Mr. Chairman, our legislation has the support of not only 
the National Taxpayer Union, but also the National Treasury 
Employees Union. It has the support of professionals that work 
with taxpayers to fill out their tax returns, it has the 
support of the most recent IRS Commissioner Peggy Richardson, 
and it has the support of two former Treasury Secretaries.
    We attempted to respond in a balanced way to critiques of 
our Board and our legislation. There may be ways to improve our 
legislation, but it is going to be difficult to improve the 
legislation unless, first of all, we get a chance to be heard 
in an accurate fashion rather than to be heard in a fashion 
that distorts the content.
    Again, I congratulate you and I thank you for holding these 
hearings. I appreciate very much again your balanced opening 
statement, as well as the opening statement of Senator 
Moynihan.
    The Chairman. Thank you very much, Senator Kerrey.
    Now it is my pleasure to call upon our good friend, 
Congressman Hoyer.

   STATEMENT OF HON. STENY HOYER, A U.S. REPRESENTATIVE FROM 
                            MARYLAND

    Congressman Hoyer. Mr. Chairman, Senator Moynihan, members 
of the committee, thank you very much for giving me this 
opportunity. I have spent about 13, 14 years as a member of the 
Appropriations Committee overseeing IRS, and I am very pleased 
to have this opportunity to be here.
    I want to congratulate Senators Grassley and Kerrey for 
their work on the restructuring commission. I think an 
overwhelming majority of the work is very positive and I agree 
with it and hope to support most of that report.
    Mr. Chairman and Senator Moynihan, and the 102,000 men and 
women of the IRS who are responsible for collecting 97 percent 
of the Nation's revenue have, as Senator Kerrey has pointed 
out, one of the most difficult jobs in government. They collect 
the funds that pay to defend our freedom, educate our children, 
and take care of the old.
    At the same time Congress has flattened their funding and 
cut enforcement, we have also implemented new parts of their 
mission. The trend is asking the IRS to broaden its mission.
    Recently, for example, the Congress instructed the IRS to 
help in the important work of recovering child support 
payments, an important objective but added work.
    Against this backdrop, the commission wisely recommended 
``Congress provide the IRS certainty in its operational budget 
in the near future,'' and called for ``greater stability with 
funding levels.''
    As the commission has pointed out, Congress' failure to 
pursue consistent policies, as Senator Moynihan, and you, Mr. 
Chairman, have pointed out, have undermined the IRS in the 
performance of its functions.
    The vast majority of taxpayers in our country pay their 
taxes on time, voluntarily. Nevertheless, the IRS only collects 
about 84 to 85 percent of the taxes that are due.
    There is currently a balance due of $216 billion. When some 
do not pay their fair share, this increases the deficit and 
raises the burden on all of the rest of us. From the point of 
view of fairness alone, it is necessary for the IRS to carry 
out its enforcement.
    Nevertheless, in any large organization, however necessary 
enforcement is, the power that goes with that enforcement may 
be abused. Senator, you talked about power and responsibility, 
that being the focus of this hearing. Absolutely correct, in my 
opinion.
    Two years ago, of course, Congress revisited the problem of 
IRS abuses with the passage of the Omnibus Taxpayer Bill of 
Rights. In its report, A Vision for the New IRS, the IRS 
Commission on Restructuring found that this law ``had an 
important effect on changing the culture of the IRS.'' Mr. 
Chairman, you mentioned that. The commission has found that, in 
fact, the culture is changing.
    The commission went on to find ``very few examples of IRS 
personnel abusing power.'' None of us deny that it occurs, all 
of us believe we ought to eliminate it. But the good news that 
the commission found was that it is the exception. Even one 
instance, of course, is one too many.
    IRS management has followed up on cases aggressively to 
determine what went wrong and to take appropriate action. But I 
believe that even appropriate action, after the fact, Mr. 
Chairman, as you, I am sure appreciate, cannot erase the pain 
that some taxpayers have experienced. I am encouraged, 
therefore, that the IRS is following up with a service-wide 
program to stop this kind of abuse before it happens.
    This program includes centralizing and including training 
on the provisions of both the first and second Taxpayer Bill of 
Rights, creating taxpayer surveys that rate employees' 
treatment of taxpayer, and other efforts.
    Treasury and IRS has reaffirmed their commitment to the 
original Taxpayer Bill of Rights. A joint Treasury/IRS National 
Performance Revenue Task Force is currently conducting a 90-day 
study of customer service. I am sure it will be spurred on by 
this committee's actions, Mr. Chairman.
    Ultimately, however, I believe that a solution to the 
problem of taxpayer abuse cannot be separated from the larger 
task of building the IRS of the future. Senators Grassley and 
Kerrey have spoken of that.
    The Treasury Department, the IRS, the Employees Union and 
the Commission on Restructuring have identified a common set of 
concerns. To build the IRS of the 21st century, they have 
identified the need for renewed focus on oversight, leadership, 
flexibility, improved budgeting and tax simplification. The IRS 
has been rightly criticized in recent years for its failure to 
manage well. Particular focus has been directed at attempts to 
modernize the information systems.
    For the first time in the 15 years, Mr. Chairman, that I 
have been reviewing the IRS budgets, the Secretary of Treasury 
and the Deputy, for the first time, are giving personal 
attention to IRS management issues. This new focus is clearly 
making a difference.
    I am encouraged that Secretary Rubin has identified a 
candidate in addition to that to head the IRS who has a non-
traditional background in management and information 
technology, Charles Risotti. The Senate will be considering him 
soon.
    Mr. Chairman, I will leave the balance of my statement, but 
let me conclude by saying this. It is important to point a 
spotlight on areas of abuse in the collection activities. Our 
constituents rightly expect us to protect us from abusive and 
legal actions.
    This objective is particularly important when such actions 
are done in the name of law enforcement. At the same time, we 
must do so in a way that does not undermine those who are 
performing crucial law enforcement missions.
    Mr. Chairman, you and I know there are scam artists, 
criminals, who are trying to place an additional burden on 
their fellow Americans by not contributing their fair share. 
Law enforcement is never easy. It is always subject to abuse.
    It is important that those of us in public life oversee and 
ensure that the abuses are eliminated or, at the very least, 
kept to the absolute minimum. I congratulate you, Mr. Chairman, 
Senator Moynihan, and others for pursuing this worthy 
objective.
    The Chairman. Thank you very much for appearing here today. 
We look forward to working with you in the future.
    [The prepared statement of Congressman Hoyer appears in the 
appendix.]
    The Chairman. Now, we are coming towards the end of the 
first vote, so I will recess the committee to enable us to go 
down and make two votes. I ask the members to come back as 
quickly as possible, because I am going to reopen the hearing 
to permit members to make their opening statements.
    Senator Kerrey. Mr. Chairman, may I with respect ask 
whether or not you intend to ask me, Senator Grassley, or 
Congressman Hoyer questions?
    The Chairman. No.
    Senator Kerrey. No questions?
    The Chairman. No questions today. We have such a full 
schedule.
    Senator Kerrey. I see.
    The Chairman. The committee is in recess.
    [Whereupon, at 9:46 a.m., the hearing was recessed and 
reconvened at 10:22 a.m.]
    The Chairman. The committee will please be in order.
    We will now turn to our fellow members of the committee for 
any opening statement that they make care to make. I would ask 
that they be limited strictly to 5 minutes since we have 
already lost a great deal of time because of the vote, and 
have, as I said, a full schedule.
    I would also point out that we go down the list under the 
early bird rule. The next person I have that is here is Senator 
Graham.

   OPENING STATEMENT OF HON. BOB GRAHAM, A U.S. SENATOR FROM 
                            FLORIDA

    Senator Graham. Thank you, Mr. Chairman. I would like to 
express my appreciation to yourself and Senator Moynihan for 
holding these hearings today. I would like to start by placing 
a call. This is a call to the 800 number of the IRS, in order 
to give us a laboratory test of how long it takes to get a 
response to a citizen's message.
    Senator Gramm. Hold it up to the mike so we can hear it.
    Senator Graham. Mr. Chairman, this is obviously a critical 
agency. We have now reached the computer response. We are not 
interested in information on the new tax legislation. We know 
too much about that already. [Laughter.]
    Senator Graham. This is a critical agency. It is critical 
that it be competent, fair, respectful of people, capable of 
carrying out its function. It is also true that many aspects of 
the Federal Government are anonymous, unknown to the American 
people.
    The activities of the IRS are often too well known to the 
American people and form the basis of the American people's 
assessment of how government, in general, operates, that which 
they have contact with, that which they cannot see.
    Unfortunately, what the citizens of my State and the Nation 
are saying, is that they are having too many adverse impacts 
with the IRS.
    What is your name, sir? Mr. McDowell, first, I want to 
thank you for having answered the phone in less than two 
minutes. I would like to get back in touch with you, if you 
could hold for a moment, and discuss some specific issues. 
Could you hold? Good. Thank you. [Laughter.]
    Senator Graham. What I would like to talk to Mr. McDowell 
about are some of the concerns that have been expressed by my 
constituents, including the difficulty of getting someone on 
the telephone.
    One lady from Ft. Meyers who says she is 69 years old said 
that frequently it had taken her up to 30 minutes in order to 
reach someone on the telephone. Another gentleman from Orlando 
said that he has been waiting for 6 months to get a response to 
a question, and that he has called the 800 number and has 
encountered not a human being, but frustration. Those are some 
of many examples of the response of citizens to their attempts 
to make contact with this critical Federal agency.
    As we proceed with these hearings, Mr. Chairman, I think 
that it is important that we do a physician's quality 
assessment of this agency in order to diagnose, what are the 
components of its pathology. We will no doubt encounter, as the 
commission chaired by Senator Kerrey did, a number of those, 
but I would suggest, too, it might be particularly appropriate 
for our concentration.
    One, is the human dimension, whether it is a large 
insurance company or Disney. Those firms which depend upon 
their ability to relate effectively with the public make a 
major commitment to the human beings within their organization 
who are that contact with the public. I am concerned that the 
IRS has not made that sufficient commitment in terms of the 
standards of training, support, and leadership for its people.
    I am struck with the fact that the IRS is not unique in 
this circumstance. I have had the opportunity to have extensive 
dealings with the Immigration and Naturalization Service, and 
many of the same concerns that we have and will hear about the 
IRS are also said about that large Federal agency.
    So we may, in the course of this set of hearings on the 
IRS, develop some concepts that would have broader application 
in the Federal service.
    The second area is our primary responsibility, and that is 
the complexity of the Tax Code. Senator Moynihan has already 
dramatically illustrated the fact that we added another 
approximately 10 percent to the complexity of the Tax Code, at 
least in terms of pages, by the action that we took just a few 
weeks ago.
    I would hope that, as a result of these hearings, the 
impact of that complexity on citizens' response would be fully 
understood, and again that we would develop some concepts as to 
how we might move towards the path of greater simplification.
    It struck me as ironic that, whereas in 1996 one of the key 
discussions of the Presidential election, including Senator 
Dole's proposal for a 15 across-the-board reduction in tax 
rates, were completely ignored in 1997 when the Budget 
Agreement was struck and the tax reductions developed. Nobody 
talked about using tax reductions as an opportunity for 
simplification. They became the source of a fairly massive 
degree of additional complexity.
    So Mr. Chairman, I commend you and Senator Moynihan for 
undertaking these hearings, and look forward to the diagnosis 
and effective prescriptions that the hearings will bring to our 
attention, and that we will then have the responsibility to 
implement.
    Now, back to my phone call.
    The Chairman. Thank you, Senator Graham. This is the first 
time I have seen anyone conduct business during a hearing, but 
I congratulate you for your effective use of time.
    I think, Senator Conrad, you are next in line.

  OPENING STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM 
                          NORTH DAKOTA

    Senator Conrad. Mr. Chairman, I am not going to call 
anybody. I am probably the only person here who was a tax 
administrator. I was the tax commissioner for my State before I 
was elected to the United States Senate. So I think I have an 
appreciation for----
    Senator Moynihan. That has got to be sort of a record, 
people rewarding a tax commissioner. [Laughter.]
    Senator Conrad. Well, both Senators from North Dakota are 
former tax commissioners, so that is a dual record. We were 
elected to the U.S. Senate, I think, because we gave good 
service to people. We were fair, we collected the taxes that 
were owed, but we gave very good service and we did not have to 
abuse people in order to collect taxes that were due.
    Mr. Chairman and Senator Moynihan, I think most people 
understand that, as a society, we have an obligation to pay 
what is owed and due. That is how we support the common 
defense, that is how we educate our young people, that is how 
we support our elderly, that is how we build the roads, 
bridges, and airports that allow us to function as a society. 
So we have to collect the revenue that is necessary to pay the 
bills. Frankly, over the last 5 years we have seen quite a 
remarkable turnaround for the Federal Government.
    The Federal Government was in a circumstance five years ago 
in which it could not pay its bills, was not even coming close. 
It was running record deficits. But because of actions that 
were taken, we are now on the doorstep of balancing the unified 
budget in this country, and that has led to an economic 
resurgence. I say this, because I think it is important to put 
into perspective what we are doing here today. Clearly, we must 
have a revenue agency, whether it is the Internal Revenue 
Service or some other such agency. We have to collect the money 
necessary to pay the bills.
    On the other hand, nobody can tolerate abusive behavior. I 
think we also need to put that into perspective, because the 
vast majority of men and women that work for our revenue 
service do not abuse anyone. They go about their jobs quietly 
and in a dedicated way, and perform very well.
    I had, when I was tax commissioner, many exchanges with the 
Internal Revenue Service and I found a high degree of 
professionalism, a high degree of commitment, many people who 
had dedicated their working lives because they believed what 
they were doing was in the public interest.
    So I do not want to be a part, and I do not think anybody 
here wants to be a part, of some trashing of people who do not 
deserve it. But this is a very large organization and there are 
people who have made mistakes, and they are serious mistakes, 
and that cannot be tolerated.
    It is totally unacceptable that IRS staff abuse others, 
that they threaten them, and that they use coercive tactics. 
That is not acceptable and that should not be permitted. Those 
who are responsible for it ought to be punished. We should make 
that clear.
    But, Mr. Chairman, I think we should also make clear there 
are some here with an agenda that is beyond fixing something 
that is broken, or at least in part is broken. There are some 
who come here with a political agenda, and I also find that 
troubling.
    I note in a Washington Post story that there are some who 
have been sending out fund raising letters with statements 
like, ``We want to end the IRS's reign of terror.'' Well, I do 
not think the IRS is engaged in a reign of terror. There have 
been abuses, certainly. Are those abuses unacceptable? 
Absolutely. I think to assert that the IRS has been engaged in 
a reign of terror is pretty loaded language.
    Another fund-raising letter that went out from a colleague 
had the ``People vs. IRS Survey'' and said, ``Armed with your 
responses and demands, GOP leaders can call for televised 
Senate hearings on the IRS.''
    A former IRS commissioner, Lawrence Gibbs, IRS commissioner 
under President Reagan, as a matter of fact, is concerned about 
any attempt to make a partisan issue out of this agency.
    He said, and I think this is something for us to keep in 
mind, ``Using highly partisan language to attack the IRS is 
very irresponsible and can lead to undermining the public's 
trust in the tax system, which is dangerous.'' Again, that is 
the former commissioner under President Reagan.
    So I think in conducting these hearings that it is very 
important that we keep things in perspective. Where there are 
abuses, they ought to be stopped. People who use coercive 
tactics and who have violated the law ought to be punished.
    But we also need to keep in mind we need a revenue agency 
in the United States to do the very difficult work of 
collecting those revenues that we as a Congress said people are 
responsible to pay. We have done that because those revenues 
support our National defense, they educate our young people, 
they assist our elderly.
    In saying that, Mr. Chairman, I think we all need to move 
forward in a constructive way, identify what is wrong, figure 
out ways to fix it, and implement those changes. I very much 
appreciate the way the Chairman and Ranking Member began this 
hearing. I think you have sounded just the right note.
    The Chairman. Well, thank you, Senator Conrad.
    Again, let me emphasize, when we began these investigations 
8 months ago, their purpose was to develop constructive 
criticism, constructive criticism that would result in reform 
to benefit the American public, as well as the employees of the 
agency itself. That is the way these investigations have been 
conducted. These hearings are not intended in any way to be 
partisan or political, they are in the interest of good 
government and that, I shall insist upon.
    I think we will turn, at the suggestion of Senator 
Moynihan, to Senator Gramm.

OPENING STATEMENT OF HON. PHIL GRAMM, A U.S. SENATOR FROM TEXAS

    Senator Gramm. Mr. Chairman, let me join everybody else in 
thanking you and Senator Moynihan for holding these hearings. I 
think it is important that we take a long, hard, close look at 
the IRS and how it works.
    I do not think our dear colleague from North Dakota has to 
worry about anybody undermining the credibility of the IRS. I 
think if you look at what the witnesses are going to say here 
over the next 3 days, the IRS has done a very good job of doing 
that for itself.
    I want to make three points in my opening statement. Number 
one, I do not have any sympathy for people who are trying to 
cheat on their taxes. I think the IRS not only has a license, 
but a mandate, to go after people who are engaged in fraud and 
who are cheating other taxpayers by not paying their taxes.
    I hope that nobody gets confused here as to what we are 
concerned about. I want the IRS to use the full power of the 
law to make people pay the taxes they owe and to pursue people 
who are cheating.
    Second, I think we are all concerned about stories that we 
hear every day from our constituents about how they are being 
abused, about how heavy-handed the IRS is, and how it uses 
tactics that we would view, and I think the average American 
would view, as inappropriate.
    Now, one of the things I always try to do is to take such 
comments with a grain of salt, because I do not always know 
what the facts are. I have never been one of these people that 
automatically assumes the government is wrong because somebody 
says they are engaged in bad behavior, but provides no proof.
    But I have followed enough cases in my State through the 
whole process to reach the conclusion that, while the vast 
majority of the people at IRS with a very difficult job are 
doing a good job at it, there are people who use the power to 
intimidate that obviously working for the IRS gives them the 
ability to do. We are all afraid of the IRS; I think every 
American is.
    I think it is important to have some system, to have checks 
and balances, to oversee and hold people accountable for what 
they do. Now, how to do that, how to get the balance between 
going after people who are cheating and not abusing people who 
are simply trying to comply with a very complicated law, where 
most of us, even those of us who may have had at some time some 
expertise in these areas, find it impossible to do our own 
taxes? It is a very delicate balance. I came to the hearing 
because I wanted to discover how to do it, not because I wanted 
to tell anybody.
    Finally, I would note the obvious point that today 
government is spending about 31 cents out of every dollar 
earned by every American. Next year we are going to have the 
highest tax burden in American history. If we do not change 
Medicare and Social Security, at an absolute minimum, within 25 
years the payroll tax is going to be 30 percent, not 15 
percent.
    The average working family where husband and wife work, is 
in the 28-percent Federal tax bracket. So 25 years from now, 
with the status quo, at a minimum, the tax rate of the average 
working blue collar family is going to be 56 percent. Obviously 
it is going to be very, very difficult to collect those taxes.
    So I think while we are looking at the IRS and while we are 
looking at its abuses, part of the long-term reform is tax 
simplification where it is easier for people who want to 
comply, to comply.
    But I think part of the reform is to look off in the future 
25 years and say, is that the America we want? Do we really 
want to have an agency that is trying to take 56 cents out of 
every dollar earned by average working Americans? I think the 
answer to that is no. We need to begin to try to make those 
changes over the next 25 years to keep that from happening.
    So, Mr. Chairman, this is a very difficult subject. It is 
clearly a subject that deserves intense Congressional scrutiny. 
I know what I would like to see us do. That is, use our 
resources to go after people who are violating the law and be 
sure we are respectful of people who are simply trying to 
comply with a difficult law, but trying to tell the difference 
between those two cases is very, very difficult.
    Obviously, it is very difficult for a person at the IRS to 
know the difference between the two. Clearly, change in the 
code of conduct is due, and that is something that we ought to 
be leaders in trying to produce. So, for all of these reasons 
in a very difficult subject, I am very grateful for these 
hearings, and I thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Gramm.
    Now I would call on Senator Bryan.

OPENING STATEMENT OF HON. RICHARD H. BRYAN, A U.S. SENATOR FROM 
                             NEVADA

    Senator Bryan. Thank you very much, Mr. Chairman.
    No citizen should have to endure what Monsignor Ballweg, 
Ms. Jacobs, Ms. Lund, and Mr. Savage, who will testify 
tomorrow, encountered in their experiences with the IRS. There 
is no excuse for this kind of conduct, attitude, or treatment 
of law-abiding citizens who are attempting to comply with their 
legal obligation to pay their taxes.
    Having said that, the tax collector has never enjoyed great 
public favor. From King Solomon's time, the tax collector has 
been despised and reviled, so it comes as no surprise that the 
IRS is an easy target for criticism and a convenient whipping 
boy.
    As pollster Frank Lance points out in his widely 
distributed memo to Republican members of Congress, in the 
language of the 21st century, nothing guarantees more applause 
and support than the call to abolish the Internal Revenue 
Service. I expect Mr. Lance is probably right about generating 
applause, but that does not make it the right thing to do.
    Unfortunately, someone needs to collect taxes. Federal tax 
collection is a task of monumental proportions. Last year, the 
IRS collected $1.4 trillion in taxes. It processed 209 million 
returns, including 119 million individual income tax returns. 
It disbursed $110 billion in refunds, and handled 105 million 
requests for information.
    By any standard, this is a very difficult job. I believe 
that the great majority of the 102,000 employees of the IRS are 
neighbors, our fellow citizens, who do their best to meet the 
demands of this often unpleasant task in the best manner that 
they can.
    None of this is to suggest the kind of egregious conduct by 
the IRS that we will hear about this week is or can be 
justified, nevertheless, the IRS has made numerous improvements 
which have made the always unpleasant task of paying taxes a 
much less difficult ordeal for millions of Americans.
    More than 19 million Americans filed their individual 
returns electronically in 1997, an option that results in 
faster, more efficient service and with greater accuracy. For 
the 4.7 million of those electronic filers that used Telefile, 
the annual ordeal of paying Federal income taxes amounted to 
only a simple, 10-minute toll-free phone call to the IRS.
    While these successes do not excuse the serious problems 
the IRS needs to deal with in other areas, they do reflect a 
continuing effort to improve the culture of the IRS and to 
attempt to make it more taxpayer friendly.
    The hearings before this committee this week will prove 
titillating, shocking, and to a large extent will accurately 
point out some very serious problems within the IRS.
    Undoubtedly there are IRS personnel who behave badly, who 
abuse their position, who are vindictive and abuse the 
taxpayer. These employees ought to be identified and 
immediately terminated. There is much we can do to improve the 
management and operation of the IRS.
    Senators Kerrey and Grassley led an important bipartisan 
commission to examine the problems in the IRS. While there is 
disagreement over some of the specific recommendations, the 
commission report is an important starting point for what could 
be a substantial reform of the IRS.
    Many of the problems with the IRS, of course, as has been 
pointed out by a number of my colleagues, lies right here in 
the Congress. In many ways, the Congress has charged the IRS 
with an impossible task. The ever-increasing complexity of the 
Tax Code places enormous burdens on both taxpayer and IRS 
employees, both of whom oftentimes are trying to do the right 
thing.
    This year's tax bill, of course, is no exception. The bill, 
which most of us supported, creates entire new mazes of 
confusing requirements that taxpayers will need to work their 
way through. Many of the provisions are effective starting this 
tax year, which means IRS personnel will need to have forms, 
guidance, and appropriate training in place by the end of this 
year.
    Already we are told that we need to pass technical 
corrections, which will then need to be incorporated into IRS 
procedures.
    The hearings before the committee this week will provide 
more fodder for the IRS's critics, and I fear that some may use 
these hearings to pursue partisan advantage in future political 
contest.
    Reckless, inflammatory criticism of the IRS may be good 
political sport, but it can incite violence among tax 
protestors. Nevadans were shocked in December of 1995 by a 
botched attempt by so-called tax protestors to bomb the IRS 
office in Reno, Nevada. Despite the unpopularity of their 
duties, IRS employees are public servants who should not be 
forced to work in hostile circumstances and should not be 
expected to work under circumstances and conditions that 
threaten their health and safety.
    We do need to reform the IRS, get its computer system 
working better, institute better management practices, and 
terminate those in service who abuse their positions.
    I am confident, Mr. Chairman, that you intend to use these 
hearings as a basis to pursue real reforms of the IRS, and I 
pledge to work with you as we undertake the business of 
reforming the IRS.
    The Chairman. Thank you, Senator Bryan.
    Senator Nickles?

  OPENING STATEMENT OF HON. DON NICKLES, A U.S. SENATOR FROM 
                            OKLAHOMA

    Senator Nickles. Mr. Chairman, thank you very much. I want 
to compliment you and Senator Moynihan for these hearings, and 
also compliment Senator Grassley and Senator Kerrey for the 
work that they have done in trying to reshape and rehabilitate 
the IRS.
    Mr. Chairman, it needs to be done. The Tax Code is far too 
complicated, in many cases far too complex, and in many cases 
not fair. This committee has an opportunity, I think, to 
highlight some of the problems we have with the Code, maybe 
some problems in enforcement of the Code, and some injustices 
as well.
    We have, as Senator Bryan mentioned, over 100,000 IRS 
agents. That is a lot. I would certainly concur with Senator 
Gramm's statement that most are very, very honorable and do an 
outstanding job. They are, indeed, public servants.
    But clearly there have been some real abuses, and those 
need to be stopped and they need to be stopped now. The IRS has 
unbelievable authority to wreck lives, ruin businesses. They 
can cause anxiety.
    There is not a phone call that can probably give people 
more anxiety, than the IRS wants to audit you, or they want to 
talk to you about your return. Automatically that sends chills 
down the spines of taxpayers, taxpayers, in most cases who have 
been very honest.
    In some cases, maybe they are not honest and it is 
certainly justified. But we will hear some cases of abuses and 
those abuses need to be stopped.
    Mr. Chairman, I believe we also need to make sure the IRS 
is not being used for political purposes. It bothers me when I 
read news accounts that organizations aligned philosophically 
the opposite of the current administration have been audited. I 
think we need to review that.
    We need to find out and we need to make double-darn sure 
that is not happening for political purposes. But when you hear 
reports of audits of conservative groups and you do not hear it 
from opposite-minded groups, that bothers me.
    Mr. Chairman, just look at the Code. The Internal Revenue 
Code, Senator Moynihan mentioned, I think, is 9,400 pages. We 
recently added several hundred pages. This is the IRS code. The 
Bible, to compare it, is quite a bit smaller. Senator Gramm was 
studying it, and I would encourage him to continue studying it. 
The Bible has something like 8,045 words. The IRS Code has over 
5.5 million words of law and regulations. There is no 
comparison.
    I might mention, there is a lot more wisdom and value in 
this book than there are in these books. We have added to the 
complexity. In the last tax bill that we passed, and I think 
most of us have said that it was a pretty good tax bill, we 
added 285 new sections to the Tax Code, we amended 824. So we 
made it even more complicated, more complex.
    In my opinion, the tax code needs a significant overhaul. 
We need to really reduce this to something that most people can 
understand, and hopefully replace it with a fair, flat, and 
simple Tax Code.
    Mr. Chairman, when you have something like 5.5 million 
words of rules and regulations, when you have 17,000 pages of 
rules and regulations, we have got a real problem. So we have 
102,000 agents trying to enforce the law. We have 480 different 
forms.
    Right now, the IRS sends out 8 billion pages of forms and 
instructions every year. 8 billion. That is phenomenal. Last 
year, the number of information forms exceeded a billion. That 
is a lot of 1099s that somebody is supposedly trying to keep 
track of. The number of corrections that were sent out are 
estimated to be over 10 million per year. The number of 
corrections. The number of penalty notices sent out in 1994 
were 33 million.
    In 1993, there were 8.5 million times that the IRS gave the 
wrong answer to taxpayers who were seeking some information. In 
1987, the GAO said that 47 percent of the calls to the IRS 
resulted in inaccurate information. Congress recently spent $4 
billion to upgrade IRS's computer capabilities. It has been a 
dismal failure.
    Now, Senator Bryan mentioned the electronic filing. That 
has been a success. So, we have had some decent improvements in 
their technology. But, as Senator Kerrey mentioned in his 
opening statement, I think the IRS is way behind the 8 ball as 
far as keeping up with modern technology. The EZ-1040 that 
everybody is supposed to be able to understand and do so 
quickly and simply has 31 pages of instructions.
    So, Mr. Chairman, I think this committee has a big 
challenge before us. I think we need to eliminate the abuses. 
We need to be sure the IRS is in check, that it is doing its 
job, that it is not abusing its power. I think we have a real 
challenge and responsibility to see if we cannot simplify this 
very complex and inequitable system. I thank you for your 
efforts.
    Senator Moynihan. Mr. Chairman, could I just take a moment?
    The Chairman. Senator Moynihan.
    Senator Moynihan. I would just remind all of our committee 
members that you and I have asked the Joint Committee on 
Taxation to examine politically motivated audits, and we will 
have a report later this year.
    Senator Nickles. I appreciate that.
    Senator Moynihan. If there are, they had better stop, and 
fast.
    Senator Nickles. Thank you, sir.
    The Chairman. Next on the list is Senator Lott.

   OPENING STATEMENT OF HON. TRENT LOTT, A U.S. SENATOR FROM 
                          MISSISSIPPI

    Senator Lott. Thank you, Mr. Chairman. I will be brief so 
that you can go to your panels that you have lined up. I ask 
consent that my entire statement be placed in the record.
    The Chairman. Without objection.
    [The prepared statement of Senator Lott appears in the 
appendix.]
    Senator Lott. I want to also join others in commending you, 
Mr. Chairman, and the Ranking Member for having these hearings. 
I have maintained for years, including this year, and will 
continue to push for it in the future, that as a matter of fact 
Congress should have a lot more of this type of hearing.
    We should have investigative and oversight hearings into 
how the laws are working, how are the agencies' bureaus and 
departments functioning, not from the standpoint of trying to 
be punitive, but trying to find out how the laws are working so 
we can do a better job in changing them and making them better 
for the American people.
    So I think we are performing our duty here in having this 
oversight hearing, trying to find out, what are the abuses at 
the Internal Revenue Service. No agency should be above the 
law, no agency should take matters into its own hands, 
regardless of whether it is convenient or not.
    So we need to check into these allegations that we have 
heard about intimidation and pressure and threats. Because of 
these hearings, I have been receiving calls from around the 
country, including my own State.
    Just yesterday I had one from a former IRS revenue officer, 
now a CPA. He pointed out a particular case where he said, 
``there was no doubt in my mind that the goal was not to find a 
way to get the taxes paid that were owed, the purpose was to 
put the business out of business.''
    I have had other calls that really alarmed me along those 
lines. I think that the purpose here should be to have a good, 
strong bipartisan hearing. I know that is the intent, and that 
is the way it will be. I hope it will not be the last step, but 
only the first step.
    The next step would be leading us to the necessary changes, 
perhaps, in the law that will change the culture that maybe has 
developed over a period of years in this agency, and I hope 
that it can be the first of this type of hearing, that maybe we 
will look at other agencies by other committees.
    So I think we have a worthy goal here, to find out what has 
been happening, where there are abuses, if any, what the 
problems are, and see what we could maybe do then in terms of 
legitimate, needed reform. I look forward to the hearings both 
today, on Wednesday and Thursday.
    I am trying to cooperate by, in fact, the Senate not coming 
in until noon on Wednesday and Thursday so that we can have our 
full attention devoted to these very important hearings. I 
thank you, Mr. Chairman and Senator Moynihan.
    The Chairman. Thank you, Senator Lott, for those words. Now 
I would call upon Senator Rockefeller.

   OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, A U.S. 
                   SENATOR FROM WEST VIRGINIA

    Senator Rockefeller. Thank you, Mr. Chairman. I will be 
very brief.
    I would join in what has been said, at least around this 
hall, in that I hope that these are bipartisan, I hope that 
they are fair. I note in the witness list that the General 
Accounting Office comes on panel number 6, which probably will 
take place at about 2:30 or 3:00, and they would be the only 
ones who would be trying to look at this in perspective.
    Some of us have been Governors. Senator Graham has been a 
Governor, Senator Bryan has been a Governor, I have been a 
Governor. It is very interesting, when you get to the problem 
of bureaucracies, even at the State level, and the behavior 
within.
    As Senator Nickles has said, and others, most people--and 
Senator Conrad, I am told, said that before I came in, and I 
know Senator Bryan said it--are trying to do the right thing in 
the most unpopular job in the history of the world, I think, 
being an IRS agent.
    Unfortunately, not all Americans do pay the taxes which 
they owe and which is part of the cost of a democracy, to have 
your shores protected, your homes relatively safer.
    The only way that can be achieved is to work through 
something called enforcement, and enforcement I think is what 
we are going to see has some flaws in it, because there are 
always cases where people go out and they do things the wrong 
way. Those people should be terminated and those people should 
be shown in these hearings to be what we mean when we say we 
are trying to straighten out the system.
    I think it is also interesting that, over the last 5 years, 
there have been 3,200 cases of assaults or threats on IRS 
agents, and those folks are humans, too, the good ones, and 
then whoever the bad ones are, they have the right to do their 
jobs with some sense of security, except if they do them 
wrongly, in which case they should be fired.
    I know that Secretary Rubin has done a whole series of 
things to try and correct this situation, and criticism of the 
IRS has an effect on our ability to enforce our tax laws, as 
has been noted by even President Reagan's IRS director. The IRS 
always has been an agency to criticize. So I hope we are going 
to get the whole picture. I have in my book letters from a 
variety of Senate and House leaders who have turned the issue, 
it seems to me, into a fundraising issue.
    Each of the letters that they send out say some of the 
things that have been said here this morning, or will be said 
here this morning. Then they said, by the way, please send in 
$25, $50, or $100 to whichever national committee or to 
whichever Senate campaign committee is trying to raise money by 
IRS bashing. I find that distressing.
    In other words, is this a real issue that we are trying to 
do something about or is this an issue that we are trying to 
make political capital off it? If it is the latter, I find that 
distinctly unuseful. If it is the former, I find it thoroughly 
worthwhile.
    The two large volumes of the Tax Code and the regulations 
that Senator Nickles had in front of him are, in fact, caused 
by us. We are the ones in the Congress who caused those to 
appear. It would be in that spirit then that what we are 
talking about here is not just the abuses, which is important 
and necessary for us to hear, but also, how can we fix it. That 
is the kind of thing which tends to engage my attention, and I 
am confident it would be the same with my colleagues.
    I thank the Chairman.
    The Chairman. Let me say once again that the purpose of the 
investigation and these hearings is not a partisan one. The 
purpose is good government, not partisan purposes.
    Our focus is on whether the average taxpayer is being dealt 
with fairly by the IRS and the internal operation of the IRS, 
irrespective of what party may be in control of the Executive 
Branch. A number of our cases go back 17 years, so it covers 
several different administrations. This is an internal 
examination, as I say.
    Let me set the record straight. Any fund-raising efforts 
are in no way connected with this investigation that we 
commenced some 8 months ago.
    I think we are now to the point where we can turn to the 
first panel. The members of these associations, which I call 
the ``view from the trenches,'' represent the public in all 
types of tax matters, as well as disputes with the IRS. In the 
case of enrolled agents, these are men and women who are 
licensed to represent taxpayers before the IRS, with many of 
their members being formerly with the IRS.
    The panelists are Mr. Joe Lane, who represents the National 
Association of Enrolled Agents, representing the New York State 
Society of Certified Public Accountants; we have Mr. Robert L. 
Goldstein, chairman, and James A. Woehlke, Director of Tax 
Policy--if they would come forward.
    Now, it is our practice in these oversight hearings to 
swear the witnesses, so I would ask each of you to stand and 
raise your right hand.
    [Whereupon, the three witnesses were duly sworn.]
    The Chairman. Do you so swear, Mr. Lane?
    Mr. Lane. I do.
    The Chairman. Mr. Goldstein?
    Mr. Goldstein. I do.
    The Chairman. Mr. Woehlke?
    Mr. Woehlke. I do.
    The Chairman. Please be seated.
    Senator Moynihan. You realize you are in a lot of trouble 
now.
    Mr. Woehlke. Yes, indeed.
    The Chairman. We will start with Mr. Lane. I would ask that 
your testimony be limited to 10 minutes in each case, but your 
full statement, of course, will be included as if read.
    Mr. Lane?

STATEMENT OF JOSEPH F. LANE, ENROLLED AGENT, CHAIRMAN, NATIONAL 
  GOVERNMENT RELATIONS COMMITTEE, THE NATIONAL ASSOCIATION OF 
               ENROLLED AGENTS, GAITHERSBURG, MD

    Mr. Lane. Thank you, Mr. Chairman, Mr. Moynihan.
    It is a pleasure to be invited to appear before the Senate 
Finance Committee today to discuss these matters. We understand 
the focus of the hearings is to look into IRS practices and 
procedures.
    Enrolled agents are uniquely positioned to provide some 
valuable insight to you, since our members deal with thousands 
of IRS employees every day in representing taxpayers. I was 
heartened to hear the opening comments about the bipartisan 
nature of these hearings. There has been a tremendous amount of 
media hype in connection with this hearing, and we were a 
little bit concerned about it ourselves.
    We spoke to both the Majority side and the Minority side, 
and were assured by both parties that the intention of these 
hearings was to be a balanced approach to looking at the IRS, 
with the attempt to arrive at some constructive suggestions for 
change that would improve the tax administration system.
    Mr. Rockefeller, I would be happy to assure you, we are 
here strictly to offer unbiased viewpoints. I think GAO has a 
view, but I think the rest of us also have viewpoints that are 
on an even keel.
    I think probably the best way to demonstrate the bipartisan 
nature of this Commission would be to recommend out of this 
committee the Kerrey-Grassley bill. That was a year-long effort 
in the National Commission on Restructuring to arrive at 
informed viewpoints on how best to change the tax 
administration system this country has and to assure that we 
have taxpayer rights protected and we have an organization that 
is responsive to taxpayer input, and at the same time creates 
an effective work force that is able to collect the taxes this 
country needs to survive on. So the best way to ensure that you 
have bipartisanship, I think, is to enact that legislation, and 
we would urge that that be done.
    We would like to start today by talking about some of the 
things IRS is doing right. I think the Service should be 
commended for the fact that it has embraced the majority of 
these recommendations that the Commission has given them, and 
they have announced that they intend to enact administratively 
whatever they are capable of doing from the commission.
    I think that that probably has not been an easy pill to 
swallow for the IRS, but they have stepped up to the plate and 
done it. I think that is indicative of an agency that is 
willing to accept constructive criticism and change.
    We also salute the selection of Bob Barr, the new Assistant 
Commissioner for Electronic Tax Administration. He is an 
outsider from the industry. He served previously as the vice 
president of the Intuit Software Company, and I think that the 
IRS is responding by going out and trying to recruit expertise 
they do not have in-house to market electronic filing, and that 
is a good development and I hope to see more of that continue.
    We also applaud some of the initiatives the local field 
components of the IRS are doing. They are trying to bring in 
more practitioner input, and we praise those districts that are 
involved in that area.
    We also think the IRS national office is making a concerted 
effort to have better communications with the practitioner 
community, and that always improves relationships when problems 
can be discussed in an open manner and flushed out.
    One of the biggest concerns we have today about the IRS is 
the status of employee morale in the Service. Our voluntary 
compliance system depends on both sides of the table being 
staffed by competent people. On the practitioner's side, we 
have a procedure for making sure our people are up to snuff and 
are competent and able to handle things, and we train them.
    One of the concerns we have on the IRS side is this 
constant din of criticism and public attention and media 
barrages that we see that has the effect of making morale in 
that organization decline.
    So we are concerned about that morale and we would like to 
see some additional focus on GAO looking into what they could 
do to instill some additional feelings of worth among some of 
these people in the Service, because if you have unhappy tax 
administrators you inevitably have unhappy taxpayers, because 
they have to deal with these people on a regular basis. That 
human element that Senator Gramm talked about is an extremely 
important element in any law enforcement capacity.
    We have some specific issues that we would like to address 
with the committee today in the area of taxpayer rights, and 
particularly in procedures with collection and exam. Then we 
would like to go on and offer some additional suggestions for 
your consideration.
    One, we believe the American Bar Association has drafted 
some legislation they will be submitting which bars the IRS 
from using statistically-generated average expenses in making 
collection case determinations. We support that legislation and 
we would like to see the Service consider the unique facts and 
circumstances of every taxpayer's case on a case-by-case basis.
    We believe that the use of these expense statistics has 
increased the number of bankruptcies substantially in the last 
year. We had a 25-percent increase in bankruptcies in 1996, 
during a period of economic improvement throughout the country.
    We think that a big component of that bankruptcy increase 
had to do with the collection division in October of 1995 
implementing this procedure of using Bureau of Labor Statistics 
standard expenses allowances instead of allowing taxpayer to 
take the expenses they are actually incurring when they are 
making collection determinations. So we would like to see that 
investigated and we would like to see Congress act on that.
    The other problem we always have is the perennial one of 
inconsistent enforcement policies around the Nation. We have 33 
IRS districts and we frequently run into issues where the 
national office promulgates a policy or procedure, then we see 
deviation from the procedures. We need to see more attention 
paid to that, and that is particularly in the collection area.
    The other issue we have problems with is the new procedure 
recently where the IRS has started to ask taxpayers for statute 
extension requests on collection cases, even though there might 
be nine and a half years of the 10 years left on the statute. 
That is an inappropriate use of the statute extension 
provisions. We think that the Congress ought to take a look at 
whether they ought to have a right to have a statute extension 
at all in collection.
    Just in 1990, you extended their statutory period of 
collection from 6 years to 10, and now we have a situation 
where we have a taxpayer, by example in the testimony we gave 
you today, someone goes out and files a tax return, owes the 
money, and calls the IRS, tries to set up a payment agreement.
    If the payment agreement that they could afford to pay each 
month is insufficient to full-pay the tax within the 10-year 
period, the IRS is asking for a 5-year extension today. We do 
not think Congress ever intended the IRS to go into the 
mortgage business or have a lifelong relationship with these 
people. Ten years ought to be sufficient. We do not think we 
want to see 15- and 20-year installment agreements with the 
IRS, and we urge Congress to take a look at that whole area.
    The collection appeals process we think ought to be beefed 
up and allowed to be a true appellate review of the judgment 
and conduct of the revenue officers involved. Right now, it is 
strictly a procedural review and it does not have much of an 
impact. I think the lack of use by practitioners and taxpayers 
alike indicate that they view that as really not a legitimate 
forum.
    In exam, we have the current exam program letter that 
evaluates districts based on yield per hour. I think one of the 
things you are going to focus on in this hearing is the 
inappropriate use of enforcement statistics.
    If you look at how much money per hour is generated by 
revenue agents, then the first casualty you have in an 
environment with a quota system, like a traffic cop, is 
taxpayer rights. You should not have an environment where you 
evaluate people based on how much money you rake in per hour. 
We think that ought to be addressed by the Congress.
    The other issue we are concerned about is the inappropriate 
use of the financial status audits, or the economic reality 
audits. We had a lot of publicity about this last year, a lot 
of hearings about it. The IRS issued a national directive 
saying they would only use this approach when there was an 
indication somehow in the case file that there was unreported 
income. We still see and get complaints from members and 
taxpayers alike that this procedure is being implemented when 
it is inappropriate.
    I think one of the suggestions we would like to see to head 
this off is that the IRS ought to be required, whenever they 
send an audit notice to a taxpayer, to include with that audit 
notice all of the IRP data, the Information Returns Program 
data, that the IRS has on that taxpayer in the file. The reason 
for that, is it avoids the ``gotcha'' game in the audit 
process.
    If taxpayer and practitioners alike, in preparation for 
going in for the audit, know that the IRS has been reported 
some income such as a dividend or miscellaneous compensation 
that was paid but it is not reflected on a tax return, they can 
prepare to argue either it is correct and was inadvertently 
omitted, or it was an erroneous filing to begin with. That is 
one of the issues we always run into as a justification for 
using this economic reality approach.
    Another area we think the committee ought to look at in the 
hearings you are doing, is the market segment specialization 
program. This program is probably the best thing IRS has done 
in the last 25 years in identifying pockets of non-compliance 
in specific industries and focusing their efforts, going out 
and getting other State agencies and other Federal agencies 
together, bringing all the people to the table that are 
affected by it, and doing something about it.
    Probably the best success story you can look at is out in 
the Central California district in Fresno, where they have 
focused on farm labor contractors. They have just accomplished 
a tremendous result as a result of the implementation of this 
approach, and I would suggest you hold a field hearing out 
there, if you have the time.
    I extend an invitation to come out to California. Everybody 
in Washington likes to get an invite to come out to the coast, 
I know. Come out and see what they are doing out there. They 
are doing some terrific stuff and they ought to be commended 
for that.
    With respect to exam quality review, one of the concerns we 
have about employee morale and the lack of IRS's ability to 
recruit quality people, is the quality of the work that is done 
at the initial stage in the audit process is declining.
    One of the things that is interesting to us and I think is 
something else you ought to look at, is the Pacific Northwest 
district has just announced a test study which they are going 
to implement using a district conference staff. That is a 
positive development.
    We would like to see, additionally, the committee consider 
protecting taxpayers' rights of confidentiality by enacting 
legislation that gives the taxpayer the right to protect from 
IRS summons the counsel and advice they have gotten from their 
tax advisers.
    We would like to see all commercial tax return preparers 
registered. We have a ludicrous situation in this country today 
where the tax preparers that have made the most commitment to 
their profession, the enrolled agents, the attorneys and the 
CPAs, are the most regulated, and the ones that have no 
commitment to a professional organization, have not agreed to a 
code of professional conduct, have no code of ethics to adhere 
to, and could open up a card-table shop on January 1, and 
disappear on the 16th of April, are completely unregulated.
    I think the most basic taxpayer right in this country ought 
to be that if you pay for advice on taxes to make sure you 
comply with the law, you ought to be confident you are dealing 
with a competent person.
    Today, we regulate barbers more than we regulate commercial 
return preparers, and you can recover from a bad haircut in 3 
weeks.
    The other thing we have got to do is provide full credit 
for Social Security and self employment taxes that are paid in 
on delinquent tax returns. Taxpayers are not getting full 
credit for their Social Security, even though the IRS is 
collecting the taxes. That ought to be reversed.
    The other thing we would like to see the committee do is 
decide that, as a general principle of tax administration, you 
will never have a situation where the penalties are allowed to 
exceed 100 percent of the tax due for a particular tax period. 
We would also like to see tax penalties not used for revenue 
raising.
    Senator Nickles gave an excellent demonstration before with 
the Bible and the Code. That is because the good Lord, in his 
wisdom, inspired four evangelists to write the Bible and not 
535 members of Congress. We would have the same situation if we 
had 535 evangelists, I am sure. We would have a 5 million word 
Bible, and it would be just as difficult to figure out.
    One of the things you have to review is the whole penalty 
structure in the Code. There are too many penalties for too 
many infractions and you cannot expect anybody to understand 
them.
    The other thing we would like to see changed, is there were 
some recent changes in some court cases that developed where we 
saw elderly people make an estimated payment of $7,000 when it 
should have been $700. The person had Alzheimer's.
    The court reviewed the case and said, we would like to be 
able to give this person a refund, but the daughter did not 
discover this until three or 4 years later. Therefore, the 
statute barred them from getting a refund. That law should be 
changed. There should be reasonable cause that allows a refund 
beyond the 3-year period.
    The other thing we did in our testimony before the 
Commission last year was to offer a suggestion that perhaps one 
of the ways of approaching the problems we are dealing with in 
tax administration was to divide the IRS into two separate 
agencies, one for taxpayer service, and the other for tax law 
enforcement.
    The Commission did not choose to follow that 
recommendation, but we would suggest to you that it might be an 
appropriate thing to discuss with the Commissioner-designate 
during the confirmation hearings to see if they could 
accomplish virtually the same thing within the umbrella of the 
organization, to set aside and provide a network and an 
organization within the IRS to provide for employment and 
promotion opportunities for people to move up in the 
organization, when they have a customer service attitude.
    The IRS says 85 percent of taxpayers are in compliance. 
Eighty-five percent of their efforts ought to go towards taking 
care of those people in terms of focusing on making sure if 
someone calls in and wants a question answered, it gets 
answered in a courteous manner and they get the information 
they need as expeditiously as possible.
    One of the problems you deal with in law enforcement is, 
the same personality that makes a good cop makes a lousy 
waiter, and vice versa. So you need to have more emphasis on 
customer service in that organization and a little less on 
enforcement.
    We have outlined the specifics in the example. Senator 
Gramm made reference to the INS having the same problem. Thank 
you.
    The Chairman. Your time has expired and we must move on.
    [The prepared statement of Mr. Lane appears in the 
appendix.]
    The Chairman. Mr. Goldstein?
    Mr. Goldstein. I will let Mr. Woehlke start.
    The Chairman. I would point out it will be 10 minutes for 
the two of you, so I would ask that you keep within that time 
limit.
    Senator Moynihan. New Yorkers are notoriously fast talkers.
    Mr. Woehlke. We can probably accommodate that, Senator, 
yes.
    The Chairman. Please proceed.

 STATEMENT OF JAMES A. WOEHLKE, DIRECTOR, TAX POLICY, NEW YORK 
     SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS, NEW YORK, NY

    Mr. Woehlke. Good morning, Mr. Chairman, Senator Moynihan, 
members of the committee.
    I am James Woehlke, CPA, director of tax policy for the New 
York State Society of CPAs, and I am here with Robert Goldstein 
today, the chairperson of our Relations with the IRS Committee.
    Our society is privileged to testify before you today about 
our day-to-day work with personnel at the IRS. But before we 
begin we must say that we have tremendous respect for the IRS 
in its gargantuan task of administering our Nation's tax 
system. We are supportive of the mission of the IRS and are not 
among those, unrealistically, we believe, calling for 
abolition.
    Also, some of the media reports about this week's hearings 
indicated your witnesses would portray an IRS run amok. We are 
unable to corroborate that particular message. Quite frankly, 
the IRS has over 100,000 decent, dedicated employees who carry 
out their responsibilities without guile and to the best of 
their ability. It is both unfair and inaccurate to portray the 
entire agency as running amok.
    This is not to say, however, that the IRS has no internal 
problems and challenges to face. Recent accounts for the $4 
billion tax system modernization boondoggle and the IRS's 
complete inability to understand the degree of intrusiveness 
inherent in its financial status approach to auditing indicate 
that there is a disconnect between the inside and outside IRS 
views of what its appropriate function is. Our testimony before 
the National Commission to Restructure the IRS distilled a 
number of what we called root causes at the heart of the IRS's 
problems.
    Mr. Goldstein will touch on several of those today because 
they are helpful to understanding the problems and challenges 
practitioners face in their day-to-day interactions with the 
IRS. The root causes we will be touching on are structural 
dysfunction, the IRS's self-image, and the IRS's siege 
mentality.
    We went into much greater detail regarding these and other 
root causes in our testimony before the National Commission. 
Time today, of course, will not permit that to be related in 
detail, and we therefore respectfully request that you admit 
that testimony, along with today's testimony, into the 
hearing's official record.
    [The information appears in the appendix.]
    Mr. Woehlke. Let me now turn the microphone over to Mr. 
Goldstein.
    The Chairman. Mr. Goldstein.

STATEMENT OF ROBERT L. GOLDSTEIN, CHAIRMAN, RELATIONS WITH IRS 
 COMMITTEE, NEW YORK SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS, 
                          NEW YORK, NY

    Mr. Goldstein. Good morning, Mr. Chairman, Senator 
Moynihan, and members of the committee. I am privileged to 
testify before you today.
    In my practice I deal with the men and women of the IRS on 
almost a daily basis. In my experience and that of those of the 
colleagues I represent, we have found that the vast majority of 
IRS employees are dedicated public servants who try to do the 
best job they have with the tools available to them.
    In our region we have found the executives and staff of the 
service to be open to liaison meetings and, within limits, 
responsive to taxpayer and practitioner concerns. These liaison 
meetings and joint IRS practitioner forums have allowed the 
practitioner and service personnel to share their concerns, 
understand the problems of the other, and try to work through 
these problems before they reach the point of confrontation.
    There are, however, problems which need to be addressed. 
That is why we are here today. I dare say that the majority of 
IRS personnel would also agree that these issues need to be 
addressed.
    The decentralized management structure of the IRS has made 
coordination of some important functions, including employee 
training, tax administration, and education difficult to 
achieve.
    We believe one case illustrates the gap between national 
level policy-setters and regional management. Regionally 
produced IRS pronouncements, including market segmentation 
specialization program papers and market segment understandings 
have been issued with strident commentary regarding worker 
classification, while at the same time new training methods and 
legislation on a national level are implemented expressing 
conciliatory and taxpayer friendly approaches to the worker 
classification issue.
    Regarding the IRS's self-image, we noted that a number of 
IRS employees testifying before the National Commission 
referred to the IRS as one of law enforcement. We cannot 
disagree more with this perception.
    We recognize that there is an important element of law 
enforcement in the role of the Service. But to view that as its 
primary function creates a level of insularity and heavy-
handedness which often makes it impossible to achieve its core 
customer service objectives.
    The mere existence of the Problems Resolution Program 
illustrates this point. The primary role of the taxpayer 
advocate is to resolve taxpayer issues which have floundered in 
the normal process.
    The Problems Resolution Program has been extremely 
successful and praised by practitioners and taxpayer alike, and 
offers an example of how different attitudes by IRS personnel, 
taxpayers, and their representatives emerge when the customer 
service model is used.
    The very success of this program points to the failure of 
the normal process because it means the IRS is succeeding the 
second time around.
    An example of the enforcement mentality that we address or 
that we have problems with exists with the increasing use of 
bypass actions, wherein an IRS examiner contacts the taxpayer, 
in spite of the fact that that taxpayer has an appointed 
representative pursuant to a power of attorney.
    In a recent survey by the AICPA, over a third of the agents 
whom the responding CPAs came into contact with insisted upon 
interviewing taxpayers directly, even after the first Taxpayer 
Bill of Rights should have eliminated this practice. We 
recognize as practitioners that there are times when bypass 
procedures are appropriate. But these are drastic actions and 
require strict supervision. A one-third failure rate is 
inappropriate.
    The IRS misconception regarding the primacy of its law 
enforcement role leads to our third root cause, the IRS's siege 
mentality. It is overly insular in nature. In our written 
submission we quote at some length the Deputy Secretary in the 
Department of Finance and Management of the Service as testify 
before the National Commission that the IRS is a law 
enforcement agency at heart. We disagree with that. We believe 
it is a customer service agency at heart, and has a tangential 
law enforcement element.
    We would be remiss in any discussion of problems with the 
IRS if we did not address tax law complexity. Taxpayers 
primarily use professionals to prepare their tax returns and 
represent them before the IRS, in the event that such 
representation is required, because of the complexity of the 
tax law.
    Over the past 11 years, we have had 8 years with tax law 
changes, significantly increasing the complexity of our tax 
system. The law that you gentlemen have just passed ranks near 
the top of the complexity scale.
    The professional staff of the Congress should consult with 
practitioner organizations on a regular basis in connection 
with writing new tax legislation. In this way, they can better 
understand the compliance effect of the law that you pass. This 
becomes clearer to the members of your staff.
    The examination and collection issues which we are going to 
discuss may appear mechanical, however, they are symptomatic of 
systemic problems that we see in the field. For example, we are 
aware of an S corporation audit that took in excess of 24 
months and resulted in a minimal adjustment.
    Another S corporation took in excess of 18 months from the 
date of the initial audit to the 30-day letter. An individual 
audit covering a period of 2 years endured for more than 20 
months and has just been taken into the Problems Resolution 
Program.
    IRS personnel who participate in the FlexiPlace program 
wherein certain personnel work at home for part of the work 
week, cannot be reached by telephone when they are at home. A 
modern voice mail system should be installed and such personnel 
working at home should be required to monitor that system.
    We do have some suggestions. We believe that the interim 
extensions for partnerships, trusts, and individuals should be 
eliminated. They serve no useful purpose. They do not increase 
the government's cash flow, they cost the IRS time and money, 
and are a thorn in the side of extending taxpayers and 
practitioners.
    We endorse the report of the National Committee for 
Restructuring. We think they did a very fine job. However, we 
definitely do not agree that the independent board they suggest 
should hire and fire the commissioner or set the IRS budget.
    The Chairman. Mr. Goldstein, your time is up. I do have to 
announce, our time is up as well. The Democrats have objected 
to any committee continuing hearings at this time.
    Senator Moynihan. It is a rule that can be invoked.
    The Chairman. So we will have to continue this later. I 
would like to recess and see if we cannot work that out, so I 
would urge everybody to stay here for the moment.
    Senator Moynihan. Mr. Chairman, at the risk of censure by 
the whole body, I am going to extend long enough to thank these 
witnesses. They have been very helpful. They have both endorsed 
the Kerrey-Grassley Commission report. The idea that we ought 
to consult with persons such as the CPAs and enrolled agents on 
questions of complexity before we pass another tax bill is a 
good idea.
    The Chairman. No question about that, that complexity is a 
serious problem.
    Senator Gramm. Mr. Chairman.
    The Chairman. Yes, Senator Gramm.
    Senator Gramm. Mr. Chairman, could we, before we adjourn, 
since this order has come over from an objection on the Senate 
floor, could we finish this round? It very seldom happens to 
me, but I have had an idea. [Laughter.]
    Senator Gramm. I would like to have an opportunity to ask 
some questions and make a comment. Could we at least finish 
this round before we shut down?
    The Chairman. I think the answer to continuing has to be in 
the negative. I regret that.
    Senator Mack. Do we know who objected? Can we raise a 
question here as to who objected, and what was the purpose?
    Senator Moynihan. It was Senator Daschle, but you will not 
get anywhere asking us why.
    Senator Mack. It is an unfortunate situation. I think that 
this morning the tone was created that this was going to be a 
bipartisan effort.
    Senator Moynihan. Oh, it has nothing to do with this 
committee. Nothing to do with this committee.
    The Chairman. The objection is to all committees meeting 
during the session of the Senate. I would like to continue, but 
I think we would probably lose our Democratic members. I am 
insistent upon this continuing as a bipartisan effort, so let 
us see if we cannot work it out.
    I would point out, tomorrow there will be no Senate 
business in the morning. We will start at 9:00 and we will be 
able to continue at least until 2:00, and hopefully later.
    I apologize to our witnesses who were to testify today.
    Senator Moynihan. We thank our witnesses, too.
    The Chairman. Yes. But some are also here who have not had 
a chance to speak. So I just want to make it very clear, we 
appreciate your being here. Your testimony is important and we 
desire to secure it in full. I would ask that you stay around 
temporarily.
    The committee is in recess.
    [Whereupon, at 11:34 a.m. the hearing was recessed until 
Wednesday, September 24, 1997 at 9:00 a.m.]


        PRACTICES AND PROCEDURES OF THE INTERNAL REVENUE SERVICE

                              ----------                              


                     WEDNESDAY, SEPTEMBER 24, 1997

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to recess, at 9:00 a.m., 
in room SD-215, Dirksen Senate Office Building, Hon. William V. 
Roth, Jr. (chairman of the committee) presiding.
    Also present: Senators Grassley, Hatch, D'Amato, Murkowski, 
Nickles, Gramm, Lott, Moynihan, Baucus, Rockefeller, Breaux, 
Conrad, Graham, Moseley-Braun, and Kerrey.

OPENING STATEMENT OF HON. WILLIAM V. ROTH, JR., A U.S. SENATOR 
         FROM DELAWARE, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will please be in order.
    Since we were cut short yesterday we will submit questions 
in writing to both the Enrolled Agents and New York State 
Society of CPAs, and their responses will be included as part 
of the hearing record.
    So I would ask our members to provide the Finance Committee 
staff with their written questions by the close of business 
today. Of course, I do apologize to our witnesses for this 
change.
    [The questions and responses appear in the appendix.]
    The Chairman. This morning I would like to welcome three 
distinguished authors, each of which is an expert in the area 
of the workings of the Internal Revenue Service.
    Ms. Shelley Davis has had the distinction of being the 
first and last IRS historian. She is the author of a book 
entitled ``Unbridled Power.''
    Mr. Robert Schriebman is a practicing tax attorney who has 
written eight books on IRS practices and procedures, and he is 
also an adjunct professor at the University of Southern 
California Graduate School of Accounting.
    Finally, we have Mr. David Burnham, who is an associate 
research professor at Syracuse University, and has written 
several books including ``A Law Unto Itself: Power, Politics 
and the IRS.'' He is the former New York Times investigative 
reporter who wrote the Serpico police corruption series that 
led to the formation of the NAT commission.
    I would ask these three witnesses to please come forward.
    Senator Murkowski. Mr. Chairman?
    The Chairman. Yes.
    Senator Murkowski. I wonder if I may make a very short 
observation at this time. Yesterday the hearing was cut short 
and I would just like to add one short horror story to the list 
and commend you for holding this hearing.
    The Chairman. All right. We will get back to the witnesses 
in just a minute. In the meantime, Senator Murkowski.

 OPENING STATEMENT OF HON. FRANK H. MURKOWSKI, A U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. I thank you very much, Mr. Chairman.
    I would like to share with you an Associated Press story of 
September 22, and I will read it as follows. It is just one 
page. ``Hundreds of Alaskans have received notices from the 
Internal Revenue Service that their permanent fund dividends 
were being seized because of tiny back tax debts, some as small 
as 4 cents.''
    The IRS says the problem was a computer glitch, one that 
involved some 800 of my Alaskan constituents, who got the 
notices allegedly by mistake. ``We are extremely sorry,'' the 
IRS spokesperson said.
    ''I thought it was a practical joke that one of my friends 
was playing,'' said Dan Coyne, owner of the Sourdough Sporting 
Goods in Wasilla when he received the notice Monday of his 4-
cent debt seizure. But the notice looked official enough, and 
soon Coyne got mad. Can you imagine how much money this costs 
the taxpayers?
    He tried to call the IRS office, but could not get past the 
readings and the hold music. He called the State Department of 
Revenue, he called his Congressman, and he called me. ``I was 
up in arms,'' he said. The tax collectors had never told him he 
owed this 4 cents. ``Well, it was all a mistake,'' said Kraft 
at the IRS. ``A technical glitch was traced to an IRS computer 
in Ogden, Utah.'' No offense, Senator Hatch.
    ``The IRS normally does not levy permanent fund checks for 
any amount less than $25,'' Kraft said. ``In some cases, these 
pennies were not even owed in the first place.''
    But Willie Bannon, a potato farmer in Sutton, received a 
notice saying he and his wife owed the government 7 cents. 
After 20 minutes on the telephone, and then on hold, Bannon 
finally received an IRS representative. ``And she wanted to 
argue with me that it was not 7 cents,'' Bannon said. 
``Surely,'' the representative told him, ``if the IRS was 
levying his check he must owe more.''
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Murkowski.
    I would say to each of our witnesses, we are indeed very 
pleased to have you here. I would ask that each of you in your 
opening statements limit it to 10 minutes. Your full statement 
will be included as if read.
    It is our practice to have witnesses in these hearings to 
be sworn, so would you please rise and raise your right hand.
    [Whereupon, the three witnesses were duly sworn.]
    The Chairman. Ms. Davis?
    Ms. Davis. I do.
    The Chairman. Mr. Schriebman?
    Mr. Schriebman. Yes, I do.
    The Chairman. Mr. Burnham?
    Mr. Burnham. Yes, sir.
    The Chairman. Thank you, and please be seated.
    Ms. Davis, it is our pleasure to hear from you.

 STATEMENT OF SHELLEY DAVIS, AUTHOR OF ``UNBRIDLED POWER'' AND 
           FORMER HISTORIAN FOR THE IRS, MANASSAS, VA

    Ms. Davis. Well, thank you, Mr. Chairman, and Senator 
Moynihan. I am glad to be here. I very much appreciate this 
opportunity.
    I am going to start out by just telling you I read with 
great interest, as I am sure all of you did, an article in the 
Washington Post last Saturday announcing these hearings. But if 
this article is to be believed, these hearings are a partisan 
effort by Republican members of Congress to blacken the 
reputation of the IRS.
    Even an unnamed Democratic Congressional staff member said 
in that article that much of what you hear over the next 3 days 
will be ``for show,'' that hiding the identities of IRS 
employees who will testify before you is nothing but a ploy to 
generate media attention.
    But I tell you, nothing could be further from the truth. I 
sit before you today in the open as a former employee of the 
IRS, because I have nothing to hide. My career is over.
    But I have much to share with you about the IRS. I would 
like you to refer to my written testimony for a summary of my 
experiences with the arrogant and dangerous culture of the IRS; 
about how I discovered that the IRS does keep list of American 
citizens for no reason other than that their political 
activities might have offended someone at the IRS; about how 
the IRS believes that anyone who offers even legitimate 
criticism of the tax collector is a tax protestor; about how 
the IRS shreds its paper trail, which means that there is no 
history, no evidence, and ultimately no accountability. So, I 
urge you to read my written testimony.
    But today I am going to speak to you from the heart. This 
is not a partisan witch hunt. To help you believe that, I will 
tell you up front that I am a lifelong Democrat. I do not come 
to you today with any kind of partisan agenda. I come to you 
today as a citizen who witnessed things that should never 
happen in our government that I saw during my more than 7 years 
as the first, last, and only official historian for the IRS.
    As their former historian, I can sit here and tell you that 
abuse of taxpayers, abuse of authority, and abuse of power by 
the IRS happens on both sides of the political fence. There is 
evidence that both the Democratic and Republican 
administrations in the past have tried to use the IRS to 
further their political agendas. There is absolutely nothing in 
the current law to prevent this from happening.
    There is also nothing to prevent the IRS from doing it on 
their own in an attempt to perhaps please or appease whatever 
party happens to be in power. It is important to remember that 
the IRS itself is not a particularly partisan agency, it has 
only one political appointee and that is the commissioner.
    But it is an agency composed of career bureaucrats, 
bureaucrats who have spent their careers learning how to spin 
IRS arrogance and abuse into an impenetrable defensive shield, 
who have learned how to hide behind the privacy laws that are 
meant to protect taxpayers to protect only themselves.
    The bottom line, is that the IRS is the best secret-keeping 
agency in our government today. They are better than the CIA, 
better than the FBI. I mean, think about it. You and the 
American people do not have a clue about how the IRS goes about 
doing its job, and that is just the way they want it.
    Nobody is more masterful at this spin than the current 
acting commissioner, Michael Dolan, who I worked with the IRS. 
Mr. Dolan actually succeeded in getting the media to air his 
patently absurd allegation that IRS computers should be blamed 
for many of the horror stories that you hear about. I am sorry, 
but can computers seize the entire inventory and shut down a 
business because they were insulted?
    Can computers magically materialize early in the morning on 
your doorstep, as they did to taxpayer Shirley Barron? Not long 
after, her husband gave up on his fight with the IRS and took 
his own life. Can a computer accept a bribe from a Federal 
agent, setting in motion an armed invasion of an American 
corporation? No, computers cannot do these things, people do 
these things.
    But by blaming those darn computers, Mr. Dolan deflects 
attention from the real perpetrators, the IRS employees who 
allow these actions to go forward, from the agents who 
participated to the executives in Washington, DC who did 
nothing to stop this abuse and nothing to discipline the 
perpetrators.
    These hearings are about people, living, breathing 
entities, not computers. I mean, goodness knows, Congress has 
held enough hearings about IRS computers. It is time that the 
people have their say, people who have been harmed by their 
government, by people who are paid with their tax dollars, by 
an agency that seems to think it is all right if just a few 
taxpayers fall through the cracks.
    I would like to turn, quickly, to something a bit more 
personal. Also in that same Washington Post article Mr. Dolan 
denied that the IRS punishes employees who speak out. I tell 
you today, Mr. Dolan is lying. The IRS punished and retaliated 
against me when I gathered up all my courage and went forward 
with allegations that the IRS was breaking the law.
    But what I want to do today is, rather than telling you my 
story myself, I am going to read you a few excerpts from some 
correspondence that my father, a retired professor of 
economics, has had recently with the Democratic National 
Committee.
    Earlier this year he received a solicitation from the DNC 
for money to help the Democrats, and he wrote back. He said, 
``As a lifelong liberal Democrat, my decision not to give 
financial support to the DNC at this time was not made 
lightly.'' He talks about campaign finance reform, which I will 
not bore you with here today.
    Then he says the second reason that he has decided not to 
give money any further is more personal. He says, ``This is the 
treatment my daughter received from the Clinton Administration, 
whose election in 1992 she, like me, greeted with high hopes 
and rejoicing. Soon after taking her position as historian for 
the IRS she discovered that through both neglect and design the 
agency, in violation of Federal law, was destroying records 
pertaining to decisions and actions of the IRS throughout the 
20th century. She sought continuously to bring these acts to 
the attention of the commissioner in the hopes that the 
practices would be stopped.
    What a once in a lifetime political opportunity this 
administration let slip through its fingers. Here was an 
agency, much feared and hated by the American public in 
violation of Federal law, which a new, fresh administration 
could set right.
    Unfortunately, this did not happen. Instead, the 
commissioner, Ms. Richardson, acting through her deputy 
assistant commissioner to whom my daughter was assigned, 
reprimanded her and launched an internal investigation against 
her.
    With President Clinton's commissioner unwilling to support 
her, my daughter felt she had no choice but in good conscience 
to resign. Thus, for the sake of principle and a deeply-rooted 
belief in the worth and dignity of public service, her 16 years 
as an honorable Federal employee came to end.''
    Then he says, ``I have been a Democrat for all my life 
because I always believed that the Democratic Party was about 
justice and fairness. This does not seem to be true when it 
comes to matters like this. I see no reason whatsoever for the 
Democratic Party or a Democratic President to be defending 
illegal practices of the IRS. This is a matter of simple 
justice.''
    I can just say, I hope that anonymous Democratic staffer is 
listening today. Everything that you see and hear here over the 
next 2 days will be a matter of simple justice, not partisan 
politics.
    One final point on what happened to me. When I originally 
took my allegations of the legal document destruction I went to 
the IRS Inspection Service, which is supposed to be the 
internal watchdog for the IRS.
    I took them to IRS Special Agent Steve Rashe. Agent Rashe 
promised me, looked me in the eye and told me he would look 
into my allegations, I took him at his work. But later I 
discovered that it was Agent Rashe himself that was 
masterminding the internal investigation of me on completely 
false and trumped up charges.
    So then I went to the Treasury Department Inspector General 
to complain that the IRS was retaliating against me, and also 
to raise the issue that to have the very same agent to whom I 
had entrusted with my information about illegal activities at 
the IRS turn around and begin to investigate me was a conflict 
of interest.
    Well, guess what the Treasury Department IG said. The 
Treasury Department Inspector General investigated my 
allegation by going to the IRS. They never came to me and they 
never asked me anything. They went to the IRS.
    They went directly to Special Agent Steven Rashe and asked, 
well, is this a conflict of interest? Agent Rashe and the IRS 
Inspection Service shook their heads and said, no, this is not 
a conflict of interest. Of course, not. That was the end of the 
Treasury Department investigation of my allegation of 
retaliation.
    This is how the IRS and the Treasury Department 
investigates internal allegations of wrongdoing. America, we 
have got a problem.
    So to Mr. Dolan and to you I say that, yes, the IRS does 
retaliate against its own employees who speak out. Special 
Agent Rashe is still hard at work, probably leading the charge 
to silence any other potential whistle-blowers inside the IRS.
    Now, what you will see here over the next few days is not a 
show and it is not a media circus. What you will see are some 
incredibly brave Federal employees who do not want to end up 
where I am, unemployed, pensionless, and bitter. Seven years 
ago, another Congressional committee sat and heard testimony 
from IRS employees about ethical misconduct that reached to the 
highest levels of the IRS.
    Very quickly, the key points of that investigation 7 years 
ago were that there has been a serious failure on the part of 
the IRS to manage employee integrity; wrongdoing by IRS 
managers is often ignored entirely or ineptly investigated; a 
pervasive fear exists among IRS employees that reported 
misconduct or cooperated in an investigation will result in 
retaliation against them. A mind-set exists within IRS that 
seeks to preserve the agency's public image above all else.
    Does any of this sound familiar? In 1989 I sat in the 
audience and I listened. I never imagined that I would be 
sitting here, testifying to you 7 years later. But 7 years ago, 
after listening to three days of very damaging and damning 
testimony about IRS ethical conduct, Congress went home and did 
nothing.
    If you do that again, in another 7 years, if not before, we 
will be back here again. You have an opportunity to make a 
difference. Please do not let it slip through your fingers or 
get caught in diatribes of partisan politics.
    I will end very quickly here with a plea to the American 
people who might be watching these hearings. I hope the people 
of this great country of ours will take a moment to call you, 
to write you, to send an e-mail and tell you how they feel 
about what they are hearing today, because that is the way for 
the message to get through. If the message comes through loud 
and clear, perhaps this will be the last time we have to listen 
to the anguish of wronged taxpayers.
    I thank you very much.
    The Chairman. Thank you, Ms. Davis.
    [Applause.]
    The Chairman. The committee will please be in order.
    Mr. Schriebman?

 STATEMENT OF ROBERT SCHRIEBMAN, AUTHOR OF EIGHT BOOKS ON IRS 
PRACTICES AND PROCEDURES, ADJUNCT PROFESSOR OF TAX PRACTICE AND 
PROCEDURE, UNIVERSITY OF SOUTHERN CALIFORNIA GRADUATE SCHOOL OF 
             ACCOUNTING, ROLLING HILLS ESTATES, CA

    Mr. Schriebman. Mr. Chairman, Senator Moynihan, Senators, 
thank you for the opportunity to allow me to express my views 
on the current state of the Internal Revenue Service.
    I am going to take a different tack here. I am a practicing 
tax attorney in the city of Rolling Hills Estates, which is a 
suburb of Los Angeles. I have been doing this for about 20 
years, and my practice is limited exclusively to handling 
matters of tax litigation, tax collections, and tax audits. I 
represent people in all walks of life and in all tax brackets.
    I am in the trenches every day, eye to eye with the IRS, 
with auditors, and tax collectors. I am the author of several 
books on IRS practice and procedure. I have written the first 
practitioners' manuals on IRS collection defense and California 
collection defense procedures.
    If I can just correct for the record, I am a retired 
professor at USC. After a while, Mr. Chairman, those students 
get a little smarter than their professors, and I think maybe 
it is time to leave.
    You know, Senators, most IRS tax collectors, they are 
called revenue officers, and they are distinguished from the 
tax auditors who audit you. They are decent people, they are 
overworked people, and they have a heck of an unpopular job. 
But I believe that they do their utmost to follow the law in 
the provisions of their internal manual known as the IRS 
Manual.
    Unfortunately they do not keep current on changes within 
the IRS, and very often their internal libraries are seriously 
outdated.
    Recently revenue officers have told me that the IRS is 
adopting a ``get tough'' attitude toward tax collections. Now, 
the first Taxpayer Bill of Rights that was passed in 1989 did 
away with the formal keeping of internal statistics on tax 
collections, but it still appears that the only way to really 
make a name for yourself within the collection division is by 
the number of seizures under your belt.
    I brought with me today quite a horror story. It is in the 
record. It is in my formal opening remarks. I have other things 
to say that I think are equally as important as the horror 
story.
    I want to point out to you some things that you might not 
be aware of regarding how the IRS works. I want to make it 
clear that I am talking about dealing with the IRS on a day-to-
day basis, working with taxpayers who have problems.
    The IRS has fixed standards relating to allowable living 
expenses in order to grant taxpayers an installment payment 
arrangement. You might be surprised to know that a taxpayer has 
absolutely no right under the Code, even under the first 
Taxpayer Bill of Rights, no right at all, to an installment 
payment arrangement.
    The allowable living expense standards that the IRS sets 
out for people are really unrealistic. They do not take into 
consideration financial commitments made by people prior to 
their becoming delinquent in their taxes.
    These same unrealistic IRS standards apply to the cost of 
owning and operating a car and other essential living expenses, 
such as food, clothing, personal maintenance. A taxpayer is not 
allowed educational expenses for a child's private school, or 
religious school education, or college education. A taxpayer is 
not allowed, under these standards, to support his or her place 
of worship.
    These unrealistic expense standards have driven many 
taxpayers into unnecessary bankruptcy. Now, in bankruptcy they 
have something called an automatic stay. You get into 
bankruptcy, that stops the IRS cold. It is the only guaranteed 
way of really stopping the IRS cold.
    However, what is happening here is you have productive 
taxpayers, solvent taxpayers, who would otherwise not be in 
bankruptcy but for these unrealistic expense standards.
    Now, this causes not only myself by my colleagues around 
the country quite a disturbing concern, and it appears that the 
bottom line is that the IRS would rather force a taxpayer into 
bankruptcy than to accept a fair monthly installment payment 
arrangement or a settlement that is technically known as an 
offering in compromise.
    The IRS can take a taxpayer's home by just the signature of 
the district director alone. The irony of that rule is that it 
was part of the first Taxpayer Bill of Rights.
    There is no court hearing, there is no notice, there is no 
opportunity to litigate the merits of the IRS's claim. The IRS 
can close down a business, as Ms. Davis said, and take away a 
taxpayer's livelihood by merely filing a few papers in Federal 
court. The judge simply signs the seizure order. That is all 
there is to it. The taxpayer gets absolutely no notice, 
absolutely no opportunity to contest the legality of the 
assessment that the IRS claims is owed.
    In so doing the IRS can commit perjury in these 
declarations and they can get away with it. What is sad, is 
this type of criminal conduct seems to be condoned by the tax 
collector supervisors. To me this violates not only the 4th and 
5th amendments of our constitution, but one's basic civil 
rights as well. In other words, it is just plain not fair.
    In order to obtain a court order to close down a business 
all that is needed is a formal application and a sworn 
declaration that the revenue officer followed a few specific 
procedures set forth by the U.S. Supreme Court in the case 
known as GM Leasing, Inc. vs. United States. It is all very 
secretive. The taxpayer is never given notice of these 
proceedings and is never afforded an opportunity to contest the 
merits of the IRS's claim.
    The revenue officer simply obtains the seizure order 
represented by the U.S. Attorney, the judge signs the order, 
and then the taxpayer is served with the order and must 
immediately vacate his business premises.
    The taxpayer's only recourse is a long and costly tax 
refund procedure which most likely will wind up in court. In 
the meantime, the IRS sells the assets of the business and the 
taxpayer's business is gone.
    Some IRS auditors and tax collectors have taken the 
position that the Congressional directives that you have set 
forth in the Internal Revenue Code are simply guidelines, that 
they are free to accept or reject at will.
    If IRS employees do not follow the law and if they commit 
perjury before Federal judges, their conduct is often condoned 
by their superiors, including those at the highest level.
    With increasing frequency I find that I have to go over the 
revenue officer's head to the manager, and over the manager's 
head to the branch chief. It is getting increasingly more 
difficult to distinguish arrogance from bully tactics and over-
zealousness. I do believe that revenue officers are being 
pushed by their superiors to undertake more seizures in order 
to achieve promotion within the system.
    The examples that I have given you today reflect a lack of 
accountability within the system, to the taxpayer, to the 
American people, and reflect an institutional arrogance.
    This is especially true in exceptional situations where a 
rogue or renegade tax collector throws aside the Code, throws 
aside the Internal Revenue Manual in order to achieve self-
promotion and recognition by his or her superiors.
    Now, I have a few suggestions for improvement of IRS and 
for improvement of taxpayer rights. If you will look at the 
letters IRS, they stand for Internal Revenue Service, Service, 
Service. We are not getting the kind of service as we should 
for our money these days.
    Taxpayer abuse is not going to stop by just putting in new 
high-tech computer systems. While electronic technology is very 
important and it is necessary, we have to keep in mind that 
these are just machines and machines can further widen the 
distance and alienate the American people from their 
government.
    Creating a new Board of Governors who will sit in their 
insulated ivory towers is not the answer either, a wheel within 
a wheel, a bureaucracy within a bureaucracy. We need something 
responsive to people's problems now, when they are in the 
field, when they have them.
    So what I suggest, Mr. Chairman, is to put some real teeth 
into the Taxpayer Bill of Rights. Of primary importance, Mr. 
Chairman, the IRS should not be allowed to take any property of 
any kind from a taxpayer without notice and an opportunity for 
that taxpayer to be heard.
    The IRS should pay damages, not only when its agents 
violate the written provisions of the Internal Revenue Code. 
That is the way things are now. But they should also pay 
damages for violating internal procedures of their own manuals. 
They should also pay punitive damages if they violate 
taxpayers' rights.
    A taxpayer should be allowed a change of IRS auditor or a 
collector for reasonable cause. Right now, it is impossible. If 
you are not getting along with your collector or your auditor, 
you feel there are problems, a personality conflict, you are 
going to have a hard time to make a change. It is just not 
going to happen. They are not going to allow it.
    What is needed is an external check and balance system 
where a taxpayer can afford to be heard without first having to 
pay what the IRS says is owed. Collection activity must 
immediately stop until the issue is heard and ruled upon, a 
forum where the burden of proof is shifted to the IRS, instead 
of the way things are now where taxpayers are presumed guilty 
until proven innocent.
    May I respectfully suggest the institution of an 
independent administrative system of review of IRS collection 
and audit activities before they are allowed to be implemented. 
Taxpayers should be allowed to appeal IRS action to an 
administrative law judge and, if necessary, appeal that judge's 
decision to an Administrative Appeals Board. If that is too 
expensive, let us use the Tax Court. If that is too expensive, 
let us get some practitioners out there who will act as 
arbitrators.
    In conclusion, let me say that not all people who owe the 
IRS deserve a kinder and gentler hand. Some of these people 
need a fist. Some do not take their obligations seriously, but 
most people do.
    What we want is a level playing field. We want some 
respect, that is all. That is the bottom line, respect for our 
laws, our courts, and our constitution.
    Thank you for the opportunity to address the Senate.
    The Chairman. Thank you, Mr. Schriebman.
    [The prepared statement of Mr. Schriebman appears in the 
appendix.]
    The Chairman. Mr. Burnham?

  STATEMENT OF DAVID BURNHAM, AUTHOR OF ``A LAW UNTO ITSELF: 
   POWER, POLITICS AND THE IRS''; CO-DIRECTOR, TRANSACTIONAL 
  RECORDS ACCESS CLEARINGHOUSE; ASSOCIATE RESEARCH PROFESSOR, 
SYRACUSE UNIVERSITY'S NEWHOUSE SCHOOL OF PUBLIC COMMUNICATION, 
                         WASHINGTON, DC

    Mr. Burnham. Mr. Chairman and members of the committee, 
thank you very much.
    I would like to begin by commending this committee for 
having this hearing. At the same time, I would like to pick up 
on Senator Moynihan's remarks yesterday that this is the first 
time that the Senate Finance Committee has had an oversight 
hearing in the 21 years that he was with it.
    I believe, actually, it is the first time that the Senate 
Finance Committee has ever had a full hearing on oversight. I 
think, if you think about that and you think about the impact 
of this agency on the American people, that this is not a great 
moment in the Senate's history. I think it is a really serious 
problem.
    The record clearly demonstrates that the lack of effective 
oversight of the Internal Revenue Service by Congress, the 
courts, news organizations, tax practitioners, and other 
concerned individuals has done, I think, grievous harm to the 
American people for many years.
    While it is now a worn cliche, it nevertheless remains a 
basic truth: the price of liberty is eternal vigilance; you 
have to keep looking at large, powerful institutions all the 
time.
    Because we, all of us, have failed to hold the IRS 
accountable, I believe the agency has often operated in an 
abusive, sloppy, unresponsive, improperly political, and 
occasionally corrupt ways.
    The IRS's continuing problems are dangerous to the Nation 
for two reasons. First, a badly managed agency does not collect 
as much as might be expected of the relatively small but still 
significant portion of Federal taxes that are owed by non-
complying taxpayers.
    The second cost is harder to measure, but probably much 
more important. A badly managed agency is unfair. Substantial 
numbers of individual citizens are radically subject to 
wrongful actions. Such treatment contributes to a corrosive 
public cynicism that undermines public confidence in the 
government in a dangerous way. We are now seeing some of this 
around the country, this cynicism.
    My belief that strong oversight can have a positive impact 
on government is not theoretical. It is based on my direct 
experience. As a reporter who has investigated large, powerful 
bureaucracies like the New York City Police Department, the 
National Security Agency, the FBI, and the IRS for the last 30 
years, I have seen clear and certain examples where public 
exposure of serious government problems have led to genuine 
improvements in government operations. This can be done.
    The IRS, of course, is the subject of the committee's 
hearings, not the New York City Police Department. More than 10 
years ago, I began an investigative book and published it 
called ``A Law Unto Itself: Power, Politics and the IRS.'' I 
found quota systems, I found horror stories. I found all of the 
stuff that you are going to be seeing in the next day or two. 
It was all there.
    The book is unique, I do not think anyone has written like 
it, and was praised by many people, including Fred Goldberg, 
the IRS commissioner at the time. He surprised me by telling a 
national audience that my critique of the agency had got it 
right.
    Perhaps one reason Commissioner Goldberg did not condemn my 
book, is I did not heap blame on the Bush Administration. My 
research, in fact, and this is a point that Shelley made, has 
found that the IRS has suffered mishaps and misadventures under 
almost every President, Republican and Democrat, going back at 
least to Herbert Hoover.
    In the documents that I looked through I found examples. 
Herbert Hoover. He was irritated at the criticism of his 
budget-cutting policies by the Navy League, a conservative 
group that wanted to have the Federal spending continue on the 
Navy. So Herbert Hoover got the FBI and the IRS to investigate 
the Navy League. They tried to find out who the contributors 
were, they went after them.
    Franklin Delano Roosevelt regularly used the IRS as a 
political hit squad. He ordered the agency to mobilize its 
enforcement powers against former Treasury Secretary Mellon, 
Senator Huey Long, the singer Paul Robeson, the Republican 
representative and neighbor Hamilton Fish, Father Charles 
Coughlin, and many others. I believe he was the champion abuser 
of the IRS, from my record.
    During President Truman's watch, a massive and long-
festering IRS corruption scandal erupted, during which hundreds 
of agency officials and agents were implicated, including one 
Treasury Secretary, one Commissioner, one Assistant Attorney 
General. The Assistant Attorney General went to jail for 
corruption, taking a bribe. A good number, hundreds of agents 
were convicted and sent to prison in that period.
    With the full knowledge of President Kennedy and his 
brother, the IRS commissioner of that administration 
established a program to go after extremist organizations.
    Although memos describing the program said the extremists 
of concern were on both the right and left, it appears that all 
those that lost their tax-exempt status in connection with this 
program were Fundamentalist conservatives who had been 
criticizing the President.
    President Nixon, among other abuses, established the SSS, 
which we all know about. It was going after dissident groups 
and individuals.
    During the Reagan years, the IRS forgot the lessons of 
corruption and there was a mini-ground swell of really quite 
widespread corruption in offices in Los Angeles, Philadelphia, 
and Chicago.
    Although it may not at first be obvious to you, my point 
here is not that the IRS is inevitably a corrupt and badly run 
organization. On the contrary, growing out of the exposure of 
the problem of both the Truman and Nixon Administrations came 
periods of serious public concern and genuine reform. This can 
be done with serious oversight.
    Now, one reason there is not good oversight, it seems to 
me, is that there is not very much good information about what 
the agency is doing. I think Congress, the news media, and even 
the GAO do not look with sufficient rigor at what this agency 
is doing.
    In 1989, I got interested in and formed an organization 
that is a part of Syracuse University, and we use the Freedom 
of Information Act and we get internal administrative data 
tapes out of the agency and we examine them, we add Census 
data, and then recently we have been putting this up on the 
World Wide Web so that citizens all over the country and news 
organizations, and Congress, you can look at what you are 
doing.
    Now, that does not sound very interesting, but let me give 
you a couple of examples of the data. I think it fits into the 
horror stories that you are going to be hearing. It is going to 
show you a erratic enforcement, cowboys, districts going off 
and doing what they want to do.
    From 1980 to 1995, IRS criminal enforcement underwent a 
dramatic shift in emphasis. That is during the Reagan, Bush, 
Clinton years. During this period in 1980, three-quarters of 
all IRS prosecutions were aimed at individuals accused of 
traditional tax crime, like failure to file, filing a 
fraudulent return.
    By 1995, less than half of the IRS prosecutions were going 
after traditional tax violations. The IRS had moved into money 
laundering, drugs, and other criminal things.
    Now, while one can argue that drugs is more important than 
tax cheating, one could also say, why is the DEA not doing 
that, why is the IRS not concentrating on the collection of 
taxes; is that not its responsibility?
    Second, from 1988 to 1995, civil audit rates of non-
business taxpayers with over $100,000 declined by a factor of 
four. The percentage of taxpayers over $100,000 has declined by 
a factor of four from 1988 to today. The percent of taxpayers 
being audited at $25,000, at $50,000, has doubled.
    Why is the IRS auditing fewer and fewer $100,000, wealthy 
people, upper middle class people, you can define them as you 
want, and doing more relatively less affluent is the question. 
I do not know the answers, but it is a very good policy 
question. The Ways and Means Committee ought to be asking it, 
the newspapers ought to be asking it, and they are not.
    I can give you a lot more example about the IRS performance 
that raised questions about erratic enforcement, about the 
median sentence if you are convicted of a tax crime in one city 
is 60 months, the median sentence in New York City is zero 
months for tax fraud. Why are we allowing this erratic 
enforcement effort to go on? I think it is unnecessary. I think 
if we pay attention to it we can make this agency work.
    I think you need an IRS, I think you need a New York Police 
Department, but it has got to be held accountable. The hard 
numbers are there, the good questions are there. All that has 
been lacking are a skeptical group of Congressional committees, 
reporters, scholars, and tax practitioners willing to invest 
the time and energy to understand the numbers and to ask the 
questions.
    Thank you very much.
    [The prepared statement of Mr. Burnham appears in the 
appendix.]
    The Chairman. Thank you, Mr. Burnham.
    We will now open the panel to questions from the members.
    Let me ask you this question, Ms. Davis. You worked as an 
historian for how many years?
    Ms. Davis. Just over 7 and a half. Well, it was 16 years as 
a Federal historian, 9 years for the Department of Defense, 
then 7 and a half for the IRS.
    The Chairman. In what other divisions or departments did 
you serve?
    Ms. Davis. Other than the IRS? I worked for 9 years in the 
Department of Defense. Most of those years were with the United 
States Air Force, and then a couple of years with the Defense 
Mapping Agency, one of the intelligence agencies of the 
government.
    The Chairman. Did you have similar problems in the Defense 
Department?
    Ms. Davis. Oh, absolutely not. In fact, I brought with me 
those years of experience. The Defense Department, for all of 
its other troubles, has a tremendous sense of the value of 
understanding its past and preserving its documents.
    One of the things I like to point out to people is that, 
although we may hear complaints about government secrecy, and 
Senator Moynihan is very familiar with those and there is a 
serious problem with that, I did see, perhaps, a tendency in 
the Defense Department to take that rubber stamp, Top Secret, 
Top Secret, Top Secret, over and over again on documents that 
might not necessarily merit that.
    There is a problem with over-classification. But there is a 
huge difference between what I saw in my years with the 
Department of Defense and what I saw at the IRS. There is a 
huge difference between putting a Top Secret stamp on a piece 
of paper to withhold it from the American people, from the 
media, from Congress for a period of time and simply shredding 
everything.
    That was what I found most shocking at the IRS, and it took 
me really, I would say, probably a year and a half into my 
tenure to really believe this was happening. I spent the first 
period of time saying, I am just not asking the right people, I 
am not looking in the right places, because I, myself, could 
not believe that one of our government agencies had literally 
shredded its entire paper trail. But that was what was going 
on, because nobody was looking.
    The Chairman. Let me ask you this question. As you I know 
appreciate, the privacy laws, of course, as you indicated, are 
used to protect the IRS from scrutiny. On the other hand, we do 
have a responsibility to protect, I am sure you will agree, the 
rights of taxpayer privacy. So how do we change the law to make 
the IRS more accountable, and yet at the same time protect the 
privacy of the American citizen?
    Ms. Davis. I appreciate that question because it gets to 
the heart of part of the legislation that is currently pending 
before Congress.
    One of the problem is, the section of the Internal Revenue 
Code that includes the privacy protections is Section 6103. 
Currently, there is no provision in that part of the Code which 
would allow the National Archives, which is the repository for 
the documents of our entire Federal Government, whether they be 
from the CIA or the IRS, whatever it might be, those records.
    While the National Archives is permitted to hold and review 
and store documents from every other agency of our Federal 
Government, the IRS has stood fast and firm in saying, without 
an exemption, the National Archives cannot even look at our 
documents to evaluate whether or not they are historical.
    Now, the problem that I did see, and I saw evidence of this 
and this is actually what led to my resignation from the IRS, 
is that the IRS claims that material that simply does not 
contain any taxpayer information, any 6103 information, does 
contain such information.
    The problem is, there is no one but the IRS to look at what 
is true. You have the National Archives able to look at Top 
Secret information from other government agencies to store it, 
to protect it, but they cannot look at IRS records to determine 
whether or not it should be protected, it should be saved.
    There is a provision in the legislation that came out of 
the Commission on Restructuring the IRS to allow the National 
Archives to have that access, and I think it is paramount that 
that section of the law, at least, be passed.
    I have problems with other parts of that legislation, but 
that particular section, I think, is the most important because 
until we start having access to the information and stop 
allowing the IRS to control that access and to claim, wrongly, 
that everything they do has taxpayer information, nothing will 
change.
    The Chairman. Mr. Schriebman, I agree with you when you 
talk about the importance of protecting the taxpayer, having 
the right to be heard, and an opportunity to participate in 
this process before his/herbusiness, his/her residence is 
seized.
    How do you believe that Congress can protect taxpayers' 
rights when it comes to IRS seizures?
    Mr. Schriebman. There is a provision in the Internal 
Revenue Code, Mr. Chairman, I think it is Section 7402, that 
gives a Federal judge the right to sign--in fact, I brought it 
with me. If you would like, I can just read it. It is very 
short. It says basically they can sign any writs, any kind of 
orders.
    But, you see, we have got to work within the framework of 
the 4th and 5th amendments here. I think that was troubling the 
Supreme Court in the GM Leasing case back in 1975. But if you 
have this section here, 7402 has to be amended to make it clear 
that the word ``writs'' where it says, ``shall make and issue 
civil actions, writs, and orders of injunction,'' no ex parte 
writs.
    This is the problem. You have got these ex parte writs 
where all the revenue officer has to do is knock on the 
taxpayer's door and say, hi, I am here to close you up; are you 
going to let me do it voluntarily, or am I going to have to get 
a court order?
    Well, if the taxpayer has any sense at all he says, I am 
not going to let you come in here voluntarily. So the revenue 
officer says, all right, I have to get a court order. It takes 
about three or four weeks to get this order. But what is 
involved in it? Very little. The U.S. Attorney's Office 
prepares a document called an ``application,'' and cites some 
standard legalese.
    But the heart of it is the revenue officer's 
``declaration,'' and that declaration says that on a certain 
date I went to the taxpayer, I asked the taxpayer if I could 
enter and seize the business premises, the taxpayer said no; 
ergo, your Honor, I want my writ.
    The judge does not see anything else but these two pieces 
of paper. I do not know any judge that does not sign those 
things. I do not know any judge that says, ``Wait a minute. I 
want to talk to that taxpayer. I want to see if you are right 
here. I want to see if the taxpayer owes what you say is owed. 
I want to see if the assessment that underlies this bill is 
correct here, Mr. U.S. Attorney.'' No, the judge just rubber 
stamps it and the taxpayer's business is gone. What I would 
like to see, is that this cannot happen.
    I want to see notice being given to the taxpayer, I want to 
see a certain date set in court for the taxpayer to argue the 
merits of the assessment. If the taxpayer does not want to 
exercise those rights, that is up to the taxpayer, but at least 
he has them. He does not have that now, Senator.
    Then when you read the Code, you read Section 6334(e) of 
the Code where it says the District Director can take 
somebody's house by just his signature. How would you like it? 
How would you like to have a situation where, let us say the 
computer sent you a bill.
    You say, ``I do not owe this money.'' And you're right, but 
the computer does not answer and people do not answer. One day 
a revenue officer shows up and says, ``Say, Mr. Roth, when are 
you going to pay this bill?'' You say, ``I do not owe this 
bill.'' ``Well, Mr. Roth, that is not my problem. I have got a 
collection notice here that says you owe this bill. Now, when 
are you going to pay it?'' You say, ``I am not going to pay 
it.'' Mr. Roth, he says ``I am sorry, but I am going to have to 
ask the District Director to take your home. That is all.''
    I do not know of a District Director who does not sign the 
approval. I have not seen a case yet where the District 
Director says, ``Hey, wait a minute, let us see what is going 
on here before we take somebody's home.''
    That does not happen, at least not in the Los Angeles, 
Southern California area where I am, or other areas, because I 
get calls from all over the country from practitioners asking 
for help. I have never seen one case yet where the District 
Director said, ``Whoa, let us back up here.'' That is the 
problem we have.
    The Chairman. I am going to ask the witnesses today to 
please be as concise as possible in your answers, because we 
have a full day and we want to get as many witnesses as 
possible.
    Mr. Schriebman. I am sorry, Senator. I get a little carried 
away by this issue. If I have an agenda here today, I think 
this is it.
    The Chairman. I appreciate that.
    Mr. Burnham, you make the very serious charge that 
increasingly the taxpayer that is audited is the middle class 
or low income one, increasingly less for those over $100,000. 
Why do you think that is the case?
    Mr. Burnham. One part of the answer, Mr. Chairman, is that 
the number of taxpayers over $100,000 has gone up considerably 
in this period, so the percent goes down. That is part of the 
answer.
    However, it is still fact that the percentage of people 
over $100,000 being audited has gone down a factor of four. 
They seem to be putting their effort on, as I understand it, 
the tax credit that was given for the people whose income is 
very low, and there apparently was a lot of fraud there. Well, 
if you are going to put a lot of effort into one area you do 
not have people to do another area.
    So there are some good reasons, explanations for this, 
which would be worth asking the IRS. The IRS does not really 
speak to me very much when I come to them with this data. 
However, it also is true that the number of taxpayers being 
over $100,000 who are having face-to-face audits is just off 
the map. It has really just gone off the chart.
    I think that really may be a problem in long-term 
compliance. I think you need some auditing going on. An 
increasing percentage of the audits for those over $100,000 are 
those done out of the service centers where they just sort of 
check the documents.
    It is a good question. Is it policy? Did the Bush 
Administration, the Clinton Administration, say we want to go 
easy on wealthy taxpayers? I do not know. I cannot get that 
answer. You can get the answer.
    The Chairman. We will wait and see. Well, my time is up.
    Senator Moynihan?
    Senator Moynihan. I will take the liberty, Mr. Chairman, of 
predicting you will not get the answer. We have had wonderful 
testimony from a very thoughtful, scholarly panel. I am going 
to take the liberty, if I may, and ask the indulgence of my 
colleagues to read you a passage on the subject of secrecy, 
which you have all raised on one level or another.
    It says, ``Every bureaucracy seeks to increase the 
superiority of the professionally informed by keeping their 
knowledge and intentions secret. Bureaucratic administration 
always tends to be in administration secret sessions insofar as 
it can.
    It hides its knowledge from action and from criticism. The 
pure interest of the bureaucracy in power, however, is 
efficacious far beyond those areas where purely functional 
interests make for secrecy.
    The concept of the official secret is the specific 
invention of bureaucracy, and nothing is so fanatically 
defended by the bureaucracy as this attitude which cannot be 
substantially justified beyond those specifically qualified 
areas.
    In facing a parliament, the bureaucracy, out of sheer power 
instinct, fights every attempt of the parliament to gain 
knowledge by means of its own, from experts, or from interest 
groups.''
    Mr. Burnham. Amen.
    Ms. Davis. Hear! Hear!
    Senator Moynihan. All right. Come on, Mr. Schriebman, you 
were an adjunct professor. Who wrote that? Max Weber. In 
Wirtschaft and Gesellschaft, published after his death in 1920. 
Weber was a German professor, and I see my friend nodding down 
there, Dr. Gramm. He probably wrote this before the war. He was 
describing the appearance of bureaucracy in Wilhemite Germany. 
This is the nature of this beast. If we do not pursue it, it 
will keep to its organizational instincts.
    Mr. Burnham. Excuse me. It will pursue you.
    Senator Moynihan. Yes, it will pursue you.
    Mr. Burnham. You do not pursue it.
    Senator Moynihan. I could not more agree. Sir, do you 
realize the list of people you read off to us about this 
organization and its secrets, Herbert Hoover checking out the 
Navy League, every one 100 percent Republican, but getting the 
IRS to find out if they had paid their bills; Franklin 
Roosevelt checking out Huey Long.
    When an executive starts using the IRS to check out a 
Senator, Senators better pay attention or they will not be 
Senators long. I mean, there is a real institutional problem 
here. Do you recognize it?
    Mr. Burnham. It is an institutional problem. I mean, the 
reality is that the bureaucracies in this town are responsive 
to the President in power, and they are supposed to be. I mean, 
the problem is, they are supposed to be, up to a point. That is 
why you elect a President. But it is so easy to go over the 
line, and we do go over the line.
    Historically, we have gone over the line over and over 
again. You have to give them discretion. You cannot make rules. 
You cannot prevent this from happening, if you are going to 
have an IRS. But you have got to have oversight. That is the 
only thing, you have to have oversight.
    Senator Moynihan. We have to have oversight. You have to 
have some sunlight.
    Mr. Burnham. And break up the secrecy.
    Senator Moynihan. Break up the secrecy.
    Mr. Burnham. Yes.
    Senator Moynihan. You have to fight against it. You cannot 
issue a rule that says, no more secrecy, or not too much 
secrecy, then turn your back, because it will come right back 
at you; is that not right?
    Mr. Burnham. Yes.
    Ms. Davis. That is right. It is important to realize that 
all of the examples that Mr. Burnham is giving, the evidence 
for those does not come from IRS records, it comes from records 
that he ferreted out out of other historical files, 
Presidential libraries, other things, but not IRS. If you think 
about it, think about what the American people would think if 
we had no records at all from the Department of Defense for 
this entire century.
    We would have no records of World War II, the Cold War, 
World War I, the growth of the defense industry, any of the 
Secretaries of Defense and their decisions. I think there would 
be a massive public outcry. CIA. We have access to CIA records 
many years later.
    Senator Moynihan. We have mostly access to CIA records that 
are found in Moscow. [Laughter.]
    Ms. Davis. Right. This is true. I will not disagree on 
this. But it is just amazing. You go looking for the records of 
IRS commissioners. In my years at the Department of Defense, 
what an historian does, is you go and you research the records 
of the Secretary of Defense, or the Secretary of the Air Force, 
or whomever it might be, and you gain all sorts of insights 
from even scribbles in the margins, drafts of documents, what 
the chief in charge of the agency did.
    There is not a single collection of records from any IRS 
commissioner ever, from 1862 to the present, in the National 
Archives, so all that evidence that Mr. Burnham is talking 
about comes from other sources. He is a very diligent 
researcher and it is very hard work to find evidence of what 
the IRS does. We do not know what the commissioner is writing, 
we do not know what the commissioners are thinking, because 
they have gotten away with shredding everything.
    Mr. Burnham. Senator Moynihan, the story about the Kennedy 
years. I went to visit a lawyer in this town who had worked for 
the IRS commissioner at that time and he had the copy of the 
memorandum describing this attack on the dissident groups, and 
he was afraid to give it to me because of the privacy laws.
    But I came into his office and he said, well, I have to go 
out for lunch. He went out for lunch, and I assumed that he was 
letting me look at these documents, so I looked at them.
    One of them was a memorandum describing this attack on 
dissident groups, and up in the left-hand corner there was a 
handwritten scribble saying, ``The President called and says 
full steam ahead,'' in handwritten note. So this was approved 
by the President.
    Senator Moynihan. Mr. Chairman, I have nothing further to 
say. We had better start institutionalizing oversight, and I 
think a little history of what we have heard today would do no 
harm.
    I think that is what we have investigators for, and that is 
what we have a Department of Justice for, but it is a 
bureaucracy too. I worry about that. You solve the details, I 
have set down the theory. Phil Gramm can do the rest.
    The Chairman. We will call on Senator Grassley, next.
    Senator Grassley. I want to dwell on just a little bit of 
history, because I hear so much of it being repeated in these 
hearings. When I conducted oversight hearings of the Defense 
Department and the Justice Department in the 1980's, I, by the 
way, had near unanimous support from members of the Democratic 
party to do that. They obviously enjoyed seeing me as a 
Republican overseeing agencies headed by members of my own 
party.
    Those Democrats thought that oversight was very important, 
very necessary, and very antiseptic back then. My Republican 
colleagues at the time defended those agencies. They saw that 
as their obligation, since an administration of their own party 
was being attacked. I viewed it differently, from my 
perspective of my constitutional responsibilities.
    Here are some examples of how my Republican colleagues 
defended Reagan Administration mismanagement practices back 
then. You would hear accusations that all I was doing was 
defense bashing, or the excuse was that the real problem was 
Congress, or that it was an anomaly that there was $640 paid 
for a toilet seat, or we wished that we could explain why we 
have all these problems, but we cannot because it is classified 
to protect the national security.
    Having gone through oversight battles in the past, I am now 
hearing kind of an echo. IRS bashing. These horror stories are 
anomalies. The real problem is the laws passed by Congress. 
There are no problems with IRS management, but we cannot 
demonstrate it because of 6103 secrecy.
    Anyone who cannot see through this folly, this tired and 
weak defense of the IRS, is not a serious observer of the 
workings of government. That is my view, based on my 
experience. I guess it has got a longer history, based upon 
what Senator Moynihan just quoted for us.
    There are those among us here who will feebly defend the 
IRS using the same old, tired defense. But the public can see 
right through it, because they are on the receiving hand first-
hand of IRS abuses.
    So let me ask four fairly general questions. I am going to 
ask them all at once, and you do not all have to answer each 
one, but collectively I hope you will respond to them.
    Do you believe that these oversight hearings constitute IRS 
bashing? Is the real problem the laws passed by Congress? Are 
these horror stories that we are hearing only anomalies? Is the 
IRS Section 6103 authority abused and used too often to cover 
up mismanagement? Those are the four questions. I would like to 
have all of you speak to some of them.
    Mr. Burnham. There are different answers to different 
parts, but clearly the laws passed by Congress have put a 
terrible burden on the IRS. I mean, it would be better if it 
were simpler. You have to give them more and more discretion. 
That contributes to the problem. I do not think that is the 
basic problem, and I clearly do not believe this is IRS 
bashing, to look at the IRS. I will let my colleagues respond.
    Ms. Davis. I want to jump in with a quick story. I referred 
in my testimony to the 1989 hearings that were held on the 
House side. Back at that time, Fred Goldberg was the incoming 
commissioner, who I think had just been confirmed or was headed 
into confirmation hearings. Anyway, he was brand-new and 
ultimately could not be held accountable for any of the things 
that were going on as a result of that.
    It is interesting that once again today we find ourselves 
between commissioners. Somehow, it is just an interesting 
little twist. I do not think there is anything behind it, but 
it is a twist because there is no one there to point fingers at 
when you have someone new coming in, hopefully.
    But Mr. Goldberg sat there in 1989 and he told the House 
Committee on Government Reform that he felt that really it was 
not important to get into the real nitty-gritty of the horror 
stories that were heard at that time, that it was not that 
important to go and hold the individual IRS employees whose 
stories were being told at that time accountable for what they 
did. He sat there and he said, it is more important that we 
just move ahead, and I commit to you as the new commissioner of 
the IRS that I will take care of all this and I will turn it 
into the premiere ethical agency of our government today.
    Well, we all know that did not happen. But therein lies the 
key problem to this whole thing, and primarily the answer to 
your question about whether or not the horror stories are 
anecdotal. They are not anecdotal, they happen. They are 
recurring. It does not happen to the majority of taxpayers, but 
if it happens even once, I heard many of you say this 
yesterday, that is too much.
    I think the gist of the problem is that the IRS itself does 
not hold its own employees accountable. Congress, with its 
oversight responsibilities, does not force the IRS to hold its 
own employees accountable.
    So ultimately, until IRS employees are held accountable for 
their individual actions, I would like to see the IRS employees 
who falsely investigated me, were able to bring false charges 
against me, to be investigated seriously for what they did.
    I would like to see every IRS agent who interacted with one 
of the taxpayers you will hear here investigated. I would like 
to know from the IRS what exactly they did to the employees who 
were the perpetrators in these tax cases. That is what we are 
not getting.
    The IRS sends a message to its own employees when they do 
not discipline them that it is all right to do what you do. It 
is a tacit endorsement. Congress endorses the IRS's tacit 
endorsement by not demanding that level of accountability. So 
there is no question that, ultimately, if you get away with it 
and nobody does anything, it is a license to continue.
    Senator Grassley. Ms. Davis, you testified to our National 
Commission to Restructure the IRS. Based on that testimony, I 
have included in this legislation your idea to require the 
archiving of IRS records. Will that help?
    Ms. Davis. Oh, without question it will help, because right 
now the IRS is using 6103 and abusing 6103 to withhold all 
information, information that does not have any tax 
information, information that may be simply embarrassing to the 
IRS. That is ultimately what led to the false investigation of 
me, and my resignation from the IRS.
    I mean, I was attempting to respond to a wonderful Freedom 
of Information Request from a history professor who actually 
wrote this book. I brought it here just in case I needed it. It 
is a great book. It is an academic book about the Kennedy 
Administration.
    This professor was doing what professors all over the 
country do, he was trying to research and write a book. He sent 
Freedom of Information requests to the IRS. They landed on my 
desk. I found just a tiny bit of documentation to support what 
he was looking for.
    The Chairman. I am going to have to ask you to try to bring 
your response to a close.
    Ms. Davis. Sure. What happened, was this information did 
not include any taxpayer information, but the IRS wrongfully 
withheld it from him because they did not want to be 
embarrassed.
    The Chairman. We are allowing 10 minutes for each member to 
ask questions. We are going to have to strictly enforce that, 
because unfortunately we are still continuing with what was to 
be yesterday's hearing, so we have a very, very full day. So I 
do ask the witnesses to please not repeat, but to be as concise 
as possible.
    Senator Hatch.
    Senator Hatch. Thank you, Mr. Chairman. One reason I ran 
for the Senate is because I tried a number of tax fraud cases, 
and frankly they were so unjustly brought that I really got 
offended by it and got involved. I have not seen many changes 
since.
    Your testimony here today has been very, very essential. It 
has been suggested by some that this committee is on a witch 
hunt. That could not be further from the truth. There is 
certainly no vendetta against the IRS. I will only say two 
things about that.
    First, we are not here to destroy anyone or anything. We 
quite obviously need a strong and effective IRS. We are not 
here to burn anybody at the stake, but we are here to try to 
get the answers to some very serious and some very real 
questions, and you folks have been very helpful here this 
morning.
    But the current regime of the IRS is feeling a little heat. 
I hope because of that they will remember this experience. It 
is exactly what they put the taxpayers through when the IRS 
calls and starts asking questions and requiring more 
information and more documentation.
    For example, the IRS initiated an audit of a taxpayer who I 
know quite well, and assessed deficiencies for the tax year in 
question. During the ensuing period, the case was transferred 
to six different revenue agents, with several instances of 
agents not communicating or relying on the work already done by 
a previous agent.
    With each new agent came a set of different adjustments 
and, naturally, delays. This went on for 8 years, two of which 
saw no IRS activity or attention at all. There were extensions 
of the statute of limitations.
    The taxpayer made offers in compromise to resolve the 
disagreement. The IRS would not even discuss, let alone work, 
on any such resolution. You have been indicating that that is 
your experience, Mr. Schriebman, is it?
    Mr. Schriebman. Yes. Schriebman, Senator.
    Senator Hatch. Schriebman. All right.
    They would not even discuss it. Finally, the taxpayer was 
informed that all of the items under examination were 
disallowed and he owed a substantial amount. That was not all. 
Because of the long period of time that had elapsed for the 
audit to be completed, the interest was nearly three times the 
amount of the additional tax assessed. It now amounts to almost 
a million dollars.
    Now, think about it. It was a legitimate question whether 
he owed the taxes to begin with. But the taxpayer is willing to 
pay, but they have, with penalties, interest, and delays, 
raised this almost triple what it was.
    This taxpayer is now making payments, has made them 
faithfully, has paid faithfully more, as I understand it, or 
pretty close to the actual amount that was owed to begin with 
through regular payments, diligence, doing what was right and 
living up to the obligations that they had.
    So the taxpayer is now making payments that amount to 
little more than interest on interest, with little chance that 
the debt will ever be paid. Now, that is not unusual, is it?
    Mr. Schriebman. Are you asking the question to me?
    Senator Hatch. Yes, I am asking you as a tax practitioner, 
Mr. Schriebman.
    Mr. Schriebman. I hear this, I deal with this every day. 
First of all, this fellow made a mistake initially by signing 
the statute extension. That is one of the things the IRS 
brainwashes the public about. You do not have to sign the 
statute extension.
    Senator Hatch. Well, they threaten to indict you if you do 
not. They threaten to bring charges against you if you do not.
    Mr. Schriebman. If you would not have signed the statute 
extension, they probably would have run out of time to do it. 
This interest situation that your person has, that is part of 
the Taxpayer Bill of Rights, too.
    Senator Hatch. It is not just interest, it is penalties and 
interest.
    Mr. Schriebman. I understand.
    Senator Hatch. It is crazy.
    Mr. Schriebman. Well, your man should now again, under the 
new IRS liberal position on offers in compromise, now is the 
time to go into that offer in compromise. Now is the time.
    Senator Hatch. Well, he has done it. I have done it. I have 
asked them to see what they can do to resolve this problem, and 
it is just a no. They are at least partially responsible for 
the interest and penalties that have been assessed.
    Mr. Schriebman. I certainly, under the Taxpayer Bill of 
Rights, too, would bring an interest abatement administrative 
claim and take it to the Tax Court.
    Senator Hatch. They did. They did, and abatement was 
denied.
    Mr. Schriebman. Well, did they take it to the Tax Court? 
That is part of the Taxpayer Bill of Rights, too.
    Senator Hatch. Well, the taxpayer court denied it also.
    Mr. Schriebman. The Tax Court denied it?
    Senator Hatch. Yes. Then they filed for an additional 
abatement proceeding, and then of course was denied again. I 
mean, I have got to tell you, looking at the facts, it is very, 
very unjust.
    Mr. Schriebman. Somebody does not like your client, it is 
obvious. [Laughter.]
    Senator Hatch. Well, this particular client is one of the 
most loved people in the whole world, but the IRS does not love 
him.
    In another situation, a taxpayer attempted to work with the 
IRS to pay the amount that was owed. However, the IRS refused 
each one of her suggestions. Consequently, they lost 
everything, their cars, their home, and all other assets that 
they had.
    The IRS was totally uncompromising with this taxpayer. 
Unfortunately, the seizure mentality is all too common, 
especially when agents seem to be evaluated and promoted based 
on dollars collected and property seized.
    Let me give you another example. An elderly couple made 
some poor investment choices that led to the disallowance of 
certain deductions and losses. The tax is rightfully owed.
    However, because of their age they have little income and 
their only asset is their home. As with so many of these cases, 
the interest on the debt has piled up to be a considerable 
amount compared to the actual tax debt.
    Again, the IRS was unwilling to discuss a compromise to pay 
the debt over time. They had the option of getting a loan to 
pay part of the debt, however, the taxpayers would still be 
liable for not only the interest on the loan, but the penalties 
and interest on the tax debt as well.
    Instead, these elderly taxpayers were forced to sell their 
home when faced with the threat of the IRS seizing the property 
and selling it for them at a cut-rate price in order to satisfy 
the tax obligation.
    Now, where has all the reason gone? These are just some 
examples that highlight the need for the hearings that we are 
having, and I want to commend our Chairman and Ranking Member 
for being willing to do this. It is the first time ever, 
perhaps, but certainly the first time in my 21 years here, and 
I think it is about time.
    Let me just ask one question to all of you on the panel. 
Each and every one of you have mentioned, and even painted a 
picture of a terrible culture at the IRS. Can you be more 
explicit for us in suggesting ways to change the IRS culture 
for the better? And maybe we could start with you, Mr. Burnham, 
Mr. Schriebman, and end with Ms. Davis.
    Mr. Burnham. Well, several of the witnesses mentioned this 
yesterday, Senator. One of the basic problems is that the IRS 
has come to think of itself as a law enforcement agency rather 
than a service agency. How you change that, is very hard. If 
you did a careful analysis of the IRS budget, you will see a 
big chunk of their budget goes for enforcement and audit, very 
little goes for the service.
    Comparatively little goes to the service part. Congress can 
change the budget. You can change the emphasis of the IRS. A 
lot of people who were in noncompliance overpaid. Did you know 
that? I mean, a lot of people overpaid. A lot of people 
underpay because they do not understand. The rhetoric yesterday 
when you referred to the people not paying, you say they are 
tax cheats. A lot of the people who do not pay or over-pay are 
not tax cheats, they do not understand.
    I mean, did you know President Lincoln overpaid his taxes. 
There was an income tax during the Civil War. He overpaid them, 
and after he died they got a refund. The tax law is complicated 
and it is hard. The taxpayers need help and they need a lot of 
that.
    It is this cop mentality, the ``us'' against ``them.'' To 
fall into the easy use of the words ``tax cheat'' for everyone 
in noncompliance is very dangerous. You do it, the newspapers 
do it, and we ought to try to change it.
    Senator Hatch. Mr. Schriebman?
    Mr. Schriebman. Senator, I heard your three stories.
    Senator Hatch. Well, I can give you a lot more.
    Mr. Schriebman. So can I, believe me. But I have to say a 
couple of things, in all fairness, in all objectivity here. I 
think a lot of people get into trouble with the IRS because of 
their own ignorance. A lot of them get into the IRS because 
they are too penurious to get good advice.
    The cases that you have mentioned here, while egregious, if 
these people might have gotten some good advice, I think some 
of the bankruptcy laws could have helped these people. I think 
that you in this room are part of the problem. You have written 
these provisions in the Code that allow the District Director 
to take a house on a signature. I am a grunt; I am not an 
investigative reporter and I am not an insider. I am a guy who 
was never with the IRS.
    Everything I know, everything I have written about I have 
had to experience. I deal with these things every day. I will 
tell you something, a lot of what I see people go through--I 
mean, I have had a client, a widow, come to me when her husband 
had blown his brains out in the lobby of the Lawndale IRS field 
office. I have represented the widow. I want to say in that 
particular case the IRS could not have been kinder to the 
widow.
    Senator Hatch. I guess my time is up.
    The Chairman. The time is up, I regret. But we have to move 
on. I would point out that the members are called upon in the 
order they appear. We have the early bird rule. So we are not 
just letting the Republicans go first.
    We have, next, Senator Gramm.
    Senator Gramm. Mr. Chairman, thank you.
    I want to thank our witnesses. I had made the point 
yesterday when we had another panel that I wanted desperately 
to have a chance to ask them some questions. They are not here, 
but I want to refer back to their comments and then pose a 
question to you.
    We had a panel yesterday that was made up of people who 
were representatives of major groups that interfaced with the 
IRS, such as the CPAs, and enrolling agents.
    Maybe I am over-simplifying what they had to say, but their 
basic approach was a sort of a sociological approach which said 
that the problem at the IRS was that these people at the IRS 
think of themselves as law enforcement agents and not as people 
who are a service agency. In essence, what they were saying is 
that we need this massive effort to sort of change the thinking 
at IRS.
    I profoundly disagree with that approach. I do not find 
that approach to be very successful because it does not change 
the basic parameters in which people work. I think one of the 
things that each of your testimonies has done today, is to make 
it very clear that what the problem is here is that the IRS has 
massive power, and power corrupts.
    As a result of having no checks and balances, as a result 
of having an agency that investigates, prosecutes, and makes 
judgments all by itself, you do not have the checks and 
balances that you might have in the criminal justice system 
where a police officer makes the arrest, has a fact report, it 
goes to the district attorney's office, and so on through the 
courts.
    There is to some extent a check and a balance in that the 
district attorney looks at what the police officer has done. 
Then you have the whole case go before a court that looks at 
what the district attorney has done and what the police 
officers have done.
    So it seems to me that our problem is not a sociology 
problem. Our problem is not that the people that work at the 
IRS are bad people. My guess is that, by and large, they are 
good people, even the ones who act badly.
    The problem is, these people have too much power, they have 
no checks and balances, we have no access to information, and 
people are afraid of them. The system that people operate under 
changes the behavior both of the people who have the fear, and 
the people who are feared. I think that is basically the 
problem.
    Now, the question is, what can we do about it? That is what 
I want to focus my question on. But let me say that I think a 
couple of you have made the point that Congress is, to some 
degree, culpable, and I agree with that. I think we have 
written a very complicated code that not even we can comply 
with without expert assistance.
    I have not forgotten all the budgets that were passed over 
the years where we added more money for the IRS compliance 
office and then counted it as generating additional revenues, 
which if that is not a clear indication----
    Mr. Burnham. A quota system.
    Senator Gramm. That is right. If that is not a clear 
indication of what we want done, then I do not know what is. So 
I believe we need some fundamental changes in the system, 
structural changes. I think what should come from these 
hearings is a change in law and not just oversight, but 
changing the structure of the system itself.
    I would like to ask each of you, as short as you can give 
the information and be brief, what structural changes do you 
believe should be made. If you could change the laws in only 
two or three ways, based on your individual experience, what 
changes would you make?
    Let me start with you, Ms. Davis?
    Ms. Davis. This is tough. I am going to give you a little 
bit of a very quick sociological answer to your very specific 
question. Last year in some of the early testimony before the 
Commission on Restructuring a former high-ranking IRS official 
told the commission that he believed from his, I do not know, 
about 30 years of experience with the IRS that the key to 
effective work of the IRS was mystery, to keep the tax system 
mysterious, I could not agree with that more, because mystery 
just breeds fear and distrust among the American people.
    I guess during my 7\1/2\ years with the IRS I tried my own 
little sociological experiment, because one of the things I 
tried to tell them, I agree with everything you say, most IRS 
employees, if not all, are fundamentally good people. They do 
not mean to be bad people, and I am not totally opposed to the 
IRS. It is an agency that has an incredibly fascinating and 
interesting past and tradition and it is part of the 
sociological fabric of the United States.
    What I did, was I tried to tell them, if we taught our own 
employees at the IRS and if we taught the American people about 
the role of the tax collector throughout the past, about how 
important it has been in the development of this great country, 
maybe taxpayers might be more inclined to comply. I do not 
think you make taxpayers comply only by beating them over the 
heads.
    But when was the last time that the IRS, or even members of 
Congress, reminded the American people about the terribly 
important role--I mean, everybody does bash the IRS; it is 
great fun. But we do not talk about how important it is.
    That is one reason I told them over and over again, you 
need an historian, you need an historian to gather the research 
and write the documents that will show people the importance of 
this. So I will just leave it at that, because I think that is 
just so very important.
    Senator Gramm. Yes, sir?
    Mr. Schriebman. You have asked for some concrete 
suggestions and I would like to give you some.
    Senator Gramm. Great.
    Mr. Schriebman. First of all, let us get rid of these ex 
parte writs.
    Senator Gramm. Tell us what that is.
    Mr. Schriebman. Well, ``ex parte'' is Latin. It means that 
you can go into court, close somebody's business down or take 
somebody's house without giving that taxpayer a notice.
    What we need to do, is we need to give a taxpayer notice, 
the court needs to set a hearing date. Now, if a taxpayer does 
not use that, that is the taxpayer's problem. He has got a 
right to it, whether it is his house, his business, his bank 
account, his wage garnishment. We need that.
    Now, where can we go to get that? Well, we have got the 
U.S. Tax Court. You probably need a few more tax court judges 
and you have to put them in residences in several cities.
    Right now they travel in circuits, except for Larry 
Nameroff, who is based in Los Angeles permanently. We need more 
Larry Nameroffs. We need them in cities where they are 
permanently based instead of working out of Washington and 
traveling in a circuit.
    Senator Gramm. Is there a shortage of Tax Court judges?
    Mr. Schriebman. Big time.
    Senator Gramm. All right.
    Mr. Schriebman. I have some more suggestions. I will tell 
you, Senator, these will work, because I know my experience 
here.
    Let the Tax Court have jurisdiction over employment tax 
cases. It does not have any jurisdiction over employment taxes. 
If somebody gets hit with this thing called the 100 percent 
penalty, now call the Trust Fund Recovery Penalty, big deal, it 
is the same thing. The Tax Court cannot hear that. There is no 
assessment.
    See, the problem that you have is that you have got an 
internal conflict of interest within the IRS. They are their 
own judge and jury over people's lives. Let us remove that. 
This will cure the ``Ivory Soap's'' worth of taxpayer abuse.
    Repeal Section 6344(e), where the District Director has the 
right to sign and take somebody's house. You should not be able 
to take anything from anybody without giving those people 4th 
and 5th amendment rights.
    I say over employment taxes and collection problems, 
because the Tax Court does have a little jurisdiction over 
collection problems right now, but it is esoteric. They are all 
in Sections 6212 and 6213 of the Code. They are real esoteric 
stuff.
    A person has a collection beef, has an assessment beef, 
whether it is with income taxes, excise taxes, employment 
taxes, estate taxes, let the Tax Court have jurisdiction over 
all of those. No assessment without a right to a hearing.
    Senator Gramm. Let me go to Mr. Burnham, because I see the 
yellow light on.
    Mr. Burnham. In my high school year book, Margo Wood, I 
will never forgive her for it, wrote under me, ``It is easier 
to be critical than correct.'' I spent all my years 
criticizing, and it is hard to come up with a correct answer.
    But, with due respect, I think I agree with the witnesses 
yesterday that said that the enforcement mentality dominates 
the IRS rather than the service, and that not that you can do 
away with enforcement, you have to have enforcement, there are 
bad people doing bad things and you need an enforcement arm, 
but maybe an idea would be to separate the IRS into an 
enforcement sort of cop arm and a service arm more than it is 
now. Maybe that would make sense.
    Senator Gramm. Well, I think that is the checks and 
balances we are looking for. But I think the idea of putting 
people through sociology training is not going to have any 
permanent impact.
    Mr. Burnham. We are not talking about that.
    Senator Gramm. We respond to the world that we live in, we 
respond to the rules that exist. I think again here the problem 
is power corrupting.
    The Chairman. The time of the gentleman is up.
    I would point out to you that in our legislation that we 
recently adopted we did expand the jurisdiction of the Tax 
Court to employment taxes, but you might take a look and see 
whether you think it is adequate.
    Mr. Schriebman. But the only expansion on that, with 
respect, Mr. Chairman, is the determination whether somebody is 
an employee or an independent contractor. That is just not far 
enough.
    The Chairman. Not far enough.
    Mr. Schriebman. No, sir.
    The Chairman. Senator Lott.
    Senator Lott. Thank you, Mr. Chairman.
    I have been very interested in your statements and your 
responses. We appreciate your time. I think you are giving us 
some very helpful suggestions.
    One of you commented about, a lot of the problems with 
taxpayers is that they just do not know what is the right thing 
to do, or it is ignorance. But, as a matter of fact, some of 
the most egregious cases that I have been familiar with have 
been caused by actions by the taxpayers after having received 
so-called expert advice.
    Mr. Burnham. That is true.
    Senator Lott. Tax lawyers and CPAs.
    Mr. Burnham. They do not understand it.
    Senator Lott. And that is the problem, though. You are 
giving advice. You have got a little extra money, you work in a 
shipyard and you have got a farm on the side and you are given 
advice by a CPA or a tax lawyer that here is something you can 
invest in that would be beneficial to you, and it turns out it 
was on the margin, it turns out maybe IRS said maybe this is 
all right, and later they say it is not all right.
    They wind up having their lives destroyed, losing their 
farm, and just about everything they have. What can we do about 
that? Expert counsel is not a defense, apparently, unless of 
course you then can come back and take action against them for 
incompetence.
    Mr. Burnham. But are they expert? The law is so 
complicated.
    Senator Lott. Tax lawyers and CPAs are supposed to be 
experts.
    Mr. Burnham. I know of a situation in New York. The editor 
of one of my books went to a very high-priced tax lawyer who 
did not know how the IRS functioned. He was not familiar with 
IRS procedures. He knew tax law. Those are two entirely 
different things. If you do not get the right advice, you are 
in trouble.
    Mr. Schriebman. I disagree.
    Senator Lott. What about the poor taxpayer? I mean, he has 
done his best to get expert advice, then he finds out later 
that it was not expert.
    Mr. Schriebman, go ahead, sir.
    Mr. Schriebman. You are talking about the tax shelter wars 
of the 1980's, I presume, and hopefully those days are behind 
us.
    But you know, Senator, there is an awful lot of greed in 
that equation. You can advise somebody any way you want. If you 
have got an inherent conflict of interest, if you are being 
retained by their promoter and you are getting a commission off 
of the investment, you have got a big greed equation there, 
especially in those days where you thought you could not get 
tapped by the IRS and they were all a bunch of buffoons.
    Well, the IRS showed them. In all fairness, some of that 
stuff that people went into was ridiculous, and the attorneys 
who wrote the opinions were motivated, in my opinion, by greed. 
I do not know how you legislate greed.
    Ms. Davis. I guess what I would say to that--were you done?
    Mr. Schriebman. Sure.
    Ms. Davis. The growth of the tax preparation and help 
industry has exploded in recent years. I think one of the 
things I see as a very dangerous thing is, I guess, the hand-
in-hand working of that community with the IRS. One of the 
things that bothered me, and I was one of the few people 
thinking this and talking about this, I think, was the 
development, as it was developed by the IRS, of the electronic 
filing program.
    I saw this as a very dangerous precedent, because nobody 
was focusing on the fact that when IRS launched its electronic 
filing program this was the first time in the history of our 
tax system where taxpayers, in order to take advantage of a so-
called increase in benefits or simplification of their filing, 
were literally forced into the arms of the tax preparation 
community. If you wanted to file your tax return 
electronically, you had no choice but to pay a professional tax 
preparer to do it. I went to the IRS in 1988, and they had 
launched electronic filing just a few years earlier in 1985. It 
was one of the first subjects I looked into.
    I asked them the question, why did you not wait until you 
could offer this to taxpayers, first of all, at no cost, or in 
a way in which they did not have to use a tax preparer, because 
I was thinking of all those middle and lower income taxpayers 
who have simple tax returns who for years had prepared their 
own 1040's, 1040-A's, or EZ's all by themselves who were now, 
in addition to their tax liability, having to pay even more 
money to a tax preparer who may or may not, as you point out, 
know the law. I think that is one of the problems.
    Senator Lott. Let me ask two other questions. I know we 
have the Taxpayer's Bill of Rights I and II. One of the things 
I do not think we did, is when the IRS makes a mistake or when 
they have some of your money improperly and hold it for a 
period of time and they eventually have to pay it back, they do 
not have to pay, on behalf of the government to the people that 
were wrong, interest and penalties. Why not? The government 
pays interest and penalties to the taxpayers?
    Mr. Schriebman. Oh, not penalties, no.
    Senator Lott. All I am saying there is, if you make a 
mistake you pay interest and penalties. If the government makes 
a mistake, they do not. Once again, I feel like for the 
taxpayers, there is not a level playing field there.
    Ms. Davis. Well, that is definitely in the category of a 
law that you have not passed, and it is within your power to 
pass such legislation.
    Senator Lott. I guess that is what I want to ask you. Is 
that something worth doing, Mr. Schriebman?
    Mr. Schriebman. Well, Senator, I think it is a good idea. 
It is like the first two Taxpayer's Bill of Rights are good 
starts, but I think if you are going to do another Bill of 
Rights, let us put some real teeth into it.
    Senator Lott. All right. Now let me go to one other 
question before my time runs out. I believe Mr. Burnham, it was 
your testimony. Yes. You point out that it seems that IRS 
agents prefer to target less wealthy taxpayers because they are 
less likely to be able to afford the lengthy defense, and so 
forth. You note in here something that caught my eye.
    On the civil side, taxpayers in the IRS's San Francisco 
district, Mississippi, Idaho, and New York City stood the 
highest chance of being audited. Now, that is very odd. The 
highest adjusted gross income and the lowest were represented 
in that group of only three areas. Now, why is that?
    Mr. Burnham. I do not know, Senator. Again, it is a good 
question for you all to ask. When we put this data up on the 
World Wide Web the IRS denounced the data and said it was 
wrong, it was the government's data.
    We asked, well, what is wrong with it, and would you meet 
with us, and will you come? They refused to meet with us. For a 
year and a half, we have sent repeated letters to them to 
discuss their problems with the data. There is nothing wrong 
with the data.
    Senator Lott. What would your speculation be as to how New 
York City and Mississippi would fall into that trap?
    Mr. Burnham. I mean, one possible speculation is that the 
people of Mississippi, it is a much poorer district, less 
expert, is easier pickings. New York City is a more 
sophisticated city, more income, more lawyers, more 
accountants. It is harder work. But there may be others. I 
mean, I really do not know whether that was a policy decision 
or part of the ad hocracy of the IRS.
    Senator Lott. Anybody else want to comment on that? Ms. 
Davis.
    Ms. Davis. Yes, I have a theory I will share with you. I 
think it all comes down to who the district director happens to 
be. There is tremendous power placed in the hands of individual 
district directors. I will tell you a quick story about the 
taxpayer Carol Ward, whose story you probably heard about on 60 
Minutes this past weekend.
    When I first became familiar with the outlines of her story 
I was unemployed by the IRS by that time, but I went to some 
old friends of mine who work at pretty high levels of the IRS. 
I outlined the case and I said, how could this happen? They 
told me, I do not think that that is right.
    I do not think it really happened. We do not do things like 
that. They just denied it. These are people that I really 
trusted that I had had good working relationships with, and 
they were confiding in me. They said, I just cannot see that 
that could happen. So then I learned a little bit more.
    I went back to one of my sources who was a former district 
director, and I said, well, here is the name of the person who 
was the district director in Denver at the time that this 
incident occurred. This former IRS district director, who is 
now working in Washington, said to me, oh, I did not know that. 
That explains everything.
    In other words, what this IRS executive was telling me was, 
once he or she--to hide the identity of my IRS informant--once 
I told them who it was, they said, well, that was not 
surprising because they knew that person and that person had a 
personality to do that.
    Senator Lott. Mr. Burnham?
    Mr. Burnham. I would like to add to that. Our data shows 
all this erratic business. From my research, I do not think the 
IRS commissioner and the upper echelon of the IRS look at these 
erratic, crazy patterns and find out if there is some 
legitimate reason for it. They just sort of sit there. It is 
not well-managed.
    We do not want every district to be exactly the same, that 
would be wrong. Montana is different than Miami. But they do 
not look at it that way. There is a surprising lack of serious 
management at the top levels.
    Senator Lott. One last question, I think, that can be 
answered briefly. I have known a lot of people who were 
accounting majors and became CPAs and tax lawyers and wound up 
at IRS, nice folks, then something happens. [Laughter.]
    Ms. Davis. Good thing I got out when I did.
    Senator Lott. Now, I guess the answer is, I presume there 
is a culture there, this law enforcement culture, or the 
arrogance that comes from power. Is that it, is that what 
happens to, in many cases, good people? All of a sudden they 
are the local agent in the hometown and they become nasty 
people.
    Mr. Schriebman. May I?
    Senator Lott. Yes, sir.
    Mr. Schriebman. I have a lot of contacts that are that way. 
Some of my students, of course, have gone that route. I think 
that it is not so much nasty people, I think it is some kind of 
insulation, because when you have a problem with an agent and 
you try to get their manager or you try to get their branch 
chief, they are always in a meeting. They have more meetings 
than President Clinton. They are always in a meeting. They 
never return your calls, never respond to your faxes.
    There is one lady whom I think is so fantastic. She happens 
to be a branch chief in the Long Beach field office. There was 
a problem. She handled it right away. She met with me and the 
revenue officer, and she sat in the meeting. I was so impressed 
with that. But she is about the only one. I do not know. They 
just feel like they do not work for us.
    Senator Lott. All right. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Lott.
    Senator Conrad. Thank you, Mr. Chairman.
    Again, I believe I bring a special perspective to this as a 
former tax commissioner of the State that elected me to the 
United States Senate. I think one of the reasons they elected 
me was because we gave good service to people.
    One of the things that I instituted when I was tax 
commissioner that I think paid great dividends, and it is a 
very small thing. We sent people out to audit, because there 
really are people who cheat, there really are people who abuse 
the system, there really are people who will go to great 
lengths to avoid paying what they legitimately owe. That is 
totally unfair to the vast majority of citizens who do pay what 
they owe and who do pay their fair share.
    So there is a certain adversarial relationship with those 
who try to cheat and those who try to avoid paying their fair 
share. But one of the things we did when we sent out auditors, 
was send out a questionnaire after an audit was completed. It 
was very brief, and ask them, how are they treated?
    Our people knew that we were going to engage in that 
process, that we were going to check on how they were treating 
people. I tell you, I think it made a great difference. There 
is a tendency by some to abuse their power. I want to again put 
this in perspective because I have dealt with the IRS in my 
previous career and I found the vast majority of people there 
were honest, were hardworking, and did not abuse people.
    When we talk about a culture, that strikes me as kind of a 
condemnation of everybody there. I do not buy it. I have worked 
with these people, honest, hardworking, decent people. Are 
there people who are not? Absolutely. I have seen that, too. I 
have seen people who abuse their authority. I have seen people 
who got arrogant. The quickest way to stop that is to hold 
people accountable and to check on how they treat people.
    I tell you, that simple device of sending out a very brief 
questionnaire. How were you treated? Were you treated with 
respect? Were the people on time? Did they answer your 
questions? At the end of the audit did they explain to you the 
findings of the audit?
    Amazingly enough, we had some people who went in and would 
audit and would not tell the people the results of the audit. 
Well, that is arrogant and that is frightening to people.
    Mr. Burnham. I do not believe I recall the IRS having such 
a questionnaire.
    Senator Conrad. And I tell you, I think maybe that is the 
kind of action that could come out of what we do here, that 
after an audit there be a procedure to ask people how they were 
treated.
    I tell you, I think they would find what we found, that in 
fact you do have some people who get a little filled with 
themselves, and they are out there on their own, they had a bad 
day, they had a disagreement with their spouse, and by God, 
they are going to take it out on the taxpayer. Well, that is 
not acceptable.
    One way to avoid that is to hold them accountable. One way 
to hold people accountable is to have information on how they 
acted. You might find a taxpayer who misreports, who is one of 
those abusive taxpayers, because there are some abusive 
taxpayers out there too, but you can find a pattern.
    If one person says the auditor did not treat them with 
respect and then you get subsequent reports that they did not 
treat them with respect, then you have a pretty good indication 
you have a problem, and it is time to deal with it.
    The Chairman. Would you yield for a question?
    Senator Conrad. Yes.
    The Chairman. You talk about filing the paper, which is a 
good suggestion. But did the people in North Dakota not know 
that there was a tax commissioner that was going to follow 
through and check those papers?
    Senator Conrad. Yes. Yes.
    Senator Gramm. And who was elected.
    Senator Conrad. I was elected as a tax commissioner, the 
only elected commissioner in the country. I think it has a 
tremendous impact, too, on accountability.
    One other thing that has been said here today, I think, may 
have a fairly simple solution. I hear that, well, the IRS 
targeted lower income people. This committee has complained 
repeatedly about fraud and abuse in the Earned Income Tax 
Credit section of the Code. We have colleagues here who have 
talked about it repeatedly.
    In fact, there has been fraud in the Earned Income Tax 
Credit and I would not be surprised if the IRS actually 
listened to this committee; sought to do something about it and 
focused on the whole question of fraud in the Earned Income Tax 
Credit. Well, of course, that would involve lower income 
people. Mississippi is, I think, perhaps the lowest-income 
State in the country.
    It might not be surprising that you would see a 
disproportionate number of people who are in the Earned Income 
Tax Credit program being looked at because there have been 
suggestions by this committee of fraud in that program. In 
fact, it has been more than assertions by members of this 
committee, there has been pretty good evidence that there has 
been fraud in the Earned Income Tax program.
    I would just like to ask the witnesses here, do you think 
something as simple as what I have suggested might do some 
good, that is, send out a questionnaire after people have been 
audited and ask them, ``how were you treated?''
    Mr. Burnham. I think it is a very good idea, assuming that 
someone at the IRS looks at them and acts upon them. That is 
not necessarily an assumption we can count on.
    Senator Conrad. Do you think there should be something like 
an ombudsman at the IRS?
    Mr. Burnham. There is.
    Ms. Davis. There is an ombudsman at the IRS. It is a career 
IRS employee.
    Senator Conrad. Do you think there should be somebody that 
has a specific responsibility for a program like this one, that 
maybe this would be an assignment given to the ombudsman?
    Mr. Burnham. Maybe the ombudsman ought to just do that, 
have that kind of program going.
    Ms. Davis. Let me jump in here. I cannot more strenuously 
disagree with that. I think your idea is an absolutely 
wonderful idea, but I think the surveys should not be sent to 
the IRS. That is the key to this kind of idea succeeding. If 
you send them to the IRS, they will go into the IRS black hole.
    Have the surveys sent to the Senate Finance Committee, have 
the surveys sent to the Joint Committee, some oversight body 
that could review them. If you put them in the hands of the 
IRS, I will tell you very quickly, it is one thing to have 
information, it is another thing to make use of that 
information.
    Senator Conrad. To act on it. Yes, you have to act on it. 
It does not do any good to get information if you do not act on 
it.
    Ms. Davis. The IRS conducted an internal survey program, 
which had this bizarre name of Survey Feedback Action, while I 
was there, and then continued after I left.
    I will tell you, from my conversations with IRS employees, 
not executives but the IRS employees, the general sense was the 
results of that survey indicated that there was a serious 
morale problem at the IRS and the morale reflected IRS employee 
attitude towards the top executives of the agency.
    When those results came in, because they were not what the 
IRS wanted to hear about its own employees felt about what was 
going on inside the agency, the results were quickly buried and 
nothing ever came of that. So, once again, have your survey, 
but have it sent to an outside, independent body.
    Mr. Burnham. Senator Conrad, you know you all have an 
interesting survey. You all have State offices that take 
complaints about Federal service. As I understand it, the 
majority of those complaints coming in to offices in every 
State involve the IRS.
    It would be interesting for you to pool, with the 
permission of the individual taxpayers, those complaints and 
examine them and see how valid they are. You have got 25 
Senators, 25 offices. You could really look at the complaints 
coming into your offices in a systematic way and do not treat 
it as an individual thing, but look at it and see if there are 
patterns and trends. Get the Senate Finance Committee looking 
at that.
    Senator Conrad. Well, I would just say that my colleague 
Senator Moynihan has just given me something that apparently 
has begun along the lines of what I was suggesting, that is, a 
questionnaire sent to taxpayers who have been dealing with the 
IRS to ask them how they have been treated.
    Now, perhaps Senator Moynihan can tell us when this was 
instituted.
    Senator Moynihan. I believe just in August.
    Senator Conrad. Just in August.
    Senator Moynihan. Yes. So we can follow-up on your idea.
    Senator Conrad. Well, I tell you, I know this is effective. 
Not only does the taxpayer have a chance to give feedback, but 
the person who is going out there to audit knows that they are 
going to be ``audited.'' That has a real way of affecting 
behavior.
    The Chairman. We are running out of time. We have got 
several members still needing to ask questions, and we have 
several panelists. So, I must move on.
    Senator Grassley. Could I have 30 seconds just on this 
point? Mr. Burnham brought up that they are now putting out a 
questionnaire of this type. This is another example of so many 
good ideas coming out of the IRS just since the IRS 
Restructuring Commission has been studying and making 
suggestions, because in our legislation on page 36 we call for 
this same survey. So it is nice that the IRS is waking up, but 
they are waking up because we are doing our oversight and not 
because they are good ideas.
    The Chairman. Senator Nickles.
    Senator Nickles. Mr. Chairman, thank you very much.
    Mr. Burnham mentioned that he thought that this was the 
first time in the history of the Senate that we have actually 
had IRS oversight.
    Mr. Burnham. By the Senate Finance Committee.
    Senator Nickles. By the Senate Finance Committee. I would 
guess that there might have been some when we have had 
commissioners nominated and come before the Senate, but Mr. 
Chairman, I would certainly think that this should be possibly 
a recurring activity, whether it is annual or by each Congress.
    But I think there is a lot of legitimate necessity, 
frankly, to have oversight over all government agencies, and 
certainly the IRS, because it is one of the most important and 
it is also one of the scariest for our constituents. It is one 
that our constituents fear most. So I compliment you for doing 
it, and I hope that we do it regularly.
    I will say also the very fact that we are having these 
hearings, I have been besieged. I have had Congressmen calling 
me saying, ``I have something I would like for you to expose.'' 
I have had constituents come up and say, ``I have got a horror 
story.'' I just read one that was about 15 pages.
    Actually, the letter came from a person that I have been in 
business with for years, or actually did some of our work in my 
private sector days. He was talking about the relationship with 
an IRS agent. This is an accountant. He has been in business 
for 35 years, telling me about a horror story about an abusive 
IRS agent. He said, he had dealt with hundreds of agents over 
the years and never had a problem like the one that he 
described.
    I mentioned in my comments yesterday, I do not have any 
doubt that most all of the 102,000 IRS employees do an 
outstanding job, but on occasion there are some people that 
abuse their power. I think we have to have some means of 
rectifying that situation. I think I heard Mr. Schriebman, 
maybe in your comments, you mentioned some actions that could 
be taken against the IRS if they have been abusive. Could you 
mention a couple of those again?
    Mr. Schriebman. Yes. Right now, the Taxpayer Bill of 
Rights, the first version, under Section 7430 of the Code 
provided monetary damages against IRS people who violate the 
provisions of the Internal Revenue Code. But they do not 
violate the provisions of the Internal Revenue Code very often. 
What they violate, are their internal manuals, press releases, 
things like that. See, those are not considered law under 
Section 7430.
    I want to see an amendment to Section 7430 that does three 
things. Number one, provides taxpayer damages for violation of 
internal manuals and internal procedures, because they are 
taught those.
    Number two, I would like to see some punitive damages, 
because there is only one place in the Internal Revenue Code 
where there are punitive damages, and that is for Privacy Act 
violations. There are not any punitive damages for violating 
basic taxpayer rights.
    Also, I would like to see the ceiling raised. It was raised 
in the Taxpayer Bill of Rights II from $100,000 up to $1 
million. I do not think there should be really a limit on that.
    Senator Nickles. All right. Let me thank you for those 
suggestions.
    Mr. Burnham, you mentioned something in your opening 
comments that kind of made me step back. You mentioned 
historically--and Ms. Davis, you might want to comment on this 
too, or any of you--that there have been some abuses by the IRS 
by previous administrations.
    I think you referred to the Hoover Administration and the 
Navy League, you mentioned FDR, I also think you mentioned 
President Kennedy, President Nixon. I do not know if you 
mentioned LBJ or not. Are all those correct, that you have 
uncovered evidence that maybe the administrations have abused 
the IRS?
    Mr. Burnham. Absolutely. The IRS has been used for 
political purposes on quite a regular basis.
    Senator Nickles. Let me bring it up a little closer. You 
touched kind of briefly on Reagan, Bush, and I do not know if 
you mentioned Clinton or not. Did you find evidence that the 
Reagan Administration or the Bush Administration used the IRS 
for political purposes?
    Mr. Burnham. During the Reagan Administration there were 
several groups that were opposed to the Reagan Administration 
position in Central American who were audited. Now, whether 
that was political harassment, they believed it was. An audit 
happens, and it may be done for a good reason.
    There was also a very interesting case during the Reagan 
Administration, and I am sure President Reagan had nothing to 
do with this, where a group of teachers in Minnesota formed an 
organization to promote the idea of Darwinism, of evolution. 
They asked for tax-exemption, and they got a really incredible 
letter back from the IRS saying, who are you to say Darwinism 
is right? Are you going to show the other side? An IRS lawyer 
was apparently a Creationist and felt very strongly about it, 
and wanted this other side.
    Now, these people had it together and they went to their 
Senator. It was a Republican Senator, I believe, from Minnesota 
at the time. He wrote a letter, and the thing disappeared. But 
this kind of thing happens.
    Senator Nickles. But be careful, because there are 
allegations being made on this administration and I have not 
really heard, and I was here during the Reagan and Bush 
Administrations, but I have not heard anyone say that either of 
those two administrations audited their enemies.
    Ms. Davis?
    Ms. Davis. I just want to add a quick historical note 
because it is important to understand what really happened. The 
two instances with which I am most familiar are the Kennedy era 
abuses and the Nixon era abuses. In the Kennedy era the IRS had 
a program called the Ideological Organizations Audit Project. 
It was quite a mouthful to say.
    In the Nixon years, it was called the Special Services 
Staff, or the SSS. These were the entities inside the IRS that 
performed the political targeted audits, if you will. But it is 
very important to understand that both of these organizations, 
from the historical record that does exist, did not come about 
as the result of someone at the White House directing the IRS 
to do this.
    In both cases, the evidence that I see indicates that the 
IRS in the Kennedy era listened to a news conference that 
President Kennedy held in which he railed about the problems of 
the right wing, and we had to do something about these tax-
exempt organizations, and by gosh, the only way to control them 
is through the IRS. It was shortly, if not immediately 
thereafter that the IRS internally created this organization. 
No one directed them to.
    They were reacting to a perceived need of the 
administration. The same thing happened with the Special 
Services Staff, which was launched in 1969, quite some time 
before, if you look at the archival evidence, the term 
``enemies list'' became in vogue in the White House.
    They did it as a result of Congressional hearings in which 
concerns were raised about activities of extremist groups 
across America, and IRS bureaucrats got together, hunkered 
down, and said, well, gosh, we can do something about that 
here. That is the most important point I make when I talk about 
whether or not the Clinton Administration or any administration 
is conducting political audits.
    It is not as simple as the White House calling the 
commissioner and saying, go get these guys, because if there is 
a perception inside the IRS that this it the type of activity 
the administration wants to protect its budget, to protect 
itself from this kind of scrutiny, then the IRS may very well 
do it on their own. It does not take direction from the White 
House. The IRS has the power on their own to do it. There is 
nothing to stop them from doing it now.
    Mr. Schriebman. Senator Nickles, may I just make one point?
    Senator Nickles. Yes.
    Mr. Schriebman. I would like you, if you have some time, to 
review an article in the Washington Times. I do not know when 
it came out, but it is Volume 434. I have copies for the 
committee. It talks about people who have gotten judgments 
against the IRS and the IRS keeps appealing and appealing and 
wearing them down so they do not have to ever pay anything. 
That is a very insightful article that I would direct your 
attention to.
    Senator Nickles. All right. I appreciate that.
    Also, Mr. Schriebman, you mentioned one other thing. You 
said you thought we should change the section in the Code that 
allows, is it a district manager?
    Mr. Schriebman. District director.
    Senator Nickles. Director. To be able to seize assets.
    Mr. Schriebman. Yes.
    Senator Nickles. Right now, he is able to, over his 
signature, seize assets whether it is a paycheck, a home, a 
car, or other assets?
    Mr. Schriebman. The IRS does not need his signature to go 
after a car, a paycheck, or a business. The Code is specific. 
In order to take a home, just a home, a residence, the revenue 
officer cannot do it without his signature. But I know of no 
case where a revenue officer has gone to a DD and the District 
Director has refused to sign.
    Senator Nickles. In some areas of the country they have had 
a lot higher, I guess you would call it, seizures rates than in 
other. Maybe is that because of more aggressive district 
directors?
    Mr. Schriebman. I would only have to assume so, Senator.
    Senator Nickles. Are you saying they should not have that 
authority or they should have to go through a Tax Court before 
they could get that information?
    Mr. Schriebman. Yes, that is what I am saying. Let them go 
to a Tax Court or an independent forum in order for them to be 
able to seize anything, but let the taxpayer have a notice and 
a right to be heard under the 5th amendment.
    Senator Nickles. All right. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Moseley-Braun.
    Senator Moseley-Braun. Thank you, Mr. Chairman. I want to 
thank you and congratulate you for convening these oversight 
hearings. I think it is absolutely appropriate that this 
committee undertake to provide this kind of oversight. It is 
certainly part of our charge and our responsibility. It is 
important in order to be responsive to the public, generally.
    I would take issue with Mr. Burnham. Mr. Burnham suggested 
that the most cases we heard from our constituents have to do 
with the IRS. I think it has been overtaken by immigration of 
late. But certainly we hear enough horror stories that this 
kind of oversight is very, very timely, and the work of the 
commission is to be commended and congratulated.
    I think the point has been made that the taxes are what we 
pay to support our expectations as a society, and that most of 
the people who work for the IRS are honest, hardworking 
individuals who perform an important community service.
    At the same time, I know taxpayers view with horror the 
prospect of having to come in contact with the IRS, and we do 
have a lot of difficulties getting through. The citizens 
generally are confused and upset about the mystery associated 
with the IRS, the seeming capriciousness of what they do, and 
the lack of accountability.
    I think if there is one level of objection that we hear the 
most about, it is that nobody can figure out how to get through 
the maze of procedures or how to get through to where they need 
to go to get an answer.
    I have, and I am going to pass this on to the people from 
the IRS here, again, a constituent issue from Fannie Woods 
about her military retirement. She goes A through Z of steps 
that she took to try to reconcile a problem with the IRS, that 
she could not get information, she even traveled to Kansas 
after being told that that is where her case could be resolved, 
only to be told that Kansas was the wrong place and that she 
should have gone to her local office. She has gotten different 
phone numbers. Even this letter is directed to two different 
places.
    So people do not know where to go, they do not know who to 
talk to, they do not know how to get through the process, and 
they wind up, in her case, having a bank account levied over a 
military retirement. Military retirement. This is somebody who 
had a service-connected retirement, and had to go through what 
seems like, just to be charitable, a catch 22.
    Having said that, I want to focus in on Section 7430 and 
what, if anything, we can do about it. It is always easy to 
talk about the apocryphal stories, but the question is, how can 
we make this process work better?
    I was looking at Section 7430(a), which has to do with the 
cost on appeal. Assuming for a moment that a taxpayer goes 
through the process and goes to Kansas when they could have 
gone to the hometown, or makes phone calls and cannot get 
through, has to hire a tax preparer or a tax assistant or an 
accountant to go through, has to order back copies of credit 
card bills, or whatever.
    Section 7430 does not allow, on the face of it, for those 
costs to be recovered if they go through the process and win 
and it is determined, after administrative appeal, or 
alternatively after going to court, that the taxpayer really 
was right, they had paid their taxes, they had done an honest 
job of it, they had done the right thing, and they were not 
liable for the lien, the levy, or for the collection action 
that had been charged, and somebody had done something wrong 
with the computer.
    Assuming that happens and the person appeals and wins, to 
what extent can these costs of the accountants, of the tax 
assistants, of the travel, of even attorneys fees--the section 
provides for a $75 an hour attorney fee.
    Mr. Schriebman. Which was raised.
    Senator Moseley-Braun. Right. And not to put down legal 
assistance, but you cannot get legal assistance, even a 
paralegal, for $75 an hour.
    So assuming you go through the process, you were right to 
begin with, you have gone through the aggravation, your mental 
health cannot ever be compensated for, but certainly your trips 
to Kansas, your telephone bills, your tax assistant's costs, 
your accountant's costs, and your legal fees ought to be 
recoverable.
    So my question is, how can we provide taxpayers with some 
assurance that if they go through all of this and they are 
right, that they will not be further burdened and out of pocket 
for the costs associated with getting justice done to them?
    Mr. Schriebman. Well, it just so happens that I was at the 
Government Printing Office yesterday, and something told me I 
had better get a copy of the Taxpayer Bill of Rights II, that I 
might need it.
    First of all, 7430 was amended by the Taxpayer Bill of 
Rights essentially to do two things, raise the hourly from I 
think $75 to $110, which you are not going to find anyone 
competent for $110 these days. So, I think that is unrealistic.
    I think if you are going to put some teeth into the 7430, 
you should not put any dollar amount at all, the rate should be 
the prevailing professional fee in the community.
    Number two, you have got a ceiling here that you had in 
Taxpayer Bill of Rights I, which I think was $100,000 and was 
raised to $1 million in the TBR II. But you do not get it, as 
you said. You are 100 percent right. You do not get it for 
every dollar of professional fees or costs that you incur 
because it starts, I believe, at the appellate level.
    So the exhaustion of the administrative rights, Senator, 
you have to either get or ask the IRS to give you an appellate 
conference; you have to request an appellate conference. It 
starts with the appellate conference.
    Anything that you have incurred prior to an appellate 
conference, you are out of pocket and I think that is wrong, I 
think, the money that you have incurred for an unjust audit 
should be awarded. Of course, in a collection action you do not 
get an appellate conference.
    Senator Moseley-Braun. Would it be possible to break this 
down and give some additional authority to the appeals entity 
at the administrative, as well as at the court level? That is 
to say, if at the administrative level an individual could 
recoup his or her cost of defending him or herself, that might 
provide some balance in the situation.
    You have unlimited resources on the IRS side, and the 
taxpayer is out of pocket. Sometimes I think that may go to the 
heart of why people feel so burdened, because they cannot in 
all cases continue to meet those costs on an ongoing basis.
    Mr. Schriebman. You are 100 percent right, Senator. The 
couple of flaws in 7430 are, number one, when it kicks in. It 
should kick in from the beginning when you are contacted by the 
service, whether it is an audit or a collection matter. I think 
the ceiling should be raised way beyond $1 million. After all, 
as the old joke said, $1 million does not buy what it used to.
    The attorneys' fee provision, the accountants' fee 
provision, there should not be any ceiling at all, it should be 
whatever the prevailing fee is in your particular community. 
Now, maybe in Mississippi $110 an hour is the going rate. Where 
I come from it is a little higher. But it is an unrealistic 
dollar amount and I do not think it should hinge on whether or 
not you get an appellate conference. I think it should start 
from the initial IRS contact letter.
    Senator Moseley-Braun. Ms. Davis?
    Ms. Davis. Can I respond to that by sort of issuing a 
challenge back to you, the entire Senate Finance Committee. I 
think it would be interesting if you would, as a body, as the 
IRS to provide you with detailed information on the number of 
cases of taxpayers who have challenged the IRS and who have 
been successful in their challenge against the IRS who have 
actually been paid by the court system.
    I can tell you that I did some background work with 60 
Minutes on the piece they did last week, and one of the things 
they told me, is this is a question that they repeatedly asked 
the IRS, and the IRS simply refused to respond to their request 
for that information. But the IRS could not refuse you.
    So, because we the American people cannot get that 
information, my guess is you are not going to find very many 
taxpayers who have ever been paid.
    Senator Moseley-Braun. Well, I thank you.
    Mr. Chairman, I would like to ask the service, and we can 
perhaps continue with this tomorrow, if they would give us some 
numbers, not only on the number of audits that are initiated, 
but the extent to which they go on further in the process, and 
then the extent to which taxpayers are able to recoup at least 
even the costs that are presently authorized after the 
conclusion of the appeals process. If we can get those numbers 
for our next set of hearings, I think it would be very helpful 
to this.
    The Chairman. You will have that opportunity tomorrow when 
the representatives of the IRS will be here.
    Senator Moseley-Braun. Well, if they are here, that way 
they will not come and say, well, we will have to get back to 
you. It would be really helpful to get it, if they could work 
on that today in preparation of the hearing tomorrow. Thank 
you.
    The Chairman. Senator Hatch has asked for 30 seconds to 
make a correction.
    Senator Hatch. I just want to correct the record. To 
correct the example I used in my earlier comments, the taxpayer 
did not go to the Tax Court to have the interest that was 
assessed abated. Unfortunately, this case began before the 
Taxpayer Bill of Rights II allowing the tax court review was 
effective. So it is a very unjust case and something that I 
think would upset most people who looked at it fairly. Thank 
you, Mr. Chairman.
    Senator Moseley-Braun. Mr. Chairman, 30 seconds indulgence 
before Senator Kerrey. If someone would take Ms. Woods' case 
and take a look at this, because it really is kind of a 
nightmare and I would like, if they would get started on this I 
would appreciate it.
    The Chairman. All right.
    Senator Moseley-Braun. I do not know who from the service 
is here, but if someone could take this. Thank you very much.
    The Chairman. Senator Kerrey.
    Senator Kerrey. Mr. Chairman, one of the things I would 
point out is that one purpose of oversight is to answer the 
question, ``What should the law be?'' I mean, we are, in the 
main, writers of laws. There are laws governing the Internal 
Revenue Service today and I am prepared to argue strenuously 
that those laws need to be changed.
    Senator Grassley and I have introduced legislation that has 
in it a long, detailed section dealing with many things that I 
have heard the panel discuss having to do with taxpayer 
protection rights, new penalties on the IRS, new rights for the 
taxpaying citizen.
    We have a section dealing with accountability that gives us 
a greater capacity to do our oversight. I mean, one of the 
problems is, we just do not get a sufficient amount of 
information across the board to know what is going on over 
there.
    In that section we deal with the funding of the date change 
to the year 2000, which is a huge problem and could create 
enormous friction between the IRS and taxpayers. We deal with 
the complexity of the Code as well. Very often we are the 
people, as Senator Moynihan indicated the other day, 
responsible for creating complexity in the Code and difficulty 
as a consequence for administering the Code.
    We are not always as good as we were this year in enacting 
tax legislation early. It is not uncommon to pass a tax law 
around here late in October or early in November, well into the 
filing season, creating, obviously, some difficulties with 
filling out taxes.
    We have a section on electronic filing, which I believe 
offers enormous potential for reducing costs and increasing 
service. The rate of errors with electronic filing is less than 
1 percent, with a 25-percent error rate in the paper 
environment.
    We do have a section as well on governance, as well as 
senior management policy. There is considerably less authority 
with the commissioner in making management decisions and 
management policy decisions than meets the eye, though I know 
that some regard the governance, I think one of the panel 
members said, as window dressing. I think it is a critical 
issue.
    We saw with the Social Security Administration, with the 
new administrator that was nominated by the President, already 
a willingness to be independent of the President and say this 
is the problem, this is the situation.
    I would love to see an IRS commissioner at some point in 
time say, great tax idea, Mr. President, great tax idea Senator 
Blowhard, but this is what it is going to cost the taxpayer, 
this is what it is going to do to our capacity to be able to 
get the job done. So this independence, in my judgment, is a 
critical issue in order to be able to get accountability to the 
taxpayer.
    Again, in the interest of time, I appreciate very much the 
panel taking the time and exposing yourself to come up here and 
be witnesses. I would appreciate very much if you could look at 
the legislation that Senator Grassley and I have introduced, S. 
1096, and all these various sections and just get back to us 
and give us your constructive input as to how to make this 
proposed law even better based upon your vast amount of 
personal experience in this area.
    Senator Moynihan. Mr. Chairman, could I just say one word 
here.
    The Chairman. Senator Moynihan.
    Senator Moynihan. Would it not be a special moment when a 
commissioner of the Internal Revenue Service came before this 
committee and said, that provision is too complex, nobody can 
understand it, we will never be able to enforce it?
    Senator Kerrey. Yes.
    The Chairman. Well, I want to express my appreciation to 
all three of you for being here today. I think the discussion 
this morning has been very helpful. It is only a beginning. We 
look forward to your continued advice and assistance.
    Mr. Schriebman. It is an honor, Senator.
    Ms. Davis. Thank you.
    Mr. Burnham. Thank you.
    The Chairman. I would now like to ask our next panel, 
Father Ballweg, Mrs. Hicks, Mrs. Jacobs, Mr. Savage, to join us 
at the witness table.
    Now, I would point out to the members of the committee that 
we will hear now from four taxpayers about their experiences in 
dealing with the IRS. There is a common theme in three of these 
cases: the inability of the IRS to perform a simple 
administrative task and the lack of will by the IRS to correct 
the problem. Then a parade of horror is unleashed against the 
taxpayer.
    We will hear from Monsignor Lawrence Ballweg, how he was 
unable to get a copy of his tax filing within a reasonable time 
so that he could respond to the IRS allegation that he owed 
thousands of dollars of tax.
    We will hear from Mrs. Katherine Hicks how the IRS was 
unable to send her a bill for the out-of-court settlement she 
made with the IRS almost a decade ago.
    Because of the IRS mistake and its inability to track her 
account, Mrs. Hicks has been subjected to tax liens against her 
house, levies against her husband's wages. She even took the 
drastic step of filing for bankruptcy and divorce to try to 
escape from the heavy hand of the IRS. She is accompanied today 
by her husband, Mr. James Hicks.
    We will also hear from Mrs. Nancy Jacobs how the IRS was 
unable to straighten out the employer identification number for 
her husband Dr. Barry Jacobs' optometry practice. Their case 
spans 17 years, with the Jacobs being subjected to liens, 
interest, and penalties for someone else's taxes.
    Each of these taxpayers attempted to deal with their 
problem in good faith for an extended period of time. The IRS 
made little effort to resolve their problems. Instead of 
treating them as customers, they were treated as if they were 
tax cheats.
    Now, let me repeat. The problems were created by the IRS's 
inability to perform a simple administrative task and the lack 
of will to correct the problem. If these had been credit card 
disputes, they would have been resolved expeditiously. It is 
telling that these cases were resolved when this committee and 
the media began to probe.
    The fourth case we will hear about is in many ways even 
more disturbing. It did not start with an administrative error. 
We will hear that the IRS intentionally went after Mr. Tom 
Savage and his company to collect taxes owed by an unrelated 
business. Faced with a choice between saving his business or 
fighting the IRS, Mr. Savage's company paid $50,000 in taxes 
that it did not owe. I find this absolutely indefensible.
    I want to thank each of our witnesses for taking the time 
to come before the committee today. I will now administer the 
oath to each of you and I will ask you each to respond 
separately. Will you please rise and raise your right hand.
    [Whereupon, the five witnesses were duly sworn.]
    The Chairman. Mr. Hicks?
    Mr. Hicks. I do.
    The Chairman. Mrs. Hicks?
    Mrs. Hicks. I do.
    The Chairman. Mr. Savage?
    Mr. Savage. I do.
    The Chairman. Monsignor Ballweg?
    Monsignor Ballweg. I do.
    The Chairman. Mrs. Jacobs?
    Mrs. Jacobs. I do.
    The Chairman. Thank you, and please be seated.
    We will now ask you, Mrs. Hicks, to proceed with your 
testimony.

     STATEMENT OF KATHERINE LUND HICKS, APPLE VALLEY, CA, 
                   ACCOMPANIED BY JAMES HICKS

    Mrs. Hicks. Thank you, Chairman Roth and members of the 
Senate Finance Committee. Thank you for allowing me this 
opportunity to appear here this morning to relate to you my 
experience with the Internal Revenue Service.
    Like many women who have gone through a divorce, I was the 
one stuck with the tax bill for our last joint return for the 
tax year 1983. The IRS assessed that return for additional 
taxes of $7,000, but sent all the notices to my former spouse. 
Unfortunately, it took him over a year to notify me of the 
assessment.
    I immediately contacted the IRS. The IRS had ceased to be 
willing to examine my records and was demanding that I pay them 
$16,000 instantly. At the time, my former spouse was earning in 
excess of $40,000 a year as a glazer and had no dependents. My 
income was approximately $15,000 a year as a newly-hired bank 
employee, with a dependent 14-year-old daughter. For the 2 
years following my divorce, I was financially destitute. I had 
just managed to get an apartment, a real home for the two of 
us.
    I mention this to remind you good people that when an IRS 
collection procedure gets out of control, the victim of that 
collection still has to deal with all the other traumas of 
their life.
    An honest collection by the IRS with no snafus of an amount 
actually owed is incredibly stressful in itself. Therefore, it 
is critical that the IRS not be allowed, whether by design or 
accident, to pursue taxpayers for erroneous debts. At present, 
there are no effective protections against this.
    In my case, I had to file a Tax Court petition to force the 
IRS to examine my records, which I did in 1988. This is not 
unusual if the IRS does not get a response to early requests 
for records and I did not feel resentful or persecuted.
    However, it did cause problems and added to my stress. I 
had to use my rent money to pay the accountant and lawyer, and 
so I lost my apartment. My daughter and I were reduced to 
sharing a rented room. I consoled myself with the thought that 
we had survived worse, and we would get another apartment 
later.
    It is important to note here that my ex-husband was not a 
party to this petition in Tax Court. We settled out of court 
and the IRS agreed to a reduced tax, from $7,000 to $2,709, a 
reduced total demand from about $16,000 to approximately 
$3,500.
    I went to the meeting in July 1988 to sign the agreement 
and, checkbook in hand, prepared to pay the amount in full at 
that time. The IRS refused my payment until they had sent me a 
bill, because they would not have anywhere to credit the money 
without the bill. They claimed they needed time to calculate 
the exact interest due.
    I wanted the payment properly credited, I wanted this to go 
well and to be permanently resolved. I thought, in a few weeks 
I will have a bill. But the IRS said that the bill would take 6 
months to prepare and arrive no later than January 1989. Six 
months.
    I recall asking if I was going to be charged interest for 
the 6-month waiting period, and the IRS attorney, through my 
accountant, said no, the interest would be calculated through 
the date of the agreement and as long as I paid it right away 
in January, there would be no additional interest.
    He said it would be about $3,500 total. I never understood 
why they could not just whip out their calculator right then 
and there and tell me what I owed and get this whole thing over 
with. The bill never came. In February, 1989 I started calling 
the IRS, asking where it was.
    I called the Fresno office and they suggested I also call 
Laguna Nigel. Both offices had no record of any taxes owed by 
me. I found this hard to believe. I wanted to be absolutely 
certain they were correct. I wanted to remarry and I did not 
want to bring this tax bill into the marriage.
    I called both offices again in March and again before July. 
I was told the same thing, that I owed nothing for 1983. I 
asked for a receipt or something to show this was paid, because 
I was simple-minded enough to believe this was a reasonable 
request.
    The IRS employees all said that they ``don't do that.'' I 
had to take the word of the IRS that I owed nothing, and in 
this, I had no choice.
    At the time, I was not aware that my account had been set 
up on a separate bookkeeping system to which the IRS employees 
with whom I spoke did not have ready access. It works like 
this. When you file a tax return it is recorded in a master 
file. This is what the IRS clerks pull up on their computer 
when you call and ask if you owe money.
    However, at some point in 1989 the IRS split the master 
file of our joint 1983 return and transferred separate 
assessments into two non-master files in each of our individual 
names and respective Social Security numbers. This was due to 
the fact that I had gone to tax court and my ex-husband had 
not. The IRS set up separate accounts.
    These non-master files do not show up on the computer when 
the IRS clerks check a taxpayer's Social Security number for a 
balance owed. According to the attorney who explained this to 
me in 1997, the master file continues to exist, but may show a 
zero balance until the IRS recombines those accounts.
    It will then reflect the correct amount owed according to 
the agreement. Until that happens, every time the IRS clerk 
pulled up my or my joint signer's Social Security number they 
would see a zero balance owed and conclude that no taxes were 
due.
    To add to the confusion, there is no notation in this 
master file that it has been split. Therefore, there is no way 
for the IRS clerk to know that you might have an outstanding 
collection in a non-master file.
    As a result, I was repeatedly told by the IRS clerks that I 
owed nothing. So far as I know to this very day, these accounts 
have not been recombined and the master file continues to exist 
with a zero balance, while the non-master files show a balance 
owed.
    Yet the IRS has been aware of this error at least since I 
notified them of it earlier this year, if not even earlier. I 
have made repeated requests of the IRS to recombine these 
accounts ever since I learned of the problem. As far as I know, 
it has not been done.
    It is incredible to me that non-master files are allowed to 
co-exist with master files at all. It creates two accounts 
under the same name, with the same Social Security number that 
can reflect conflicting balances due for the same tax year for 
the same person.
    Such a practice substantially increases the potential for 
error and confusion inside the IRS, while simultaneously making 
it impossible for a taxpayer to get reliable information from 
the IRS. The taxpayer either gets conflicting information, or 
in my case, consistent but incorrect information.
    Every day the taxpayer is unable to get accurate 
information from the IRS about a balance owed is another day's 
interest added to the debt. Even while the taxpayer is 
wandering around in this IRS maze of multiple accounts, the 
clock never stops running. This is incredibly frustrating and 
unfair to any taxpayer.
    Unable to overcome this obstacle to compliance through no 
fault of the taxpayer, he or she is charged penalties as well 
for their failure. Much of my misery was caused because the IRS 
could not accurately answer the simple question, how much money 
do I owe? As far as I know, that condition has not changed.
    To add to the confusion, my former spouse telephoned my 
fiancee to complain that he had paid the tax and now the IRS 
was after him for it again. He refused to share his records 
with me, but his story and the IRS story both matched. Still, I 
had no independent records to prove either one.
    I requested his payment records from the IRS in 1988, 
records to which I believed I was entitled. I made a second 
request for those records in 1997. The IRS has refused me these 
records, or even a statement as to their content.
    Why, if my joint signer has never paid anything on this 
tax, is the IRS hiding that information from me? How can I know 
for certain what my liability is without the records of my 
joint signer? Perhaps he has paid nothing. But if that is so, 
then their refusal to share that information with me makes no 
sense.
    Mr. Chairman, I did everything humanly possible to obtain 
correct information. I made every attempt to get this tax paid 
and every conceivable request for some kind of record to 
evidence what the IRS was telling me. I know of nothing else I 
could have done.
    So after being wrongfully informed that there was nothing 
owed, I remarried in July 1989. I carried on business with the 
IRS without incident, and my new husband and I filed a joint 
return in 1990 and received a refund. We were not convinced, of 
course, that if I owed any money to the IRS, the IRS would 
never have issued a refund. So now we were confident that the 
IRS information was correct. It was not.
    In September 1990, without any notice and without our 
knowledge, the IRS filed a tax lien against me. On December 19, 
1990, the first lienholder on our home sued us as a result of 
that Federal tax lien in the sum of $6,161.41. The lender 
threatened to call our loan if we did not immediately get the 
IRS lien released.
    We would have lost our home, a home, by the way, that my 
new husband bought for himself 6 years before he ever laid eyes 
on me. So the real damage was being done to him, an entirely 
innocent spouse. All of this, after I had been so careful to 
pester the IRS repeatedly for a bill and had been repeatedly 
told that no money was owed.
    Worse than that, the lien did not reflect the terms of our 
earlier settlement agreement. The tax lien reflected an 
assessment nearly twice that of the IRS agreement, and the IRS 
refused to discuss that fact with me.
    Meanwhile, the assessment was ripening and it had gone up 
to over $8,000. I tried to reopen my tax case and was told that 
the Federal Tax Court did not enforce out-of-court settlements 
made with the IRS. How convenient this is. Only the taxpayer is 
held to the agreement, not the IRS. I was adamant that this was 
just morally wrong. I was very upset.
    I fought this collection for two reasons. One, because 
based on information provided by the IRS itself I sincerely 
believed I owed nothing, and two, because I believed the IRS, 
even if they intended to collect twice, was obligated to 
calculate my collection in accordance with our agreement.
    My new husband contacted the revenue officer who had filed 
the lien. The revenue officer informed my husband, and later 
me, that he had my former spouse's file right here on my desk, 
and he knew that my former spouse had paid the taxes, but that 
it was not relevant because these were separate collections.
    He insisted that if we wanted my former husband's payments 
to offset my liability we would have to produce those records. 
Otherwise, we would have to pay it again; the duplicate payment 
would balance the IRS books, and he would help us file for a 
refund of the overage. Imagine my new husband's frustration at 
the prospect of effectively paying $8,000 that we believed had 
already been paid.
    At this point, which was early 1991, I requested a problems 
resolution officer who, after some inquiry into my account, 
came to the conclusion that I, indeed, did not owe anything for 
the 1983 taxes and that, once she got written confirmation of 
this from the Fresno office, she could get everything abated to 
zero. Meanwhile, she said, the IRS agent should stop collection 
activity, which he did not.
    However, I thought, great, this is all going to be 
straightened out soon. I was wrong. A few days later she called 
me and informed me that the IRS Fresno office had changed its 
mind about providing her with the necessary documents, and 
without those there was nothing she could do.
    I made one final attempt at reasoning with the collection 
agent. He merely repeated that he knew the tax had been paid 
and he knew I did not owe the money, but it did not matter. The 
only way to get rid of the tax lien was to pay the $8,000, 
whether we owed it or not.
    The collection agent then offered to assist us with regard 
to the refund application. He knew we were being sued by the 
bank because the IRS was a co-defendant, so he just refused to 
do anything and let the bank force us to pay what we did not 
owe. With the bank about to call the loan, we had no choice but 
to pay the IRS demand in full.
    Mr. Chairman, although I am giving you a rather general 
description of these events for the sake of overall continuity, 
it is important for me to tell you that both my husband's and 
my own physical and emotional well-being suffered tremendously 
under the constant strain of these repeated attempts to get the 
IRS to honor their agreement and collect only what I owed.
    It was physically exhausting. We almost never slept. Every 
conversation had to be memorialized in a letter. There were the 
visits to the attorneys and the accountants, their bills, and 
their depressing advice: pay it, it is cheaper than fighting, 
and the very real prospect of losing our home to the bank if 
they called the loan.
    You do not eat, you do not sleep, you are afraid to talk 
too much to each other for fear you will take it out on your 
spouse. If you do talk, it is about the IRS. We were newlyweds. 
I cannot describe the guilt, knowing that I had brought my new 
husband into this.
    My parents became so concerned for my health that they 
cashed in a retirement CD and loaned us the money to pay the 
IRS. Since they were living on a fixed income, this was a big 
deal for them to do. I know they made sacrifices to do this. It 
was a selfless act of love.
    On February 21, 1991, we handed the collection agent a 
cashier's check for the entire amount they demanded, $8,194.73. 
Please keep in mind, the original underlying tax was $2,709, 
and that the original amount due was supposed to be no greater 
than $3,500. The balance was interest that accrued from July 
1988 to February 1991, a period of 18 months.
    In that time frame, the bill that I could not get anyone to 
give me to pay nearly tripled from the original amount. I was 
forced to pay $4,500 for their mistakes. In exchange for this 
payment we were given a Certificate of Release of Federal Tax 
Lien.
    My cashier's check reflected my name, my Social Security, 
the tax year to which it was being applied, 1983, as well as my 
Tax Court docket number. In other words, the IRS had everything 
it needed to properly credit the payment. I could not have made 
it any clearer where to apply the proceeds of the check.
    In February of 1992, a letter arrived from the IRS office 
in Maryland signed by a woman with the authoritative title of 
Chief, Accounting Branch. The letter said the IRS had received 
a payment, and if we had made this payment, please send the IRS 
a copy of the check with an explanation, which we did.
    We also asked her in that letter not to refund the money or 
any portion of it unless she first made sure neither of us owed 
any money anywhere, for any year. In March 1992, we received an 
unsigned IRS form letter indicating that the payment had been 
applied to our 1990 joint return.
    I actually telephoned the IRS and asked about this and was 
told simply that if the Accounting Branch determined that there 
were no taxes owed for any year, the only way to refund the 
money was to credit it to the most recent tax year. In other 
words, they could not credit the payment to my 1983 tax year 
unless there was a balance due.
    Therefore, we logically concluded that the Accounting 
Branch did what we asked, checked out our taxes, found nothing 
owed, and was merely refunding us the overpayment in accordance 
with their own bookkeeping system. We had absolutely no reason 
to think that the refund was in any way erroneous.
    In November of 1996, nearly 5 years later, out of the blue, 
without so much as one prior notice, we received a certified 
letter from the IRS containing a Notice of Intent to Levy. The 
particulars of the tax being levied were identical to the 
particulars of the tax lien that had been released in 1991. For 
reasons unknown to us, they changed their mind and wanted more 
money again. Why?
    I telephoned the agent who sent the letter and was told, it 
was a different assessment, because even though everything else 
was identical, the tax year, the amount, the assessment date, 
there was an ``N'' after my Social Security number on this 
assessment and, therefore, I had to pay it again. The ``N,'' I 
later learned, is a tag for non-master file. Remember those, 
the separate collections that nobody seems to know about? Well, 
this was one of them.
    Whether the IRS failed to close it at the time we paid it 
in 1991 or whether they reopened it because they wanted to get 
the refund back they gave us in 1992, does not really matter 
much to me. Whichever one occurred, the fact remains the IRS 
made yet another error. Once again, they demanded that I 
balance their books and pay for their mistakes.
    How many times was this going to happen, I wondered? A tax 
attorney informed me that my Release of Lien was meaningless, 
adding, the IRS refiles these all the time. I cannot tell you 
how many people come in here clutching these things, Release of 
Lien, for dear life, thinking that they offer some kind of 
protection.
    He stated the Taxpayer Bill of Rights did not allow the IRS 
to collect interest from the taxpayers based on its own errors, 
and even suggested that I write to my Congressman, but 
cautioned me not to expect a significant outcome because 
``they,'' Congress, he meant, ``cannot really do anything. 
Congress is less than effective when dealing with the IRS on 
behalf of taxpayers.''
    I gave problems resolution another try. This time they were 
less an advocate for me than an arm of the IRS collection 
office. It was, in fact, the problems resolution officer who 
told me, you know, you kept a refund to which you knew you were 
not entitled, and her tone of voice was not friendly; keeping a 
refund that you know you are not entitled to is a crime. She 
demanded I pay back the refund. So much for the problems 
resolution office.
    After a brief hospitalization for surgery resulting from a 
freeway pileup that totaled our car, my husband resumed work in 
January 1997, only to discover that while he was recovering 
from surgery the IRS had levied against his salary. My husband 
would be allowed to keep $18 a week to support me and the 
children for approximately two months.
    Anyone entering a grocery store today knows that is 
tantamount to condemning us to a soup kitchen for our meals. 
Two months of being unable to meet our other financial 
obligations would have sent us into bankruptcy and foreclosure. 
Again, the innocent spouse was going to be published for my old 
tax problem.
    To protect his ability to provide for his children and 
myself, my husband set up a separate residence in San Clemente 
and filed for divorce on February 3, 1997. In California, the 
day you file for a divorce your salary is your sole and 
separate property. The IRS ignored that fact and left the levy 
in place.
    In an unusual determination, the county refused to comply 
with the second levy and my husband's income was safe. However, 
his retirement fund was not. That was community property, and 
we fully expected the IRS to swoop in the next day and take the 
whole thing.
    So on the 5th of February, 1997, I filed bankruptcy to stop 
the IRS long enough for us to figure out what to do about this. 
The bankruptcy notice was hand-delivered the same day.
    The following day, the IRS notified me that my Schedule Cs 
for 1993, 1994, and 1995 were questionable and asked me to 
reconsider them. We took this as a thinly veiled threat to 
punitively audit our returns. The IRS refiled the lien for 
which I had a release. We discovered this in March of 1997. I 
am informed that this is common practice.
    The liens threatened my husband's residence, which was his 
separate property, but the IRS ignores this in community 
property States. I have been informed that the liens would 
survive the bankruptcy, as all liens do. So even though this 
was his sole and separate property, it was possible the IRS 
would take it.
    My now widowed mother could not bear watching us go through 
this and took out a loan against her retirement so we could pay 
the IRS and get this over with. However, my husband and I knew 
that paying the demand would never resolve this. We tried that 
in 1991. They would screw this payment up too, and in a few 
years be back for more, with interest.
    We needed closure, some way to end this forever. Since the 
real problem occurred back in 1989 and the IRS never correctly 
set up my account for $3,500, and because every penny over that 
amount was a result of their own error, we determined that 
under the Taxpayer Bill of Rights provision that the IRS could 
not make us pay interest for their mistakes. We should not owe 
more than $3,500.
    If we could get the IRS to correct their errors, we should 
be able to pay $3,500 and be done with it. So, that is what we 
did. We made a directed, voluntary payment of $3,500. We put 
the rest of the money in a CD in case the IRS swooped in to 
destroy us unannounced. We waited.
    Our lives are now forever altered. Joint tenancy, joint 
bank accounts, joint tax returns are no longer a part of our 
life. We will pay additional taxes every year as a result. Our 
confidence in the integrity of the IRS has been completely 
shattered.
    This year we got a refund on our 1996 taxes, and it sits in 
a CD, as does the $3,500 that the IRS recently returned to us 
without any explanation. We do not dare cash refund checks 
anymore. My credit is completely destroyed, and my husband's 
credit is seriously damaged. We will suffer the effects of this 
IRS collection for the rest of our lives.
    I originally wrote to you, Mr. Chairman, because the IRS 
should not be above the law. Couples should not have to divorce 
because of the IRS. Once you became involved, the IRS released 
all of the liens and sent us the $3,500 back.
    Senator Roth, your effort saved us from being forced to 
live apart and preserved our ability to provide for our 
children and for this we will be forever grateful. However, the 
conduct of the IRS remains the same, and for thousands of other 
taxpayers there is no help. Ours is a hollow victory if the IRS 
is allowed to continue this type of conduct.
    People tell us how terrified they would be to do what we 
have done. They are convinced that the IRS will target us for 
punitive audits. One person put it this way when she learned we 
had written to Congress. She said, that is like painting a 
bull's eye on your chest and giving the IRS a loaded gun. She 
believes the IRS will never forget this, and some day get back 
at us in retaliation. Mr. Chairman, she could very well be 
right.
    The IRS is judge, jury, and executioner, answerable to 
none. We do not believe that our experience is isolated. For 
over 10 years the IRS has conducted itself as a legalized 
extortion operation, willing to commit abusive acts to collect 
money, even that which they know is not owed.
    An agency of the U.S. Government allowed such sweeping 
authority as that granted to the IRS should be held to the 
highest standards of honesty and integrity. The IRS is not. 
Those of us subject to that authority should be guaranteed an 
accessible and effective remedy for its abuse, and we are not. 
It is a disgrace to our Nation that an arm of our democratic 
government is allowed to behave as if it were an extension of a 
police state.
    I hope that Congress can act to end this National shame. 
Thank you for allowing me this time.
    The Chairman. Thank you.
    [Applause]
    The Chairman. The committee will please be in order.
    Mrs. Hicks, I thank you for being here today. I apologize 
and regret that you and your husband have been put through this 
kind of an ordeal since 1983. It should not happen, and that is 
the reason we are here today.
    Mrs. Hicks. Thank you.
    [The prepared statement of Mrs. Hicks appears in the 
appendix.]
    The Chairman. Next, I would like to call on Tom Savage for 
his testimony.

             STATEMENT OF THOMAS SAVAGE, LEWES, DE

    Mr. Savage. Good afternoon, Senator. Thank you for allowing 
me to come here, and distinguished people on the panel, for 
being here to hear our case.
    My name is Tom Savage. I run a small construction 
management company in Lewes, DE that my wife and I own. I want 
to thank the committee for the opportunity to share my story, 
which has been no less than a true horror story for my wife and 
me.
    We were unfortunate to have been the subject of a zealous, 
unrelenting, and abusive pursuit by an IRS revenue officer, 
with assistance and complicity of the attorneys, particularly 
the lead attorney at the Department of Justice who was charged 
with advising the IRS. They were in a position to stop the 
abuse and yet permitted it to continue, perhaps even causing 
much of it.
    In the interest of time, I will simply say that the 
emotional damage done to my wife and me outstripped the 
financial damages we suffered, which was not insubstantial. 
There were many sleepless nights. Believe me, when the 
resources of the government are unleashed on you, you are in 
trouble, no matter how good your case. Few people know what it 
is like to be in the cross-hairs of the IRS. We, unfortunately, 
do.
    I am here today in hopes that by telling my story and by 
participating in these hearings I might help bring about the 
real and lasting changes at the IRS. For the sake of other 
taxpayers, I hope this happens.
    The nightmare began when a subcontractor of Tom Savage 
Associates, or TSA, my company, fell behind paying his 
unemployment taxes. The case ended with an intense litigation 
in the U.S. District Court. Tom Savage Associates was forced to 
bring an order to recover a payment check issued by the State 
which had been wrongfully seized by the IRS.
    In order to keep my company afloat, we had to settle the 
case. Much of this offended our desire to stand on principles. 
We allowed the IRS to keep $50,000 of the check that was seized 
in order to get the case over with, since the litigations were 
bankrupting our company financially and us emotionally.
    We regret not having pursued the case to the end, but we 
had to save our business. The government has endless resources 
to drag the case out, we did not. In settling the case, the 
government extorted $50,000 before giving back the check. The 
government attorney knew that it was going to cost an 
additional $50,000 to litigate the case and use it as leverage 
on the IRS position.
    In brief, the subcontractor had tax problems that surfaced 
during the period that he was working for my company, TSA, on a 
project for the State of Delaware. Unknown to TSA, the 
subcontractor had not been paying his employment taxes for 
approximately 1 year before the project commenced.
    TSA, with the subcontractor's assistance, was building a 
women's correctional facility. The subcontractor performed the 
construction, while TSA oversaw the project and provided a 
performance bond for the project.
    Towards the end of the job, the subcontractor's tax 
problems came to light. The IRS investigated the subcontractor, 
but quickly concluded that the amount of taxes due were 
uncollectible.
    The revenue officer, in his zeal, set his sights on TSA. 
First, he attempted to hold me personally responsible for the 
unpaid taxes, asserting that I was a responsible person 
representing the subcontractor.
    This approach failed when my tax advisor filed a legal 
memorandum explaining the severe deficiencies with this theory, 
so the IRS then went after my company. The IRS now asserted 
falsely that TSA and the subcontractor were partners, and that 
the employees of the subcontractor working on the project were 
actually employees of this fictitious association between TSA 
and the subcontractor.
    My tax advisor pressed the revenue officer for some 
authority for asserting the existence of this fictitious 
partnership that he had established between TSA and the 
subcontractor. The revenue officer pointed to a non-tax 
Delaware case that was totally inapplicable.
    Undaunted by the challenge to provide the authority in 
support of this fictitious partnership, the revenue officer 
caused the IRS to issue a 30-day letter which proposed an 
assessment against the fictitious partnership.
    We immediately filed a written protest with the IRS appeals 
officer and eagerly awaited an appeals conference to put the 
case behind us. As things turned out, we were never given an 
opportunity to present our case to the appeals office.
    While awaiting the appeals conference to be scheduled, the 
IRS seized a large check paid to my company by the State of 
Delaware for the project. At the time of the seizure, and this 
is significant, there was no assessment entered against either 
TSA or the fictitious partnership between TSA and the 
subcontractor.
    Even if there was one, assuming the partnership existed, 
which is a generous assumption even for the sake of the 
argument, the only assessment on the books allowing the IRS to 
enforce the collection was against the subcontractor.
    The seizure of this check thus constituted a wrongful levy, 
open and shut. Existing IRS revenue rulings clearly hold that 
``assessment of a partnership on another partner may not be 
seized to satisfy the debts of another partner.''
    It is a fundamental principle of the tax law that the 
government may not seize any taxpayer's property or undertake 
any type of enforcement action against the taxpayer until there 
has been an assessment entered against a taxpayer. For those of 
you not versed in tax procedure, an assessment is the 
administrative equivalent of a judgment.
    In our case, the right to be free of the government 
collections action until such time as an assessment had been 
entered was flagrantly violated. Not only was this right 
violated, as will be explained in a moment, the IRS would now 
later attempt to sweep this fact under the rug in U.S. District 
Court.
    Indeed, the government's attorneys were so hell-bent on 
winning that they waged a behind-the-scenes campaign during the 
proceedings in the District Court to sanitize the record 
presented to the judge.
    The government requested an extension of time to respond to 
the plaintiff's brief in support of its motion for summary 
judgment, then during the extension in an assessment against 
the fictitious partnership between TSA and the subcontractor by 
hand-delivering a notice of demand the Saturday before the 
government's answer brief was due.
    The government attorney had the audacity to argue in their 
answering brief that an assessment had been entered against the 
fictitious partnership, but no mention was made in the 
government's brief that the assessment was entered 25 weeks 
after the IRS seized the check, and literally days before the 
answering brief was filed. And these were the attorneys we 
thought would stop the abuse?
    When we instituted the suit we were convinced that the case 
would be resolved quickly, that the government would concede 
the case once it got into the hands of competent attorneys. We 
guessed wrong. The government had my money and it was not going 
to give up without a fight.
    Faced with this ``win at all costs'' attitude, we were 
clearly in a protracted battle with the IRS. As much as it 
offended my wife and me, we chose to settle the case and permit 
the IRS to keep $50,000 of the proceeds. We wanted to pursue 
the case to the end, but to do so would have destroyed our 
business.
    On top of the $50,000 that the IRS kept, I had other 
financial losses. Although my attorney reduced her fee 
substantially, in encouraging me to settle the case their fees 
were substantial. We spent $51,000 in legal fees in connection 
with this case. We lost approximately $600,000 in business 
during the proceedings with the IRS in its wake.
    Finally, we lost our sense of well-being, confidence, and 
freedom from government intervention. I believe the IRS, the 
revenue officers, the district counsel's attorneys, and the 
attorneys with the Tax Division of the United States Department 
of Justice should be held accountable for their conduct.
    Unless abuse of this type committed by the IRS and its 
representatives are met with strong responses including 
legislation to compensate the victims of these IRS abuses, they 
will continue. I thank the committee for the opportunity to be 
here today.
    The Chairman. Mr. Savage, we thank you for being here 
today. Again, as I said to Mrs. Hicks, it is hard to understand 
how these occurrences do occur, and we apologize for the 
problems you have been put through.
    [The prepared statement of Mr. Savage appears in the 
appendix.]
    The Chairman. Now I would like to call on the very 
distinguished Monsignor Ballweg for his testimony.

     STATEMENT OF MONSIGNOR LAWRENCE BALLWEG, NEW YORK, NY

    Monsignor Ballweg. Good afternoon, Chairman Roth and 
members of the Senate Finance Committee. I found this to be a 
very interesting and educational experience, and I thank you 
for inviting me to come here this afternoon.
    I am Monsignor Lawrence F. Ballweg. I have been a priest in 
the Catholic Church for over 57 years. I was retired in 1990 at 
the mandatory retirement age of 75.
    My mother, Elizabeth Ballweg, died in August 1988, and in 
her will established a trust, the benefits of which go to 
charity. In the will I was named the trustee and, since her 
death, I have faithfully and conscientiously performed my 
duties as trustee. I have submitted an annual report of the 
trust activities to the IRS each year without any problem at 
all.
    During the year 1995, I made more numerous transactions 
than in previous years. In order to record all the income of 
the trust I listed the various items on separate sheets 
entitled ``Statement 1,'' ``Statement 2,'' and so on, then 
placed the totals in the appropriate spaces on the IRS Form 
1041.
    I did this more for the convenience of the IRS than for my 
own convenience. Since I did not pay a professional to prepare 
the trust return, I spent hundreds of hours collecting the 
necessary papers and balancing the figures. I asked for an 
extension of time for 1995 so that I could be more confident 
that the report was as accurate as possible.
    Two months later, the return that cost me so much time and 
effort was returned, requesting that I put all my figures on 
the appropriate forms that were enclosed.
    My second report was done hurriedly and returned on July 7 
to make sure that it reached the IRS office in the few days 
that were allowed. In my hurry to return this report on time it 
may not have been done as perfectly as the first, although the 
figures were exactly the same.
    I spend 6 months in Florida and 6 months in New York. The 
day after I arrived in Florida, November 4, 1996, I received a 
letter from the IRS Atlanta office stating that I owed more 
than $18,000 in taxes and penalties for the trust.
    Since I had left a copy of my final report in New York, I 
asked that a copy be sent to me. I was informed that I had, 
first, to request an application for a copy of my report, and 
then return the application with a check for $14. When the 
application arrived I filled it out and enclosed the check.
    About 6 to 8 weeks later, I received a form that indicated 
that I could not receive the copy since my name, Lawrence F. 
Ballweg, was different from the name of the trust, which was 
Lawrence F. Ballweg, Trustee, under the Will of Elizabeth D. 
Ballweg, and reflected on line 1 of Form 1041, Elizabeth D. 
Ballweg, my mother, who had died 8 years before.
    I wrote a long letter dated January 6, 1997, explaining 
that I had submitted annual reports since 1988 and that my name 
was the signature on each report. At the same time, I submitted 
another request for a copy of my file. The request was ignored.
    Instead, I received a final notice dated January 20, 1997 
in which I was told that the IRS intended to take steps to take 
my bank account, auto, and other property if they had not 
already done so.
    I have read several stories about threats of this kind and 
how they have caused extreme physical and mental suffering to 
taxpayers, and now began to understand what those stories 
meant.
    I must confess that I spent sleepless nights thinking of 
the possible consequences, not knowing where to turn, since by 
this time I was certain I would get no help from the IRS.
    Mr. Chairman, it was at this time that I heard of your 
investigation into the conduct of the IRS. I immediately wrote 
to you and received prompt action. CNN presented my case on 
television.
    The next day I received a call from an IRS taxpayer 
advocate who later received a copy of my file and advised me 
how to make the necessary adjustments. On March 24, 1997, I 
received notice from the IRS Atlanta office that I did not owe 
any tax.
    For 8 months I lived in constant worry, if not fear, that 
the trust that my dear mother had established to help the poor 
would be penalized because of what I can only call the 
unprofessional, calloused, and indifferent behavior of IRS 
employees who are devious enough never to sign their names to 
any notice that they send out. The taxpayer is dealing with 
people who can do inestimable harm, and cannot even be 
identified.
    I can only thank you, Senator Roth and the Senate Finance 
Committee, for trying to correct such abuses. I pray that as a 
result, conscientious citizens will be spared the humiliation, 
embarrassment, fear, and anxiety that I have experienced. Thank 
you very much.
    The Chairman. Father Ballweg, again, I must apologize to 
you for what you were put through. This is the kind of 
treatment of a taxpayer that should never happen. While we are 
glad that it was finally resolved, you should not have had that 
emotional suffering.
    [The prepared statement of Monsignor Ballweg appears in the 
appendix.]
    The Chairman. It is now my pleasure to call on Mrs. Jacobs. 
Would you please proceed?

           STATEMENT OF NANCY JACOBS, BAKERSFIELD, CA

    Mrs. Jacobs. Good morning, ladies and gentlemen of the 
Senate, Mr. Roth. I just want to say a quick word, that it is a 
great privilege and honor to be here today speaking to the 
Senate, something I never thought I would ever do.
    The Chairman. It is an honor to have you here, and we thank 
you for coming.
    Mrs. Jacobs. Well, I am here on behalf of the people of the 
United States. I am not here on behalf of any Democrat or 
Republican, and I want everyone to know that. I am hoping that 
someone will see our stories here today will take a real grip 
on what their life is all about and give them some hope.
    Chairman Roth, Senators of the Finance Committee, thank you 
for the opportunity to appear before you this morning to 
present my personal experience with the Internal Revenue 
Service. I am sorry.
    The Chairman. That is all right. Just take your time.
    Mrs. Jacobs. I am Mrs. Nancy Jacobs. My husband, Dr. 
Frederick Jacobs is a practicing optometrist from Bakersfield, 
California. We have operated for approximately 30 years.
    When my husband first opened his practice in March 1965 in 
Stockton, California he was assigned an employer identification 
number, or EIN, for reporting purposes to the IRS. Between 1977 
and 1979, my husband closed his practice.
    But in November 1979, he reopened in a new location in 
Riverside, California. We applied for an EIN number at that 
time, because we were restarting the practice at a new site and 
we needed an EIN for tax reporting purposes.
    What neither of us knew at the time was that the EIN is 
like a Social Security number; it never needs to be changed or 
renewed. The original EIN from the IRS had been assigned to us 
forever.
    However, when we requested the new EIN from the IRS it 
complied with a request that the IRS provide us with a second 
number. What we did not know at the time is that the EIN that 
the IRS provided to us in 1979 actually belonged to someone 
else, someone that we would not be aware of until the year 
1992.
    By March of 1981, we were unexpectedly assigned yet a third 
EIN number from the IRS via a preprinted label on a quarterly 
941 tax return. However, we continued to use the number we were 
assigned in 1979 on all of our quarterly tax payments.
    In June 1981, out of the blue, without any warning, the IRS 
placed a lien against us for $11,000 for unpaid back payroll 
taxes. We could not find anyone at the IRS that would do us the 
courtesy of checking into the lien and to find out who the lien 
was for.
    After attempting to deal with the IRS, my husband and I 
were so intimidated by the tactics used by the IRS that we 
agreed to pay $250 a week until the balance was paid. For 
anyone who has not had to deal with the IRS under such 
circumstances, you probably cannot understand why we agreed to 
pay $11,000 that we did not owe. Only after having experienced 
what my husband and I endured would you consider paying an IRS 
bill that you did not owe.
    Even after the $11,000 was paid, we continued to receive 
subsequent liens from the IRS. My husband and I were forced to 
comply with these IRS demands under the penalty of experiencing 
further enforcement actions, with the possibility of the IRS 
closing down my husband's practice. We were forced into debt, 
our credit was damaged, and the mental stress was overwhelming.
    During all this time we could not convince anyone at the 
IRS that we did not owe these taxes. In fact, during one of our 
visits to the San Diego IRS office we were flatly told by an 
IRS employee that she was too busy to help us any more. She 
refused any additional assistance in straightening out our 
account also.
    We were then informed by her supervisor that this matter 
would be cleared up. It was a kind offer, but that was all it 
was. Our nightmare continued. By 1987, we had received 
additional liens totalling roughly $15,000.
    In 1982, we did seek the assistance of a congressional 
representative. He contacted the IRS on our behalf, requesting 
that the IRS stop all collection efforts and for them to 
contact us in an effort to straighten out the problem.
    We did hear from the IRS in 1982, and we met with someone 
from the Laguna Nigel office who told us that we had received 
four refund checks. We assured him that we had only received 
one for approximately $3,600. He promised that he would get 
copies of the other checks. Unfortunately, he never did.
    The only consistent occurrence over the course of the years 
was the occasional appearance of the original EIN number on 
notices that we had received from the IRS, while all others 
reflected our second EIN number.
    My husband and I began to wonder exactly where the taxes 
were going that we had been faithfully paying. No one with the 
California IRS office that we contacted could explain it 
either. But they were adamant that, whatever the reason, we 
owed those taxes.
    By 1987, we again contacted a congressional representative, 
seeking intervention on our behalf. This time we heard from the 
IRS, but that too led to another dead end.
    In 1992, a patient of my husband's, a tax attorney, agreed 
to review our case and was the one who discovered the confusing 
EINs going back to 1979. Someone with a name quite similar to 
my husband's, but with an entirely different Social Security 
number, shared the EIN.
    Back in 1979, had the IRS employee properly informed us 
that we did not need a ``new'' EIN number, or at least checked 
the status of the number, this 17-year nightmare would have 
been avoided.
    Mr. Chairman, since 1992 when we first discovered the 
mistake IRS had made my husband and I have been trying to get 
our money back from the IRS, money that was wrongfully taken 
from us by the IRS, but to no avail. We have never received the 
money from the IRS as we had been promised. We estimate the IRS 
still owes us $10,000, if not more, plus interest, stemming 
from the wrongful liens, penalties and interest.
    Only in 1994 in an encounter with the IRS's Bakersfield 
office did we meet the first truly helpful person who was 
willing to work with us and investigate the cause of our 
problem. We were informed that our problem was, indeed, due to 
a clear case of an erroneous employment identification number. 
Unfortunately, this employee became ill and our case was 
apparently lost.
    After yet another congressional inquiry on our behalf in 
1996, we learned that our ``lost'' case was not really lost, 
not at all, but had been referred to an IRS employee at the 
IRS's Fresno service center. Unfortunately, she was not 
responsive to our case and almost another year languished 
without any satisfaction.
    Out of sheer frustration, my husband and I went to our 
local newspaper and told our story. Roughly two hours after 
this story appeared, the same IRS employee was on the telephone 
informing us, ``we discovered that you were right,'' and 
proceeded to discuss how our money would be returned to us.
    We then received a fax from her stating that all liens had 
been lifted and the IRS was at fault for the incorrect EIN 
number. However, when this IRS employee extended her ``sincere 
apologies'' in writing, she did not mention a refund of the 
money the IRS unfairly took from us.
    She did state, however, ``the liens previously filed under 
our employment identification number were not correct and 
should not have been on Dr. and Mrs. Jacobs' accounts. The 
liens were not for their liabilities. Within the next 6 to 8 
weeks, Dr. and Mrs. Jacobs will be in full compliance on all 
taxes, both individual and business.''
    Mr. Chairman, both my husband and I are certainly pleased 
and greatly relieved that this 17-year confrontation with the 
IRS is almost over, but we cannot agree with the IRS that it is 
completely over. We would appreciate receiving our refund with 
the same enthusiasm and speed with which the IRS collected it.
    However, the real reason I am here this morning is to bring 
to light what my husband and I feel is an attitude that 
permeates the IRS. It is one of manipulation and control of the 
taxpayer. Both my husband and I were met with indifference when 
dealing with the IRS offices. IRS employees were not interested 
in listening to us, much less investigating our assertions. 
They assumed we were guilty, that we did owe the money.
    The IRS is beyond the law. Congressional inquiries on our 
behalf met with only limp response. Mr. Chairman, an agency 
with this type of power over American citizens requires someone 
to rid it of such abusive conduct. My husband and I commend you 
for the efforts here today in accomplishing that goal. Thank 
you.
    [The prepared statement of Mrs. Jacobs appears in the 
appendix.]
    The Chairman. Well, let me start out again by thanking each 
of you for being here today. I know it is not easy to appear 
before a Senate panel, but it is critically important, not only 
from your standpoint, but for the taxpayer as well. We are here 
to learn and each of your testimonies has been extremely 
helpful.
    I am going to ask the members of the panel to try to limit 
their questions, but everybody will be given an opportunity to 
ask questions. I would hope that they could keep within a 5-
minute rule, everyone but Senator Moynihan and me. [Laughter.]
    The Chairman. Mrs. Hicks.
    Mrs. Hicks. Yes, sir.
    The Chairman. Did I correctly understand from your 
testimony that you separated from your husband?
    Mrs. Hicks. That is correct.
    The Chairman. Filed for divorce.
    Mrs. Hicks. That is correct.
    The Chairman. And eventually filed bankruptcy because of 
actions taken by the IRS.
    Mrs. Hicks. Yes, sir.
    The Chairman. Now, Mrs. Hicks, could you have avoided years 
of grief if the IRS had had a procedure to properly post your 
account and send you a bill which you could have paid in 1988?
    Mrs. Hicks. Oh, yes. Yes. I would say if a taxpayer is ever 
faced with what I was faced with, and you are told by anyone at 
the IRS, do not pay us now, wait for a bill, do not wait for a 
bill. Send the money to the main office and sit on your 
canceled check. That is what I wish I had done now. I should 
have just paid it anyway, despite their advice.
    The Chairman. Let me ask you this. Did you find that, in 
general, you confronted an agency not interested in helping you 
resolve your problem? How would you have been treated if you 
had had a glitch with a credit card?
    Mrs. Hicks. Well, that is a different story because they 
generally care about whether or not they actually collect the 
debt. I am no longer convinced the Internal Revenue Service's 
primary goal with some of us is collecting the debt. They 
obviously did not want me to pay this debt. I kept giving them 
the money, they kept giving it back. They did not want the 
payments.
    Yes, a credit card company would have taken my money for 
sure. If a credit balance showed up on my Visa card and I owed 
them money on another card that they held, they would snatch 
that credit balance over to the balance due. I mean, this is 
silly. They could have collected this three times over.
    The Chairman. One of the important points, I think, to 
recognize is that your problem was not just one employee, it 
was the fault of the system.
    Mrs. Hicks. Yes. Yes.
    The Chairman. How many IRS employees and offices do you 
think you dealt with over the years that your problem lingered 
on with the IRS?
    Mrs. Hicks. Well, I would not say I dealt with a large 
number of offices, but quite a few employees. The list is like 
three pages of different individuals that I dealt with.
    The Chairman. Three pages.
    Mrs. Hicks. Yes, it is about three pages.
    The Chairman. Let me ask you this. How many times did you 
try to pay the taxes owed as a result of your settlement with 
the IRS?
    Mrs. Hicks. Three. The first time when they would not even 
take my check, then I waited for the bill, then when they 
levied us the first time. When they liened me and the house was 
threatened, I paid it and then they did not keep the money, 
then recently again. So, three times. They did not keep that 
money either, by the way.
    The Chairman. How many times did the IRS tell you that you 
owed no tax?
    Mrs. Hicks. About six. About every 45 to 60 days, just that 
6 or 7 months before I got married. So five or six times.
    The Chairman. Five or six times.
    Let me now turn to Mr. Savage. Thank you, Mrs. Hicks.
    Mrs. Hicks. You are welcome.
    The Chairman. I see you breathing a sigh of relief. I do 
not blame you.
    Mr. Savage, is it your testimony that IRS employees 
fabricated a case against you by creating a false entity that 
linked your company and your subcontractor in a partnership?
    Mr. Savage. Yes, sir. The internal revenue agent created a 
totally false company, Tom Savage joint venture with such and 
such subcontractor partnership, gave a new EI number, 
established the EI number, sent a bill for roughly $177,000 the 
first time, $138,000 the second time. He created the company. 
It did not exist, it does not exist to this day, and it never 
existed, with my authority or anybody else but the internal 
revenue agent himself. He created the company.
    The Chairman. Now, I want to be very clear about this. Was 
there any common ownership between you individually or your 
company and the subcontractor?
    Mr. Savage. None whatsoever. In fact, that was the first 
time I had ever worked with this man. I had been in business 
approximately at that time around eight years, and this is the 
first time I ever had any contact with this particular 
individual.
    The Chairman. Now, if that is the case, why did you settle? 
Why did you settle with the IRS, allowing them to retain some 
of the funds that you say you did not owe, that they were not 
entitled to keep?
    Mr. Savage. As I explained a little earlier, basically what 
it amounts to is they seized a check of mine for $145,000 
immediately. I had used that money. Actually, it was set aside 
to pay bills and so forth. So right then and there, I am out 
$145,000 to the Internal Revenue Service. I had to pay off my 
bills.
    In turn, I had a line of credit. I borrowed $150,000 to 
keep my business going, paid interest on it during that period 
of time, paid attorney's fees during this period of time, 
trying to get this case settled for over a year and a half or 2 
years, it has almost run.
    In the meantime, anytime they send the assessments and so 
forth my attorney filed the proper papers to show we did not 
owe these taxes, it was not our company, it was a self-created 
company by an internal revenue agent. The company did not exist 
other than through his procedure of issuing an EI number, and 
so forth.
    The Chairman. Now, as I understand what you are saying, 
that when they attached the lien there was no assessment of tax 
made against you, individually or against your company, and 
that is contrary to the rules and regulations.
    Mr. Savage. That is correct. There was no assessment 
whatsoever on the books against Tom Savage Associates, or 
Francis T. Savage, me, personally.
    The Chairman. And you also testified that it is incorrect 
to seize the assets of a partner when another partner is 
liable.
    Mr. Savage. That is correct. That is the general tax law. I 
mean, my attorneys are competent attorneys in the State of 
Delaware for tax laws.
    The Chairman. I would like to call your attention to an 
exhibit over there, a letter. This letter is from the U.S. 
Department of Justice addressed to the District Counsel of the 
Internal Revenue Service.
    In that letter, this is the U.S. Department of Justice 
writing saying, ``Specifically after reviewing the complaint, 
the motion for summary judgment, your defense letter, and all 
the information forwarded by revenue officer, we believe that 
the levy in question was wrongful.''
    Mr. Savage. That is correct. That is the first time I have 
seen this morning, when it was presented to me by one of your 
staff. The only reason this letter has even come about is the 
fact that you had the authority to go into the Justice 
Department and the IRS and obtain this letter, or else God 
knows, nobody would ever receive it. What it amounts to is what 
we were arguing all along. From the day they seized our check, 
they had no legal right whatsoever to this check. That was 
totally wrongfully seized.
    The Chairman. Let me reemphasize. What this letter from the 
Justice Department says is that the levy in question was 
wrongful. Now, if you had known that was the position of the 
Justice Department, would you have settled?
    Mr. Savage. No way. After all, look at some of the dates. 
Our case started in the eighth month of 1993 when we answered 
the brief. As of November 1, these attorneys representing the 
IRS knew they were legally wrong. They had been advised by the 
Justice Department they are wrong. They kept this case going on 
for another year and a half. They did not care for anybody but 
themselves.
    Now, if I had known this was wrong, no way in the world. If 
you read further down, ``We do not believe that the IRS can 
levy on a partnership for unpaid Federal taxes.
    In fact, we read your defense letter to essentially concede 
that the levy was wrongful.'' I mean, these people, here they 
are getting a letter from the Department of Justice telling 
them, you are wrong going after this man and his money. But 
they did not care. They went and continued to do it.
    I hate to lose my temper, but if you live under this and 
the pressures that we were under to do this, we have a 
business, we had an obligation to our subcontractors to keep 
them working, and so forth. I had an outstanding record. I had 
never owed taxes.
    In fact, the first day the gentlemen--I use the word 
loosely--the internal revenue agent came to my house, we had 
our home up for sale because we planned on retiring. I am 69 
years of age. Four years this has been going on.
    I opened the door and said, who are you? He said, well, I 
am here to collect the taxes. What are you doing, trying to get 
out of town before you pay your bills? I said, what ails you? I 
do not owe any money. He explained what he was there for. I 
said, well, come in. Here are my books; look at them. I had no 
attorney or anybody at that time. I said, here are my books. He 
looked them over. He went over every page that I had, and I 
kept all of the records.
    I said, I do not owe taxes. He said, no, I checked on you. 
You always paid your taxes monthly. I had never even paid them 
quarterly. Federal taxes have always been paid monthly. He 
left, then this harassment of letters started and so forth that 
I owed money. First he tried to hold me personally responsible, 
then he held the corporation responsible, then he created a 
corporation that does not exist and did not exist.
    So, I mean, how illegal can they get? But here they have. 
Like I say, thanks to you today we have a letter that says 
these people knew they were acting illegally. Illegally. Let us 
stress that. They knew it and they deliberately did not care.
    The Chairman. So you paid $50,000 you did not owe.
    Mr. Savage. That is correct, sir.
    The Chairman. You have not been able to be repaid for that, 
is that correct?
    Mr. Savage. No way. In other words, this case itself, up to 
that time and I will give you a quick run-down as an example. 
My total settlement costs, counting attorney fees and so forth, 
$101,023.05.
    During the period of time from 1994 to 1997, I have paid 
interest and lost interest on my accounts to keep this account 
going. For a total of over three and a half years, the Internal 
Revenue Service has cost me $167,16.32, and that is as of 
September of 1997. These people do not care.
    They have cost me over $600,000 as far as income. Right 
now, I still have debts that I am paying off. I have worked 4 
years longer than I planned to. When I retire, hopefully by the 
end of this year, I am going to have to take out $80,000 more 
to pay off the balance that I owe on this $167,000. So these 
people have cost me in excess of $250,000, and I want my money 
back.
    The Chairman. Thank you, Mr. Savage.
    Now I would like to turn to you, Father Ballweg. Again, I 
find this situation incomprehensible. Let me ask you this 
question. You probably do not deal with credit cards, but if 
this had been in the private sector, could your problem not 
have been solved by picking up the telephone?
    Monsignor Ballweg. Senator, this could have been solved 
with the simple telephone call that I made to the IRS office 
the day after I received the notice that I owed them $18,000. I 
called and I said, what is the problem? They would not tell me. 
So I said to them, I do not have my tax report or a copy of it 
down here, it is back in New York.
    I had thoughts overnight of going back to New York just to 
pick up that thing so I would have it before me. But I called 
the next day and said, could you send me a copy of the report. 
They gave me a long lecture about being conscientious about 
making out your income tax for the trust. He then informed me 
that in order to get a copy of that report that I had submitted 
I would have to apply for an application and fill it out and 
return it with a check for $14, which I did.
    I waited 6 weeks until I received a notice saying that I 
was not entitled to a copy of it because my mother's name was 
on the top of the trust, Elizabeth D. Ballweg, and it should 
have been Lawrence F. Ballweg under the Will of Elizabeth 
Ballweg. But I had sent in my reports all these years and my 
name was on it.
    They do not sign anything at all, but all they do is 
highlight something. I had to look to find out what the problem 
was. On the back page there was something highlighted that 
indicated that since my name was different from my mother's 
name, they could not send me a copy.
    So I sent a long letter back and I said, please bring this 
to the attention of the supervisor, because I thought it came 
from somebody or it would reach somebody who did not know how 
to handle this kind of thing. So I said, bring this to the 
attention of your supervisor. Well, the response to all of that 
is that I received the final notice shortly after that, telling 
me that they are going to levy my house, my car, and so on. 
That really scared the living daylights out of me. I called 
again and I was told that it was being reviewed. My case was 
being reviewed. But I wondered how it could be reviewed because 
there was no additional input into all of this, so how were 
they going to review it?
    It was around this time that I read in the newspaper about 
your committee being organized and I wrote you immediately, and 
got a call the next day from Eric Thorston offering his 
assistance. The next thing I knew, CNN was on it. They did a 
little segment and put it on the news.
    Apparently the tax advocate down in South Florida heard 
about this, and she was probably embarrassed that this poor, 
old man is being harassed by the IRS, and she tried to get in 
contact with me. She called my chancery office back in 
Rockville Center, and they heard it was the IRS and they would 
not even tell her where I was. [Laughter.]
    Monsignor Ballweg. So I was kind of a fugitive, you know. 
But she took a chance and addressed it to my address at 220 
Main Boulevard in Boynton Beach. As soon as she caught up with 
me, things began to happen. She got a copy of my report and in 
a couple of days the whole thing was resolved.
    Now, this went on from November until March until the 
things was finally resolved. All that was necessary was that I 
get copies of the K-1 form which I had not received and 
neglected to do. As soon as I filled those forms out, the whole 
situation was solved.
    Now, in the meantime I went through all of those months of 
sleepless nights, worry, and anxiety, fear, and everything 
else. It could have been solved very, very simply. All of the 
persons in the Atlanta office had to do was tell me what the 
problem was. I needed the K-1 form. They would not tell me. 
They would not send me a copy of my file. No response at all. 
No response at all.
    The Chairman. Would you characterize your experience with 
the IRS as being consumer friendly, or would you call it 
bureaucratic us against them; how would you characterize it?
    Monsignor Ballweg. Adversarial, no question about that. Not 
consumer friendly at all. They made no effort at all to help 
me. I had been a pastor for 14 years and I was director of the 
Propagation of the Faith for 12 years. If I treated people like 
that when I was pastor, you can be sure the pews in my church 
would be empty. The people would not bother coming if I treated 
people like that, ignored them.
    If somebody came to me and said, Father Ballweg, could I 
have a report, an annual statement, about my contributions to 
the church during the past year and I ignored that person, the 
person made another request, I ignored that request again, the 
person would look for another parish, I am sure of that.
    I am sure the Senate here, if they did not respond to 
people, they would not be holding office too long either. So it 
could have been solved very easily, that is all I can say.
    The Chairman. The thing that is so much a matter of concern 
is the emotional distress this kind of situation causes the 
taxpayer. We cannot just say it is one case as some would do. 
The fact is, these situations can create not only great 
emotional problems, but the kind of problems as Mrs. Hicks has 
pointed out of even having to file for divorce and other 
actions. These circumstances are not the result of just one 
single anecdote.
    Monsignor Ballweg. Mine is not a horror story. I listen to 
these stories and I say, what am I doing here. Mine is just a 
little situation where all they had to do is send me a form and 
they did not do it, so my story does not compare with their 
stories. I feel for these poor people here.
    The Chairman. Finally, I would just like to say, basically, 
was any additional information submitted after we got involved 
here?
    Monsignor Ballweg. No, everything was basically the same. I 
think they started off the whole thing by saying in the first 
notice that I received from them that there was a little error 
in arithmetic, but when I checked on it I found out that the 
error was in my favor, so substantially there was no change at 
all.
    I had distributed all the funds that should have been 
distributed, and they recognized that fact. The only thing is, 
I failed to send the K-1 form to the IRS and they got me for 
that.
    The Chairman. Well, again I apologize, Father. I thank you 
for the good work you are doing.
    Monsignor Ballweg. Thank you.
    The Chairman. Thank you for administering your mother's 
estate for the good of the people.
    Mrs. Jacobs, in your testimony you state that you were so 
intimidated by the IRS tactics that you agreed to pay, even 
though you did not owe a debt. Would you please explain, why 
would you pay something you do not owe?
    Mrs. Jacobs. Well, when you have someone come to you from 
the IRS and tell you they are going to take your home, your 
vehicles, whatever you own, close your business so you have no 
way of making a living, you do what they tell you to do.
    The Chairman. And these threats were made directly to you 
and your husband?
    Mrs. Jacobs. Yes, they were.
    The Chairman. By more than one?
    Mrs. Jacobs. By more than one person? Oh, yes.
    The Chairman. How many would you say?
    Mrs. Jacobs. I have worked with 18 people, and I was 
harassed by every one of them.
    The Chairman. Over a period of how many years would you say 
this harassment took place?
    Mrs. Jacobs. It has covered basically from the year 1981.
    The Chairman. Mrs. Jacobs, is this a copy of the letter of 
apology you received from the IRS?
    Mrs. Jacobs. Yes, it is.
    The Chairman. It stated, as I understand it, that you are 
in compliance with all taxes.
    Mrs. Jacobs. Yes, sir.
    The Chairman. Now, did you ever receive a full refund from 
the IRS?
    Mrs. Jacobs. No, we have not.
    The Chairman. What reason has the IRS given you?
    Mrs. Jacobs. They have not given me any at all.
    The Chairman. Have you requested----
    Mrs. Jacobs. We requested information on the disbursement 
that they did give to us, and we have yet to receive that 
information at this time.
    The Chairman. And how much do you estimate is still owed 
you?
    Mrs. Jacobs. About $26,000.
    The Chairman. A total of $26,000.
    Mrs. Jacobs. Yes, sir.
    The Chairman. And you have received no part of that 
$26,000?
    Mrs. Jacobs. We received a portion of approximately $12,000 
from the IRS with no explanation, not really telling us much of 
anything other than just giving us the checks, with some 
interest, but with no explanation as to where they came from or 
what they were for.
    The Chairman. Again, I have to tell you, Mrs. Jacobs, I 
appreciate your coming here today. You are among friends. I 
hope that justice is done before this matter is completed.
    Senator Moynihan?
    Senator Moynihan. Well, briefly, Mr. Chairman, I think the 
most revealing information we have learned all morning is that 
the chancery at Rockville Center, when they learned that the 
IRS was after a monsignor, clams up. [Laughter.]
    Senator Moynihan. But you are very generous to say how 
relatively mild your experience is compared to the duration of 
much of your other fellow panelists. But that relation was 
adversarial throughout and that speaks of an organizational 
culture.
    Senator Kerrey and Senator Grassley have asked about this 
matter of, is the IRS a law enforcement agency or is it a 
service agency. They would wish it to be the other. The most 
difficult thing you run into in civic life is, what do you do 
when law enforcement offices break the law? David Burnham, who 
spoke earlier today, was very much involved in these matters in 
New York City some 10 years ago or so.
    I mean, it seems to me, Mr. Savage, that that letter in 
1993 to the district counsel with a line-up that says immediate 
response requested, says the levy in question was wrongful. It 
could mean that that could extend to being criminal.
    Mr. Savage. I was not aware of this letter until this 
morning.
    Senator Moynihan. Yes. Yes.
    Mr. Chairman, I think we are going to have people from the 
IRS before us. We have to ask, what disciplinary measures have 
been taken or will be taken.
    It is just the famous bit of lore from the Napoleonic wars 
in which an Admiral Bing, who retreated too quickly from 
Maorca, was shot on board his flag ship on the way back by 
executive order, an order from the admiralty, and it was said, 
``Pour encore a jais le sault,'' to encourage the others to do 
better.
    I hope we will ask for accountability. We are deeply in 
your debt. You have had some awful experiences. I hope it makes 
a difference to you that you are being heard in the Senate 
Finance Committee and we have learned a lot from you.
    I thank you very much.
    The Chairman. Thank you, Senator Moynihan.
    Senator Grassley.
    Senator Grassley. Yes. We cannot help but feel shame that 
our government would carry on this way. It is a sad situation 
that we have stories like yours, because it is obvious that you 
as taxpayers have not been shown the same respect and the same 
speed of resolution of your problems that they expected of you 
and every other taxpayer in America to pay their taxes.
    They really have a double standard. They expect right now 
you pay up. They want you to respond right now on everything 
that they say. They want you to meet the law. If you do not 
meet the law, you get a letter from them. They want you to 
respond right now. But when you want resolutions and answers to 
your questions, you are not able to get that.
    So obviously that sort of double standard in our society is 
not right. I do not know what we can do about it. I know that 
within every bureaucracy there is a great deal of peer pressure 
to go along, to get along. We are lucky to have a few people 
coming up in the next couple of days to testify who, from 
within, want to tell us what is wrong.
    There are probably a lot of other people that would like to 
do that, except that they just know that if they were being 
right to the taxpayers the same way that the agency expects the 
taxpayers to deal right with the IRS, they would probably lose 
their job.
    I would say that if the IRS is going to come up here and 
testify, that one of the ways that they can show their good 
faith efforts to admit that something is wrong and changes are 
going to be made, every one of the wrongs that are still 
unresolved here ought to be righted. There is no reason for 
them not to be.
    That would be a good faith effort showing on the part of 
the IRS leadership to those of us that have oversight 
responsibilities that they are really sincere in their efforts.
    Now, for every one of you I suppose there are thousands of 
others out there that I could say that about that ought to have 
their cases righted, and they would not have time between now 
and the time they come before this committee to do this. But 
they surely ought to have the time and the capabilities of 
taking care of five very obvious cases of wrongdoing, and to do 
those things.
    Then following up on what Senator Moynihan said, we ought 
to have the name of every person you have dealt with and, where 
your rights have been wronged, what sort of contrary action has 
been taken by the agency to make sure that there has been 
discipline taken? Because when there is that sort of discipline 
taken, when heads roll, then it sends a clear signal to other 
people that this sort of action will not be tolerated.
    Anything short of that, it seems to me, is going to show 
that this sort of action is all right and it can be done by 
others as well. We ought to have that as well before our 
committee.
    Mr. Savage, if you were an IRS senior manager and the 
people who asserted this unlawful levy in your case worked for 
you, what would you do to make sure that there were no more 
unlawful levies?
    Mr. Savage. They would be fired the next day, without 
question. But I know the Federal procedures. As far as that 
goes, that could take 20 years to get rid of a bad agent. But I 
do agree with Senator Moynihan, Senator Roth, and yourself, 
sir. I regret to say, I do not know if you are a Senator. 
Correct?
    Senator Grassley. Yes.
    Mr. Savage. I mean, I see so many gentlemen up there, but I 
thought everybody up there was a Senator, but I do not 
recognize all of you.
    Senator Grassley. Some people might wonder whether we are. 
[Laughter.]
    Mr. Savage. But what I was speaking about is, yes, we must 
correct these people who have abused their position. I assume 
right now we can send them to Timbucktoo. That would be the 
easiest way to get rid of them.
    But also, we must be reimbursed fully for all of our 
expenses, interest, lost business, and so forth. I mean, that 
is the only way. Unless you hit a person with penalties such as 
this for their incompetence, nothing will ever be resolved.
    So I will be definitely keeping in touch with yourself, 
Senator Roth, Senator Moynihan, and anybody else on this 
committee to let you know as to the status of the Internal 
Revenue Service. I expect to hear from them very soon. My two 
attorneys who represented me completely are still present, and 
we will be glad to see them even this afternoon. But I want to 
take home a big check.
    Senator Grassley. Mrs. Hicks, I will say that you must have 
in the world the most understanding husband. Second, I want to 
say that it appears that you were a victim of incompatible 
computers at the IRS. You were also a victim of poor IRS 
customer service.
    For Senator Bob Kerrey of Nebraska over there and me, these 
are two things that we have been listening to from over 600 
contacts of the IRS of the Commission to Restructure the IRS. 
He was chairman of it, I was a member of it.
    So what you are telling us about computers, what you are 
telling us about lack of customer service, were the most oft 
repeated problems that we heard at the IRS. So did you know 
that we gave the IRS, for instance, over the last few years $4 
billion for new computers and they still have computers that do 
not talk to each other.
    Mrs. Hicks. Yes.
    Senator Grassley. Which was greater in your case, which 
created the most anxiety for you, your IRS computer problem or 
your IRS personnel/customer problem?
    Mrs. Hicks. Personnel.
    Senator Grassley. Personnel.
    Mrs. Hicks. You can understand, because a computer does not 
have the capacity for meanness. It is a machine. When you deal 
with people that behave the way some of the people I dealt with 
behaved, then that is very distressing.
    I would like to say right up front though, I have relatives 
and friends who work for the service, as they call it, and I am 
acutely aware that most of the people employed there are folks 
like us and equally subject to the same abuses and problems we 
are subject to, but not as likely to speak out because of where 
they are employed. I would like to say that I think most of the 
personnel problems taxpayers encounter with the IRS are with a 
small number of employees that directly deal with collections.
    Once you leave that master file for some reason and become 
a case not being collected automatically by a computer and 
being processed by nice, smiling clerks, and there are a lot of 
them who answer the phones with sweet voices and are very 
helpful, once you leave that arena and they shift you over to 
this non-master file system or any other special form of 
collections, that is where I think I see a culture difference, 
not in the first part, but in the second part.
    So I would not be able to say all IRS people are this way 
or that way. They are people. But the ones I dealt with out of 
collections could be extremely nasty.
    The second thing I would like to say is that I did note 
that every time collections agents looked at my case and said, 
after a couple of telephone conversations, you know, I am going 
to check this out, this looks odd, that agent disappeared and 
the IRS transferred my case to a new agent.
    So if you do not like the agent because he or she is nasty, 
you cannot get away from that person. If the agent is offering 
you help when someone does not want them to, you cannot keep 
that person. So this is a dilemma. I do not know. It is your 
job to figure out how to fix it.
    Senator Grassley. Thank you.
    The Chairman. Senator Kerrey.
    Senator Kerrey. Mr. Chairman, I thank the panel for their 
willingness to come before this committee and present these 
problems. As Senator Grassley said, these are not new. These 
are problems we have heard repeatedly for the past year on our 
IRS Restructuring Commission that actually began as a result of 
the observation that we had spent a lot of money for tax system 
modernization, but had not gotten much benefit.
    So my hope is that we are able, as a consequence of this 
hearing, to take action. There are things that we can do to 
change the law, to give immediate relief to these individuals 
and others.
    We reached the conclusion that relief should be provided so 
that they can go on with their lives. We, it seems to me, could 
fashion relief if we choose to do so, and I would suggest that 
we not act as if we were powerless and exercise the power that 
we have to try to provide relief where we think relief is 
deserved.
    Second, I want to say that I have received over the last 24 
hours, Mr. Chairman, as a result of your first day of hearings, 
lots of additional notes and faxes from citizens in Nebraska 
who are facing problems. I would like to, if I could, read one, 
or at least a couple of paragraphs from one.
    This is from a small business person, someone just starting 
business out in Nebraska. It says, ``My biggest problem in 
business today is not new accounts, it is not my computers, it 
is not changing technology. My biggest problem in business is 
dealing with the IRS.
    ``As a small business owner, I spend countless hours on the 
phone trying to work out the problems associated with these 941 
payments being credited to the wrong quarter.'' He said, ``If 
we all must pay taxes, we should not have to hire someone just 
to tell us how.'' As a small business owner he files 14 times a 
year. He says he has got clients he does not talk to that 
often.
    We have, it seems to me, an accumulation of evidence that 
we need to change the law, both, it seems to me, to provide 
some long-term opportunity for the IRS to operate more 
efficiently, and perhaps in the short-term.
    If nothing more, it seems to me that we ought, as 
representatives of the people, with a change in the law provide 
some relief to individuals we have concluded deserve to have 
relief, demonstrate to the IRS that we are willing to stand up 
to them, that we are not intimidated.
    Instead, we find ourselves not being able to intervene on 
behalf of a constituent out of fear that we are going to be 
identified as having done something unfair, unjust, and so 
forth.
    So it seems to me, Mr. Chairman, that just what we have 
heard thus far has provided us with a sufficient amount of 
evidence both to change the law for the long-term, but also, to 
change the law in the short-term to try to provide some relief 
to individuals and demonstrate that this Congress is writing 
the laws of the land and that we are prepared to stand and 
intervene on behalf of citizens whom we believe have been 
treated unfairly and unjustly.
    The Chairman. Senator D'Amato.
    Senator D'Amato. Mr. Chairman, let me commend you for these 
hearings. I think that you have touched a very real point of 
contention and one of the reasons that people are so angered at 
times at the whole government, because they feel that they pay 
their taxes, then they wind up getting abused.
    It is pretty tough to figure out even how to pay, when to 
pay. If you run a business, a small business in particular, and 
I am looking at two of our witnesses who give ample testimony 
to that, and I think that Senator Kerrey touched on something 
that is rather important.
    Number one, I think, Mr. Chairman, we have to look at, how 
do we empower the Congress with the proper kind of oversight, 
because I know even the Chairman has had to jump through all 
kinds of hoops, get various permission in order to be able to 
put these cases here. Here you have the resources, and I want 
to commend you for them, to bring to light these horrific 
stories.
    We have been getting e-mail now of examples since your 
hearing of these kinds of things, and we cannot even intercede, 
so to speak, to make an inquiry. We have got to get a release 
from the person, and by the time with the back and forth, it is 
incredible.
    So I join with the Senator in saying I hope that we would 
look at that, because proper oversight and people knowing that 
there are consequences for their acts will more aptly be held 
accountable.
    In every one of the cases here, they put human faces on the 
story and it is not just a number. That is why it is so 
important that we get hold of that. But right now there is no 
oversight, were it not for these hearings that you have 
conducted. What a story, Mr. Savage, in terms of what you went 
through, where the Justice Department itself said, do not 
pursue this case.
    You know what? You will now undoubtedly have a situation 
where, under the law, they will say, well, you agreed to a 
settlement, therefore you will be precluded from getting your 
money back because you settled this by way of a quasi-judicial, 
or even a judicial, proceeding. Therefore, it would take a 
special act of Congress, Senator Kerrey and I were talking 
about it, in order to get your money.
    Mr. Savage. That is all right with me. [Laughter.]
    Senator D'Amato. But you are one person. But think of how 
many thousands of others that may have been before you and 
continue to be in this process. How do we assure them that you 
do not need a special act of the Congress and that there is a 
special committee hearing where this one person comes forth? 
How do we get you justice, and Mr. or Mrs. John Q. Public, all 
of those nameless faces?
    You put a face to this and you were able to come forth, 
fortunately, and so did others. Mrs. Hicks, really an 
incredible tale of how many years. Imagine having to go through 
a divorce so as to keep your new spouse from having his assets 
seized, et cetera. Again, you demonstrate just how horrific.
    Of course, the good Monsignor, whom they chased from our 
Rockville Center diocese down to Florida, when he has paid his 
taxes repeatedly. There has got to be a better way.
    I hope, Mr. Chairman, that we will be able to make some 
meaningful reforms and not only simplify the process as it 
relates to the little guy, the small businessman and 
entrepreneur, the homemaker, but in addition see to it that 
people are not abused and that, where they are abused, that 
there is proper action. I understand the person involved in 
this case against Mr. Savage, the agent who fabricated a 
business relationship that did not exist and pursued this, is 
still working for the IRS. I am wondering and I would like to 
know, when the lawyer got this, this was sent to a district 
counsel, Mr. Kesselman, we ought to put his name out there, how 
did he respond to this memo that was up there in 1993? How did 
they respond when they said you do not have a case? Even 
viewing this in the most favorable light, that is what they 
said. In other words, if we were to look at everything you 
said, you still do not have a case. Just to bring these people 
up here, and I commend you, this is a start, I think we have 
got to go further. Then I think we have to say to Kesselman, 
what did you do, why did you do this, and was there somebody 
else involved? Otherwise, this culture is going to continue.
    So I applaud the Chairman. I think we have an obligation to 
see to it that this horrific system is changed where it can be, 
recognizing, and I think Mrs. Hicks put it well, that there are 
some tremendously competent, gracious, good, hardworking, 
talented people in the IRS. But when it reaches a certain 
level, there are some that just go out of control.
    Well, how do we protect the American taxpayer from those 
who were out of control and who were accountable to basically 
no one? The stories here I think have put faces to this 
problem.
    So Mr. Chairman, let me commend you. I look forward to 
working with you, Mr. Chairman, and Senator Kerrey, in seeing 
if we cannot bring about some legislative reform that will help 
curb these abuses so that honest, good, decent citizens are not 
treated as if they have committed a crime.
    Again, the Monsignor's testimony as to how he was treated, 
I think, is an example of all too often that kind of attitude, 
that you are guilty, you are wrong, and people going after 
them. So we commend you, Mr. Chairman, and look forward to 
working with you.
    The Chairman. Thank you, Senator D'Amato.
    Let me thank each of the individuals who came forward.
    Senator D'Amato. Excuse me, Mr. Chairman.
    Monsignor, did you want to say something?
    Monsignor Ballweg. I just wanted to say that I think that 
the best kept secret of the IRS is that taxpayers have an 
advocate. I do not know of anybody who pays taxes who ever 
heard of an advocate. I would not have known about the 
existence of such a person until that person contacted me.
    So I think the IRS should be made to publicize the fact 
that there are advocates available, and how you get in touch 
with them. Now, this person happened to be somebody in South 
Florida in Ft. Lauderdale. I think if you looked her up in the 
telephone book I do not think there would be any listing at 
all. You do not even know these people.
    That is one of the big problems with the IRS, they are all 
phantoms. Nobody signs a name to anything, any documents that I 
received. You talk to somebody on the phone and they do not 
identify themselves. You feel very helpless in a situation of 
that kind.
    The Chairman. Father, you raised a very good point about 
the taxpayer advocate. I would just like to ask, the others 
here, did you have any contact with a taxpayer advocate, were 
you aware of that, and were they of any help?
    Mrs. Hicks. I had contact with problems resolution 
officers. If there is another advocate office, I do not know 
about it. They behaved like a collection arm. The first time 
they did not, but the second time they behaved like a 
collection arm of the IRS. So I think that somewhere in here 
the IRS has kind of snatched them up and now they do not belong 
to us anymore, they belong to the IRS.
    Some years back they were as helpful as could be expected 
and very nice, but this time they were like, ready to come out 
and get me. So I do not know of another office. Is there 
another one besides the problems resolution office?
    The Chairman. Well, this is a change, I think, in name and 
title.
    Mrs. Hicks. Oh, maybe. It might be the same office.
    The Chairman. But my concern is, how independent are they, 
and what kind of service, in fact, they are offering.
    Mrs. Hicks. Right. I would not call them very independent, 
not the people I dealt with. I think this may vary from region 
to region, district to district, State to State. I do not think 
that it is as homogeneous.
    It would be simpler if it was more homogeneous because we 
could say you are all evil and we are lining you up and we are 
going to let God make a decision, but we cannot do that. But 
you know what you could do? You could get rid of this double 
bookkeeping. That thing could go. That would be a huge help. I 
would not have had any of these problems without that.
    The Chairman. I understand your problem.
    Mr. Savage. Regretfully, Senator Roth, I do not think that 
a tax advocate that is anywhere connected with the Federal 
Government can be effective. He has to be totally independent 
because he cannot be affected otherwise. You had best have a 
good tax lawyer. A tax advocate has got to be totally 
independent, salary and everything else. It would be nice to do 
it, but I do not think it will work because it is just like the 
IRS agents, they answer to nobody.
    The Chairman. Mrs. Jacobs, in your 17-year ordeal did you 
have any contact with an advocate?
    Mrs. Jacobs. No, we had never encountered an advocate. In 
fact, to mention to you that just prior to coming to DC my 
husband received a call at his office from an IRS advocate, 
stipulating that he wanted to really help us solve our case 
after all these years that we had suffered. And my husband 
basically asked the question like, well, why now, why not 
before? But I think a lot of it had to do with what was 
happening here today.
    Senator Kerrey. Mr. Chairman.
    The Chairman. Yes.
    Senator Kerrey. Mr. Chairman, during the deliberations of 
our commission----
    The Chairman. I would ask you to be brief because we have 
to move on.
    Senator Kerrey. During the deliberations of our commission 
we considered actually recommending in statute that the 
problems resolution officer be made independent of IRS. We took 
a step in that direction, and it is something that this 
committee needs to look at very carefully as to whether or not 
it needs to be made independent.
    Another good suggestion that was made that we did not 
incorporate into the legislation, but I certainly think it has 
merit in this whole question of taxpayer powers dealt with in 
Title 3 of our bill, is establishing a citizen committee at the 
local level that would enable these kinds of problems to be 
examined in a responsible fashion and for common sense to be 
brought to bear and a resolution to occur in a low-cost, 
expeditious fashion.
    I mean, that is really the problem here. These cases drag 
on forever, and ever, and ever, and you really cannot get a 
resolution. So if it there is one recommendation in this area 
that I would make, it is to change the law that would require 
an expeditious, community-based resolution of these kinds of 
problems.
    The Chairman. Ladies and gentlemen, again I want to thank 
you for being here. You have made a very significant 
contribution to what I hope is good government. I know for many 
of you it was truly an ordeal to even get here, but it was very 
important for the purposes of these hearings and I want to 
thank you for making this contribution.
    Mrs. Jacobs. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Mrs. Hicks. Senator Roth, be sure to come back and do this 
again often, all right?
    The Chairman. Thank you, Mrs. Hicks.
    There has been a lot of discussion about the IRS employees 
and I want, once again, to emphasize that the vast majority of 
employees of the IRS are competent, dedicated, well-meaning 
employees.
    So today I am very pleased to have before us four former 
IRS employees and one current employee who have been very 
helpful to our investigation. These individuals all represent 
many years of experience and we are privileged to be hearing 
from them today.
    Will you all please come forward and take your seats. Mr. 
Bruce Strauss had been with the agency for 31 years. He was the 
senior division chief within the Collection Division of the IRS 
at the time of his retirement. He is now an enrolled agent 
practicing in Florida.
    Ms. Darren Larsen was an attorney with the IRS for 14 
years. Her last 3 years were as an assistant district counsel 
and acting district counsel. Her expertise was in collection 
issues. Today she is a practicing attorney representing 
taxpayers with tax matters.
    The next witness is Mr. David Patnoe, who is now an 
enrolled agent having over 10 years experience as a revenue 
officer in the Collection Division of the IRS. While working 
for the IRS he was an instructor for revenue officers and an 
expert in the area of offers in compromise.
    Next, we have Mr. Lawrence Lilly, who was both an attorney 
and special agent with the Criminal Division for 28 years. For 
the last 9 years of his service with the IRS, Mr. Lilly was the 
assistant district counsel in Miami and the district counsel in 
San Jose, CA.
    Ms. Jennifer Long is currently a revenue agent with the 
IRS, with 14 years of experience. She joins the panel today 
after originally intending to keep her identity concealed.
    The only condition she asked of the Chair and the Ranking 
Member was that her identity be protected until she took her 
place at the table. Senator Moynihan and I agreed to that 
condition and her statement is now being released.
    We want to welcome each and every one of you. We appreciate 
your being here today.
    As you know, we swear in all witnesses. So would you please 
rise and raise your right hand.
    [Whereupon, the five witnesses were duly sworn.]
    The Chairman. Mr. Strauss?
    Mr. Strauss. I do.
    The Chairman. Ms. Larsen?
    Ms. Larsen. I do.
    The Chairman. Mr. Patnoe?
    Mr. Patnoe. I do.
    The Chairman. Mr. Lilly?
    Mr. Lilly. I do.
    The Chairman. Ms. Long?
    Ms. Long. I do.
    The Chairman. Thank you. Please be seated.
    I do want to remind the witnesses and my colleagues that 
the witnesses are prohibited from disclosing confidential 
taxpayer information which is protected under Internal Revenue 
Code Section 6103.
    Mr. Strauss, we will start with you.

             STATEMENT OF BRUCE A. STRAUSS, FLORIDA

    Mr. Strauss. Thank you, Mr. Chairman. I do have a larger, 
more in-depth presentation or document for the record if you do 
not mind, Senator.
    The Chairman. I would say to each of you, your full 
statements will be included as if read.
    Mr. Strauss. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Strauss appears in the 
appendix.]
    Mr. Strauss. My name is Bruce A. Strauss. I am currently an 
enrolled agent licensed to represent taxpayers before the IRS. 
I have been president of the enrolled agents in our five-county 
area in Florida for the past 3 fiscal years.
    I retired from the Internal Revenue Service after 31 years, 
the last 18 years of which I held the position of division 
chief within the Collection Division. I also received nine 
consecutive performance awards from 1983 through 1991. At the 
time of my retirement, which was April 1992, I was senior 
division chief in the collection function.
    I tell you this, trusting that you will accept the fact 
that I have considerable expertise regarding the operations of 
the IRS. This includes its history, its authorities, its 
personnel practices, and also its problems.
    Just beginning my practice representing the public as an 
enrolled agent, I have been increasingly concerned about the 
ability of the IRS to be fair and objective in dealing with the 
American public. I am also concerned with the public's fear of 
the IRS. This environment of fear must change. This is why I 
sit, primarily, before you today.
    The IRS has been very successful in its primary mission of 
collecting taxes, bringing in over $1.5 trillion in fiscal year 
1996 as a role model for other countries to follow and has 
played no small role in the economic success of this Nation. 
Obviously, I do not believe that the system is broken.
    However, my experience and the feedback I received in my 
work tell me that the public's confidence in the IRS is being 
eroded by the perception that it is losing its ability to apply 
the Internal Revenue Code and the resulting morass of 
regulations in a fair and objective manner.
    When a dispute with the IRS arises, the current systems in 
place to deal with the dispute are cumbersome, expensive, time-
consuming, and oftentimes ineffective. The result is that the 
fear of the IRS continues to grow, and this is an unacceptable 
condition.
    In a democracy, the first condition that must be met is 
that the government must respect the citizens it serves. I am 
not sure that condition exists today within the IRS. My purpose 
today is to assist in restoring the confidence of the American 
public in the Internal Revenue Service.
    One of the problems which affect the way the IRS personnel 
interact with the taxpayer is the drive to achieve statistical 
operational objectives. One of the primary drives, if not the 
primary drive, for the examination function is dollars 
recommended for assessment.
    The statistic does not measure how much money was actually 
collected, nor does it measure how much additional tax was 
actually assessed by the examination process. It only measures 
what the examination function proposes to assess against a 
taxpayer with their 30-day letter.
    The examination function made this measurement one of the 
operational objectives for branch managers and above, as I 
recall, in fiscal year 1990. About the same time, the formal 
quality review cases being issued 30-day letters was ceased.
    A fundamental principle of any organization is that 
employees will give their managers what their managers tell 
them what is important. Or, expressed in a different manner, an 
organization is driven by the objectives on which the managers 
are evaluated.
    As a result, an environment or culture has emerged within 
the IRS that has made its employees often callous to the rights 
and concerns of taxpayers. Statistical objectives for any 
agency with the power of the IRS are inappropriate. But when 
one considers the IRS has a measurement of what is recommended 
for assessment, this drive to achieve specific objectives 
becomes untenable.
    I have significant compassion for the IRS employees in 
their most delicate responsibility of ensuring that each 
citizen files and pays their fair share of taxes. But, based on 
my knowledge, the primary problem lies with the ineffectiveness 
of the top management of the IRS. Instead of assessing the 
current problems and taking appropriate steps to ensure 
correction of these problems, what I see taking place is a 
``circle the wagons'' mentality.
    This management approach has led to significant problems 
which include denial of mistakes which then lead to integrity 
issues, using a sledgehammer to resolve compliance problems, 
for example, IRS files are returned to the taxpayer with the 
tax is significantly overstated, use of Bureau of Labor 
Statistics to assign additional income or to arrive at 
additional income, and not applying Internal Revenue Code 
sections which benefit the taxpayer. There is a mentality in 
the IRS that mistakes are rare. Those that do gain notice are 
blown out of proportion.
    In fact, I would not be surprised if, as a result of this 
hearing, you hear that any complaints by a taxpayer that may 
arise, while unfortunate, is statistically irrelevant due to 
the 200 million returns that are successfully processed each 
year.
    Based on my knowledge, such a statement would not be 
factual. The truth of that is, in the examination function 
cases that I have seen as a representative of the taxpayer, the 
IRS often does not operate within its proper authorities.
    When called on these matters, the IRS response is often a 
denial or a spin is put on the issue in an attempt to protect 
their position. Such conduct shows a complete disregard for the 
taxpayer and their fundamental rights as citizens. The concept 
shown above that the IRS now has the authority to assign 
additional income to a taxpayer at its discretion, without any 
basis in fact, is frightening and absolutely unacceptable.
    I admire the current efforts of Congress, such as the 
Commission on Restructuring the IRS, to encourage the IRS to 
become more responsive to the public.
    I also appreciate the opportunity to contribute to this 
process by testifying at this important hearing, and I commend 
you, Mr. Chairman, for the courage to engage in this effort.
    But I do believe that Congress must share some of the blame 
for what has happened. Funding must be consistent, with a long-
term philosophy. The oversight of the IRS must be significantly 
improved. This hearing today is a great start, but long 
overdue.
    For each of you dealing with your constituents, I would 
offer the fact that the ability of any single congressional 
staff to resolve a taxpayer issue with the IRS is extremely 
remote.
    I can testify on a personal basis on that on some client 
issues. I will suggest forming a single staff of highly-trained 
and skilled individuals that could be a central clearinghouse 
for all taxpayer complaints received by Congress.
    This would also provide a database of problems that one 
noticed to be widespread, could be used to take certain system-
wide corrective actions. It is only in this way that the 
management of IRS could be held accountable to the Congress and 
to the American people.
    I know in numerous cases where the IRS has specifically 
exceeded its authority. One of the most egregious examples, the 
IRS collections apparently predetermined that 637 taxpayer were 
liable for employment tax.
    They did not conduct legitimate investigations. Instead, 
they used extortion tactics to have taxpayers sign returns 
which the IRS prepared. They did not use any Internal Revenue 
Code sections which benefitted the taxpayer, and disregarded 
established law, authorities, and procedures. And 630 taxpayers 
were also denied their due process rights.
    When I brought this matter to their attention, instead of 
taking corrective action, they circled the wagons. After 3 
years, Mr. Chairman, 3 years of my pursuing a resolution in 
this matter, the IRS has boxed itself into a position with 
significant integrity issues in question. The current status, 
is that I have been unable to obtain a legitimate response from 
the regional commissioner.
    Another example is the tactic of assessing a tax twice for 
the same 1040. This tactic involves accepting a Schedule C 
income, but disallowing all the related business expenses.
    When the taxpayer requests the case to be reopened, in this 
case I am using as an example, the deductions were allowed. But 
then the IRS reopened the income issue, which was in direct 
contrast with the Code, and assesses additional taxes based on 
the Bureau of Labor Statistics information to boost the income 
of taxpayers. Then the taxpayer was informed he had no appeal 
rights to contest the additional resulting tax.
    I am submitting a more comprehensive statement for the 
record which includes some of my recommendations to remove the 
fear of the public when dealing with the IRS. I sincerely hope 
that my 31 years of experience with the IRS has helped in some 
small way to create a clearer picture of the agency. The many 
good people at the IRS who perform a difficult task every day 
and the taxpaying public deserve your best efforts by cleaning 
up this important national asset.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Mr. Strauss. We do, 
indeed, appreciate your testimony today.
    Next, I would like to call on you, Ms. Larsen.

             STATEMENT OF DARREN LARSEN, CALIFORNIA

    Ms. Larsen. Good afternoon. Thank you for the opportunity 
to allow me to address the committee today.
    I began working for the Office of Chief Counsel for IRS in 
1981 and I was there until 1994. During that time I dealt with 
all of the different functions of the IRS, examination, 
collection, criminal investigation, and disclosure.
    I also served as a special assistant United States attorney 
representing the IRS in bankruptcy court. I was a nationwide 
instructor for attorneys, and I also instructed IRS at their 
continuing education. Because I specialized in collection 
matters, I did spend a lot of time with collection groups in 
various places and I really developed a good relationship with 
the collection agents, for the most part.
    I come to the committee today as a tax professional who has 
spent many years representing the IRS in court, not only 
bankruptcy court but Tax Court, and I was involved in District 
Court actions as well. I worked with and advised IRS personnel 
on many cases and on many issues.
    Then over the past 2\1/2\ years I have had the opportunity 
to represent taxpayers and deal with the IRS as an adversary in 
some cases, but generally as a representative of taxpayers who 
have problems that need to be resolved.
    Overall, from my experience I have to say that my feelings 
toward the IRS as an institution are mixed. It is sometimes 
very easy to express frustration and outrage at IRS conduct. 
But I have to state at the outset that there are many 
individuals whom I have dealt with over the years who are 
currently employed there, and some who are no longer employed 
there. But they have, I would have to say, superior technical 
knowledge. They are devoted to their jobs, they work hard, and 
they really are committed to fairness.
    But at the other end of the spectrum there are employees 
who do not really possess these qualities. I have encountered 
them both when I was a government attorney, and also now as a 
practitioner.
    Some of these people, I would say, lack technical skills 
that I think are necessary. They really are not concerned with 
justice or fairness, they are bureaucratic in every sense of 
the word and are focused primarily at just maintaining their 
jobs and collecting their paycheck.
    But, having said that, I would like to move on to some more 
specific areas or some examples of problems within the IRS that 
I have seen.
    As an attorney for IRS I was often appalled by the lack of 
basic technical knowledge on the part of the front-line 
collection managers that I dealt with.
    Now, that is not to say that they were all in that 
situation, because I knew some group managers who were 
excellent. They used their own initiative to gain knowledge and 
to make sure they kept up with the law, and they wanted to make 
sure they knew that their revenue officers were doing, that 
they were doing it correctly.
    However, I did know group managers who really did not 
understand the basic requirements for such things even as 
issuing summonses, the service requirements or content 
requirements for summonses.
    I knew one manager I ran across who really did not 
understand the distinction between a lien and a levy and 
basically said, well, lien, levy, whatever, which in some 
instances can cause problems.
    The revenue officers who worked for these managers usually 
knew that the managers were deficient. The result of that was 
that the revenue officers would either choose not to consult 
the managers for assistance, or the revenue officers who were 
not experienced enough to realize that their managers did not 
know this would still consult them, then they would be possibly 
led astray.
    Also, within the Collection Division they often use on-the-
job instructors to help the newer revenue officers, and some of 
the on-the-job instructors were also missing some of the basic 
understanding of some of the basic elements of tax law, 
especially in the tax collection area.
    The problem with the on-the-job instructors having this 
deficiency is that they then passed their techniques or their 
beliefs onto the new revenue officers, and some of these 
problems are perpetuated.
    In addition to simple lack of knowledge, I also ran across 
revenue officers who understood the legal and procedural 
requirements, but they chose not to follow them, or they 
consciously bypassed some of these things.
    I have known of revenue officers who, on more than one 
occasion, would issue nominee or alter ego liens without going 
through the procedures that are set up in their manual for 
review.
    Typically, this revenue officer would end up receiving 
payment of the tax, would close the file, and that would be the 
end of it. If there was a problem, only then would this revenue 
officer go through the required steps.
    He was considered to be a good revenue officer in that he 
collected a lot of tax and closed a lot of cases. Consequently, 
he was given a lot of latitude in how he worked his cases. He 
felt justified in taking shortcuts because he felt that he had 
good instincts and he got what he felt were the right results, 
meaning that the taxpayer pays the tax.
    Later on, this person was promoted to a group manager and 
it was my feeling that the revenue officers in his group sort 
of had the same attitude, that they were allowed to work their 
cases in this manner as long as they did not make any mistakes.
    I felt that there was a prevailing notion in some of these 
groups that if a particular procedure was not exactly followed 
to the letter, that first of all, the taxpayer probably would 
not know the difference.
    Second of all, the manager might not even know the 
difference. As long as everything turned out all right, as long 
as the tax was collected, then there was really no harm done.
    In fact, the revenue officer would probably feel they were 
doing a good job because they were collecting the tax without 
using a lot of resources. They were getting the right result. 
In essence, it was a matter of the ends justifying the means.
    In one district in California, I became aware that some IRS 
managers blatantly disregarded the law, even though I believe 
they understood it. This had to do with the ownership of 
personal residences in California.
    In California, if married people hold title to property as 
joint tenants it is presumed under State law that they mean to 
have it be joint tenants, so that if only one spouse owes tax 
the IRS is only entitled to seize half of the house.
    This presumption of joint tenancy can be overcome by a 
factual showing that, in reality, it was held as community 
property. If the house is held as community property, the IRS 
can seize the whole house.
    In this particular district the IRS took the position that 
all joint tenancy property would be presumed to be community, 
even though this was not what State law prescribed. They set up 
a procedure where it was up to the taxpayer to prove otherwise.
    The result was that the IRS was treating 100 percent of the 
residents as being subject to the tax lien and subject to 
seizure and sale rather than one-half. The reality is, I 
believe, that most taxpayers do not know really the difference 
between joint tenancy and community property and they rely on 
the IRS in this case to do the right thing.
    The IRS, on the other hand, in this situation was really 
taking advantage of the fact that most taxpayers do not know 
the difference and that the general public is ignorant on what 
may be considered a technical legal issue. This would be to the 
detriment of the non-owing spouse, the spouse that did not owe 
the tax.
    Now, these people that I spoke with in IRS admitted that 
they knew that the law was otherwise, but they justified this 
policy by saying, well, we believe that most people, even if 
they hold their property as joint tenancy, they really believe 
it is community anyway so this is just more expedient for us to 
do it this way. It is this mind-set of IRS that really concerns 
me.
    I also found that in the bankruptcy area I was privileged 
to work on a national task force involving IRS procedures in 
handling bankruptcy cases, and I had the opportunity visit 
several different districts around the country and interview 
people in and out of IRS regarding bankruptcy.
    We found that in some offices in the country the IRS was 
basically ignoring the bankruptcy law regarding the IRS 
obligations regarding bankruptcy discharge, the automatic stay, 
and they justified it based on the fact that they really did 
not have the staffing to do it, and since it was not exactly a 
program area that they were directed to follow, they just did 
not do it, they used their resources for other things.
    I should add also though the fact that the IRS did not 
really tend to these basic tasks also was detrimental to the 
IRS. In some cases they were unable to collect taxes that they 
rightfully had, or should have been, collecting.
    As a taxpayer representative in my current position, I am 
now even more aware of how important it is for the IRS 
representatives to follow the procedures that are set up by the 
IRS manual and the Internal Revenue Code in collecting taxes.
    I found that for the most part taxpayers are intimidated by 
the IRS and they will do whatever is asked of them. Because 
most taxpayers do not know much about tax law, they rely on the 
IRS with respect to many issues and they put their trust in 
them as public servants. After today, maybe not so many of them 
will.
    But even if the taxpayer feels that the IRS is not acting 
properly in their case, it is often too costly for the taxpayer 
to hire representation to fight the IRS. The end result is that 
many taxpayers are paying more tax than they rightfully should, 
and some individuals are paying tax that they are not 
personally liable to pay.
    I do believe, based on my experience, that if a taxpayer is 
right and a taxpayer presses an issue and takes it up through 
the system, that ultimately the taxpayer will prevail.
    However, the process is very costly in terms of fees, time, 
aggravation. Because of this, it is very important for the IRS 
to avoid taking procedural shortcuts, and the IRS should treat 
the taxpayers fairly up front so that mistakes are not make and 
taxpayers are not put in the position of choosing whether to 
pay the wrong amount of tax or to pay for assistance to fight 
it out, because either way the taxpayer loses.
    As an organization, the IRS has excellent technical 
resources which it really does not use to its best advantage. 
Tax collection is a complex process, given the number of 
Federal laws and regulations that apply. Revenue officers can 
be expected to require assistance in some cases.
    The special procedures function is set up within the 
Collection Division of the IRS to provide technical assistance 
to the tax collectors in the field. I found that in those 
districts where special procedures is given the staffing and 
the funding it needs, it has proven to be very valuable.
    But each district is given the discretion to decide how 
much funding and how much emphasis it wants to put on special 
procedures, and how they will staff it and how it will operate.
    I found that in some districts special procedures is not 
effective at all. In fact, the people who are assigned there 
are inexperienced. They are put there because possibly they 
have other problems in their jobs. That is even true for some 
of the managers who end up there.
    In those cases, the field revenue officers have little 
confidence in special procedures and they do not really rely on 
the advisors for technical assistance.
    On the other hand, the districts with excellent special 
procedures staffs have advisors who have worked in their 
program areas for many years, they work well together, they 
learn from each other, they work closely with district counsel 
and they are respected by the field officers and they do 
provide assistance to them so that they do not make as many 
mistakes.
    The IRS would be well served by requiring all districts to 
step up the level of their special procedure staffs so that the 
IRS nationwide can more effectively and justly collect the 
taxes owed.
    In conclusion, the IRS, in my view, has much room for 
improvement in the way it deals with taxpayers and in 
collecting delinquent accounts. While there are many positive, 
productive forces and individuals at work within the IRS who 
are constantly trying to make improvements, some of the chronic 
problems remain.
    The IRS is there to enforce the tax laws. However, it is 
also there to ensure that the law is applied fairly and 
consistently. The IRS representatives wear two hats. When 
dealing with willfully non-compliant taxpayers they are 
adversaries, but at the same time they are public servants. 
There is no excuse for cutting procedural corners or legal 
corners or establishing presumptions which place citizens at a 
practical or economic disadvantage.
    Better training of revenue officers, as well as their 
managers, and in tolerance of blatant violations of the law, 
would go a long way toward improving the overall quality of tax 
collection and improving the level of public trust in the IRS.
    The Chairman. Thank you very much, Ms. Larsen, for your 
helpful testimony.
    [The prepared statement of Ms. Larsen appears in the 
appendix.]
    The Chairman. Mr. Patnoe?

             STATEMENT OF DAVID PATNOE, CAMARIO, CA

    Mr. Patnoe. Good afternoon, Mr. Chairman and members of the 
Senate Finance Committee.
    My name is David Patnoe. I am currently an enrolled agent 
in Camario, CA, representing taxpayers before the Collection 
Divisions of the Internal Revenue Service for over 7 years.
    Prior to this I was a revenue officer for the Internal 
Revenue Service for over 10 years. During my tenure with the 
IRS I was a revenue officer, and on-the-job instructor for 
trainee revenue officers, an instructor for revenue officer 
training schools, Phase I and Phase II sessions, and an offer 
and compromise specialist and an advisor in the special 
procedures function.
    I have worked in the Anchorage, Alaska, Shreveport, 
Louisiana, and Brooklyn, New York IRS offices, which provided 
me with a great opportunity to see how collection worked in 
different areas of the country.
    Now working as a taxpayer's advocate I have had the 
opportunity to see things from the other side. It is from this 
wide range of experience that I speak to you today. Despite 
what I believe to be a rather unique background, I have found 
dealing with the IRS personnel to be quite disturbing in a few 
cases, and downright maddening in others.
    In particular, I have had my worst experiences with people 
I believe had insufficient training to be performing the jobs 
they were assigned. In some instances, these actions were 
outright illegal and highly abusive. The trouble with 
discussing abusive tax collection is that there is no line 
drawn between regular tax collection and abusive tax 
collection.
    When you consider that the very act of a revenue officer 
imposing their will on a taxpayer by the use of a levy on wages 
or retirement funds, or the seizure of assets such as a 
personal residence will probably be considered by a lot of 
people, and surely by the taxpayer themselves.
    My definition of abusive tax collection is the illegal use 
of certain collection tools, or when the collection tool used 
is not warranted in that given situation. Let me give you an 
example that I think will demonstrate what I believe is 
occurring far more frequently than people may realize.
    I was hired to assist in a matter involving the improper 
use of a levy. A levy is generally the seizure of a money in 
some form. The IRS had issued a levy on one of my client's 
receivables owed to his business, a sole proprietorship. But 
the tax that the IRS was trying to collect on the levy was not 
owed by my client, but was in fact owed by a company that my 
client had worked for at one time as an employee with no 
ownership interest whatsoever.
    The revenue officer, who at the time was acting as an on-
the-job instructor for another revenue officer, went to my 
client's business with seizure papers in hand. The client, 
being faced with a seizure of his new business, became very 
afraid and paid a payment of $7,000 to forestall the seizure.
    Now, he paid this despite the fact that he did not owe any 
tax. The IRS basically scared this person, or extorted him, 
into paying money that he did not owe with the threat of 
seizing his business for the debt of a company that he had at 
one time worked for.
    After the initial payment of $7,000, the same revenue 
officer issued a levy on one of the client's accounts 
receivables for roughly $21,000. That money was going to be 
used to pay the client's payroll, and the seizure of those 
funds would have effectively put the client out of business.
    The levy itself was an amazing flight of fancy by that 
revenue officer. Remember, there was no relationship nor common 
ownership between these companies. The client simply had been 
an employee of the company that owed the tax.
    The IRS was well aware of these facts. Despite having the 
explanation laid out in black and white, the revenue officer 
would not release the levy nor refund the $7,000 she had 
collected illegally by scaring the taxpayer when she first 
showed up at his door.
    In fairness, let me add there are instances when a tax can 
be collected from someone other than the taxpayer. A third 
party can become liable if there was a transfer of assets for 
less than fair consideration or if a party is holding property 
in their name simply to evade the seizure of these assets for 
taxes due.
    However, prior to collecting from a transferee or nominee, 
the IRS must go through a number of steps involving a group 
called special procedures in the Office of District Counsel.
    In this particular instance, none of this had been done. I 
informed the revenue officer that she had not taken any of the 
required steps and had acted without benefit of legal counsel. 
I added that her actions were not just abusive, but blatantly 
illegal. The revenue officer responded with one word, ``and?''
    Only when the revenue officer realize that we would make 
every effort possible to expose this action did she come back 
with a release of the levy. When you consider that this was an 
experienced revenue officer acting with her group manager's 
approval, and not to mention also trains other revenue 
officers, her actions were absolutely beyond comprehension.
    It is this type of action that is designed to intimidate 
and instill such fear that the IRS's actions can succeed 
without question. I would also like to say that this type of 
action did not occur while I was a revenue officer. 
Unfortunately, it did. I know of seasoned tax collectors who 
were well aware of the law and took actions that were out of 
the realm of legal tax collection.
    In one instance, a revenue officer who made up a seizure 
document titled ``Nominee Levy on the Spot,'' prior to seizing 
assets from someone who was not the taxpayer was soon after 
made a group manager.
    In another case I dealt with, a revenue officer who had 
access to the IRS computer system to get information on a case 
I was assigned. When I questioned the revenue officer why he 
was accessing information on my case he stated, my wife works 
for this company, and if I can help her straighten this out, 
the company problem, it will be a real feather in her cap. I 
told the revenue officer, put the print-outs away. That revenue 
officer also became a group manager.
    These actions were particularly annoying because I believe 
both these revenue officers knew what they were doing was 
outside the scope of correct tax collection.
    When I left the IRS in December 1989, I considered writing 
my own thesis about tax collection. I wanted to suggest that 
IRS tax collectors be held to some standards of training prior 
to promotion.
    Not only should they be held to standards of training, but 
they should also demonstrate their knowledge on proficiency 
tests. No revenue officer should be promoted or allowed to 
train others until they are able to pass increasingly difficult 
proficiency test.
    While I was working at IRS I was seriously concerned about 
the agency's escalating tendency to place unskilled collectors 
into management positions. I used to call these people the 90-
day wonders, 90 days being the span of time they spent during 
revenue officer work between Phase I and Phase II revenue 
officer training classes.
    Basically, I found that people hired as revenue officers 
would be detailed to do special projects. Usually these 
projects were thought up by either first-line managers or by 
upper level managers. More often than not, the project was to 
justify some type of statistic related to cases closed or money 
collected.
    The projects were administrative work that did not lead to 
a knowledge of collection procedures or requirements put on a 
revenue officer by the laws and regulations. Because management 
had put these revenue officers on these projects, these same 
managers would not hold them back when it came time to be 
considered for promotion.
    Many times, someone who had only attended the two phases of 
revenue officer training was promoted, even though that 
individual may never have actually knocked on a door, collected 
tax, or worked with others in the process of collecting taxes.
    This led to people being promoted who, in turn, qualified 
to be management based solely on the fact that they were at the 
right grade level. I cannot remember the number of times I 
heard, you do not have to know how to collect taxes to be a 
manager, you just have to know how to manage.
    It is amazing that someone who does not know much about 
collection is put in charge of people who are sent out to 
collect. The person the revenue officer is supposed to depend 
on for their first level of advice for difficult cases only 
needs to know how to manage, but not how to collect taxes.
    It is especially frightening because these managers are 
required to review and approve certain actions of revenue 
officers based on their own understandings of what action is 
appropriate under the IRS policies, as well as the law.
    As a result of this training and promotion practice, new 
revenue officers have become less and less effective, while 
many of the current managers do not know what the revenue 
officers are supposed to do.
    Additionally, many of these managers are basing day-to-day 
decisions on whatever they determine important to their own 
supervisors in order to look good. What were these managers 
judged on? Sheer numbers. How many dollars collected, how many 
cases are closed? That is the bottom line.
    Make no mistake about it, there are goals, quotas, that may 
be unstated but well-known to the agent or revenue officer that 
are driving many of the actions you will hear about today. So 
what we have now are managers who are not thoroughly schooled 
in the collection of taxes, but making decisions based on how 
they can get their numbers up.
    Now the cycle is complete. Managers knowing little about 
what their employees are supposed to be doing are evaluating 
their employees on how they could collect more tax or close 
more cases. Since these managers do not know enough about tax 
collection, they have a tendency to require the revenue officer 
to take actions that might not be correct, but which the 
manager feels would lead to a higher closing rate or a higher 
dollar collection.
    Sometimes the action might even be illegal, but the 
managers did not know it, simply recognizing that a particular 
action resulted in more closures. The newer revenue officers 
might not know a particular action is illegal because they have 
not been around long enough or are simply not sufficiently 
trained.
    The new revenue officers who have been taking direction 
from these managers get promoted and are now placed in the 
position of an on-the-job instructor. So you see, the cycle 
continues and the quality of tax collection gets worse. As it 
gets worse, Congress gets more complaints from irate taxpayers.
    In closing, I would like to add one thing. I know too many 
people who collect taxes for the IRS that are fine, hardworking 
honest people to paint the IRS tax collection with a broad 
brush.
    To a great number of employees at IRS these abuses are not 
more tolerable than they are to this committee. It is a shame 
that these abuses can cast a cloud over these same people. The 
number of abuses compared to the number of cases is still 
small. It nonetheless is way too large to be acceptable. No 
abuse is acceptable.
    There are many people with great technical knowledge and 
skill whose talent would better be utilized teaching and aiding 
others. The managers who did not have the knowledge or skill to 
direct tax collection could learn a great deal from some of 
these people. They might not learn anything about management, 
but they need to learn about tax collection.
    This may mean a reduction in production as far as closures 
or dollars collected for a few months, or even a year. But over 
the course of one to 2 years it should result in an increase in 
collection of revenues and less complaints for the members of 
Congress to address.
    The Office of the Ombudsman and the Office of Problem 
Resolution Program should be manned with highly-skilled tax 
collectors who are capable of resolving these issues before 
they become highly contentious issues argued at higher levels.
    I want to thank you, Mr. Chairman and members of the 
committee, for allowing me to speak here today about a few 
things that have been on my mind for the last several years.
    The Chairman. Thank you, Mr. Patnoe.
    [The prepared statement of Mr. Patnoe appears in the 
appendix.]
    The Chairman. Mr. Lilly?

       STATEMENT OF LAWRENCE G. LILLY, ST. AUGUSTINE, FL

    Mr. Lilly. Mr. Chairman and committee members, my name is 
Lawrence G. Lilly. I am a tax attorney living in St. Augustine, 
FL at this time.
    I have been a tax attorney for more than 30 years. For 28 
years I was an employee of the Internal Revenue Service. For 
the first 4 years of my employment I was a special agent, which 
is, as you know, a criminal investigator. I then went on and 
became an attorney in the Office of District Counsel in 
Atlanta.
    Ultimately, I progressed up through the chain of command in 
the counsel's office, became a special attorney for criminal 
tax, an assistant district counsel, and ultimately the district 
counsel in one of our larger districts, that being in San Jose, 
California.
    A fair and efficient tax collection agency is recognized by 
everyone as being vital to the future of this country. Although 
no one likes to pay taxes, all reasonable people know that our 
taxes are the price that we pay for our liberty. No one can 
properly voice a legitimate complaint about shouldering a fair 
share of paying for our system of government.
    Now, I strongly believe in honesty in government, as I 
think each of us here does. In that vein, I make a 
recommendation to the committee at this time. That is, that you 
rename the agency which collects our taxes. You should add an 
``A'' at the end of its title and drop the word ``Service,'' 
because they render no service. You should rename the agency 
the Internal Revenue Statistical Agency. That summarizes the 
problem, lack of service and too much statistics.
    My purpose today is to present constructive criticism of 
the IRS for consideration by the committee. It is my hope that, 
with your guidance, the credibility of the service can be 
restored to the high level which prevailed at earlier times. It 
is vital to our system of taxation that the citizens who are 
paying the taxes have trust and confidence in the fairness of 
the system.
    I personally was extremely proud to be an employee of the 
Internal Revenue Service for the major portion of my career. I 
worked with good people.
    During the 1980's, however, I began to note what I 
considered to be significant deterioration of the service and 
its concern for serving the public. It appeared to me that the 
Internal Revenue Service had consciously or unconsciously 
dropped the service aspect of their job in order to focus 
exclusively on making upper management look good statistically.
    This, I fear, has led to undermining the culture of the 
organization, lowered the self-esteem of many employees, and 
caused the organization to become unfair and oppressive in its 
treatment of some taxpayers.
    Before proceeding, I want to make it clear to you that I 
was not technically an employee of the Internal Revenue Service 
for most of my career. Organizationally, the attorneys who work 
with the IRS are not subordinate to the district directors, or 
even to the commissioner of the Internal Revenue Service.
    Attorneys work within a parallel organizational structure 
which reports to the chief counsel and to the general counsel 
of the Treasury Department. This is intended so that the 
attorneys will be able to render objective opinions and give 
good advice to the functional people on the commissioner's 
staff. Certainly, that separation of powers is very good.
    In view of this distinctive organizational structure, I had 
the opportunity to see the IRS from a viewpoint that is quite 
different than that of most former IRS employees, or indeed 
most present IRS employees.
    Whereas most employees, present or past, worked within a 
particular area such as examination, collection, or criminal 
investigation, I, as a manager of attorneys, was involved with 
each and every one of those functional areas.
    From this perspective, I had the opportunity to make 
detailed observations about the service's operations and also 
had the time to develop what I hope are a few solid 
recommendations for its improvement.
    I do not intend to tell you any horror stories as I 
progress. I could do so, but I think other witnesses have 
served that purpose. Certainly, I have seen many.
    I believe there is far too much focus set on achieving 
statistical goals set by upper management. These are generally 
known as the SES, or senior executive service, goals.
    Now, I want to make it clear that goals are important and 
necessary in the management of any organization. The problem is 
not in having goals, the problem is how you define your goals. 
The goals, as currently drafted by management, focus on how 
many levies you make, how much tax you assess, how many returns 
you examine, things which are readily measurable. They are 
taking the easy way out.
    Those goals should be rearticulated to measure quality. 
What is the quality of the service they are rendering? That is 
what they have forgotten. The goals which they now have are 
generally not sensitive to the perceptions of the average 
American taxpayer at all.
    The organizational structure of the IRS is still too 
decentralized. Directives from the top are implemented or not 
implemented in the manner decided upon locally. Directives with 
which local employees or managers disagree take considerable 
time before they are implemented.
    As just a single example, some time ago Peggy Richardson, 
the commissioner at that time, announced publicly with great 
fanfare that there was going to be a newer and fresher, more 
taxpayer-sensitive approach to offers and compromise. They 
welcomed offers and compromise, they encouraged people to 
apply.
    The district in which I reside did not favor that policy, 
evidently, for several months later they were still applying 
the old procedures and were being very hard-nosed about offers 
and compromise.
    I had one which I submitted for review and it met all of 
the criteria. I got it back from a revenue officer in the SPF 
staff saying, simply, we will not consider this offer and 
compromise. They did not even look at it. It was just rejected 
out of hand.
    I wrote a letter to the district director personally and 
stated that it appeared to me from this experience that the 
commissioner of the Internal Revenue Service apparently had no 
jurisdiction over the management of that district, since that 
district could do what they wished to do in spite of the 
commissioner's direction.
    The regional offices of the Internal Revenue Service, or at 
least the regional offices of the chief counsel with which I am 
most familiar, serve little or no purpose except to dilute the 
authority of the national office and to delay the 
implementation of national directives.
    I recommend that consideration be given to eliminating 
these last four regional offices or, if there is some reason 
why they cannot be eliminated, move them to Washington. Let 
them sit in the same building as the commissioner where the 
commissioner can control what they do. If the span of control 
is such that regional organization is necessary, it could be 
accomplished in that manner.
    Right now, and during all of my experience with the 
service, the regions were functioning as fiefdoms, where the 
person in charge, the regional commissioner or the regional 
counsel in the appropriate case, was considered a prince, 
whereas the commissioner or the chief counsel was the king. 
They were like royalty. They decided what they wanted to do, 
and they did it.
    Now, selections for managerial positions is another problem 
area. They are made based solely upon whether the employee has 
performed well in his current position. Was the person being 
considered for promotion a good attorney, was he, 
theoretically, a good revenue officer, or was he a good agent? 
It is my opinion that they give little or no consideration to 
whether the person has people skills which would enable them to 
be good managers.
    Being a good revenue officer does not mean you will be a 
good manager of revenue officers. What you do, is you take your 
better technical people and you promote them into management 
positions. By doing that, you have lost a good technical person 
and you have not necessarily obtained a good manager. We need a 
way to identify people with management skills.
    Now, I share the opinion which I heard from the gentlemen 
who spoke before me that it is important that the managers of 
the revenue officers be technically knowledgeable. It is 
absolutely essential at that level. The higher up you go, 
however, the less important is it they have that technical 
knowledge and the more important it becomes that they have 
management skills. But that is not the way the organization 
runs at this time.
    The IRS organization is too insular. It has little infusion 
of new blood. Traditionally, everybody is promoted from within. 
While that is good, it is very good that management is loyal to 
its employees, it leads to the situations where, as I heard one 
of the Senators say, people go along to get along. You wind up 
that you are elevating people based upon their willingness to 
go along with the entrenched views. Innovation and imagination 
are frowned upon within the Internal Revenue Service.
    I would like to indicate at this time that it has been my 
feeling for approximately as long as I have been an attorney 
that the American Bar Association has much, too much influence 
over determining who the commissioner of the Internal Revenue 
Service is.
    I am very pleased to see that we are hopefully going to 
have a commissioner in the near future who does not come from 
that background. You can be a very fine attorney and not be a 
good manager. The commissioner should be a manager more so than 
a good attorney.
    You do not even need to be, at the commissioner's level, an 
expert in taxation. You have all kinds of advisors to give you 
advice on tax. If you can manage your assets and use them 
fairly, that is what a commissioner should do.
    Employee satisfaction with the IRS has been on a downward 
spiral due, at least in part, to the slavish attention to the 
numerical goals. Employees are given mandates by management to 
take positions known to be incorrect in order to obtain 
preordained results.
    I know many people who have retired from the Internal 
Revenue Service or who have left before retirement, but I do 
not know a single one of them who regrets that they no longer 
work for the organization. I personally left the organization 8 
or 9 years before I had intended to leave because I found that 
the management was so deplorable at that time.
    It is my considered opinion that a few of the problems 
which I have addressed can be readily resolved. As I indicated, 
the four remaining regional offices should be completely 
eliminated, if possible. If not, they should be relocated to 
Washington. What that will do, is it will permit the 
commissioner to more readily make any needed changes in the 
direction of the organization.
    With the condition of the organization at this time, 
whatever changes are implemented will need to be implemented 
quickly and the existence of those regional offices will not 
assist in that.
    IRS management or this committee can take action to ensure 
that the goals in the future place greater focus on the quality 
of performance by IRS managers and employees. This should cause 
all IRS employees down to the lowest level to become more 
cognizant of the sensitivity of their work and result in fair 
and equal treatment of all taxpayers.
    Selection boards for all positions above the first-line 
management level, above the group manager level, should include 
at least one representative skilled in management outside the 
IRS. They should learn how real organizations manage assets and 
employees. This will result in a greater focus on management 
skills and at the same time be a step in opening the 
organization to an infusion of new blood.
    I personally commend the many dedicated and responsible 
employees of the Internal Revenue Service for their valiant 
attempt to fairly administer the laws in an even-handed manner.
    The culture of the IRS organization, however, has eroded to 
the point where the dedicated employees are leaving the agency 
as fast as possible. You will find very few employees who are 
eligible for retirement who remain within the agency. They 
leave. They go on to different things. The management of the 
IRS must stop sacrificing the employees in order to make 
themselves look good.
    One last thing that is not in my prepared statement but 
which I would like to call to your attention, is that one of 
the problems I have noted within the IRS is that there is 
nobody under the district director who has any cross-functional 
authority to resolve problems.
    You have somebody who knows examination, you have somebody 
who knows collection, but it seems like there is nobody who has 
the authority to really solve problems. You need somebody who 
can resolve a problem in any function.
    When I was a district counsel it was my practice to have 
all disgruntled taxpayers referred to me personally. I found 
that as long as I was willing to put it in writing I could 
accomplish most anything, so I was able to resolve a lot of 
problems. But I do not know of many, or any, other managers 
within the Internal Revenue Service who have that same 
approach.
    Mr. Chairman, thank you for this opportunity to appear 
before you and this committee. I greatly appreciate being able 
to offer what I hope are constructive and positive comments 
regarding the future role of the IRS.
    The Chairman. Well, thank you, Mr. Lilly, for your very 
helpful suggestions and comments.
    [The prepared statement of Mr. Lilly appears in the 
appendix.]
    The Chairman. Now it is my pleasure to turn to Ms. Long, 
who I would point out is a current employee of the IRS. I want 
to thank her for appearing here today. I know that doing so, at 
least in many people's judgment, puts a future career at great 
risk. But I admire her courage and willingness to come here 
because of her dedication to the IRS.
    Ms. Long?

 STATEMENT OF JENNIFER LONG, CURRENT EMPLOYEE OF THE INTERNAL 
                        REVENUE SERVICE

    Ms. Long. Thank you. Mr. Chairman, Senators, thank you for 
allowing me to come before you this afternoon to provide an 
accounting of activities within the Internal Revenue Service.
    As you know, my name is Jennifer Long and I am currently a 
revenue agent. Please be assured that I do not take any 
pleasure in what I am about to say. I regret that the untenable 
conditions permeating the IRS have compelled me to this point.
    I am here today, along with my colleagues who will be 
speaking tomorrow, in hopes that by exposing some of the 
unauthorized but tolerated procedures that I personally have 
witnessed by members of the IRS management, congressional 
oversight will bring a positive change.
    I can personally attest to the use of egregious tactics 
used by IRS revenue agents which are encouraged by members of 
the IRS management. These tactics which appear nowhere in the 
IRS manual are used to extract unfairly assessed taxes from 
taxpayers, literally ruining families lives and businesses, all 
unnecessarily and sometimes illegally.
    The IRS will often pursue a taxpayer who is viewed to be 
vulnerable. To the IRS, vulnerabilities can be based on a 
perception that the taxpayer has limited formal education, has 
suffered a personal tragedy, is having a financial crisis, or 
may not necessarily have a solid grasp of their legal rights.
    Please understand, many agents are encouraged by management 
to pursue tax assessments that have no basis in tax law from 
individuals who simply cannot fight back. However, if that 
taxpayer does object or complain, every effort will be made by 
the IRS to run up their tax assessment, deplete their financial 
resources, and force them to capitulate to IRS demands.
    The IRS's mission of examination states: ``Reduce non-
compliance by identifying and cost effectively allocating 
resources to those returns most in need of examination and 
taxpayer contact.''
    As of late, we seem to be auditing only poor people. The 
current IRS management does not believe anyone in this country 
can possibly live on less than $20,000 per year, insisting 
anyone below that level must be cheating by under-stating their 
true income.
    Currently, in a typical case assigned for audit there are 
no assets, no signs of wealth, no evidence that would support a 
suspicion of higher unreported income. So when the IRS does 
initiate and audit on these people, these individuals are 
already only one short step away from being on the street.
    Clearly, such actions do not encourage or promote voluntary 
compliance, even in legitimate cases. Before we began to ruin 
their lives, these people were at least paying something. 
However, because of the tactics used in auditing and condoned 
by the IRS management, abject fear compels many of these 
individuals to go completely underground and, as a direct 
result, pay nothing at all.
    In other cases, IRS management can determine that a 
particular taxpayer is simply ``someone to get.'' In other 
words, they become a target of the IRS. Management will go 
about fabricating evidence against that taxpayer to demonstrate 
that he or she owes more taxes than was originally claimed.
    Clearly, it goes without saying that evidence should never, 
ever be fabricated. It also goes without saying that any 
evidence used against a taxpayer should be examined first 
before guilt or innocence is established, not the other way 
around.
    In certain instances, the IRS management has even employed 
its authority to intimidate the actual taxpayers into 
fabricating evidence against its own IRS employees. In return 
for their compliance, the taxpayer may be offered a reduction 
in their taxes or a no change case.
    I also know that management uses this same power to extort 
fabricated evidence from IRS employees against their own 
colleagues by offering cash awards, promotions, and lightened 
work loads as rewards for their compliance.
    The unfavorable information assembled by management against 
its own employees is used against those whom the IRS has 
identified as someone who is unsupportive of its unwieldy 
methods of collection.
    The IRS Inspection Division, which is somewhat akin to 
Internal Affairs in a police department, has also been used as 
tool by management to harass and intimidate its employees. 
However, complaints to the IRS Inspection Division about 
possible management misconduct are routinely ignored, but often 
result in retaliation against the IRS employee reporting the 
problem. This is due to the fact that employees' identities are 
disclosed when the Inspection Division reports the infraction 
to management.
    The IRS mission statement states, ``The purpose of the 
Internal Revenue Service is to collect the proper amount of tax 
revenue at the least cost, serve the public by continually 
improving the quality of our products and services, and perform 
in a manner warranting the highest degree of public confidence 
in our integrity, efficiency, and fairness.''
    I have actually witnessed IRS management manipulate income 
tax return figures just to increase their office collection or 
division collection statistics. It did this through various 
means, including not permitting valid changes in a tax return 
that would favor a taxpayer.
    To allow those changes would wipe out the assessment placed 
by the IRS and run counter to the management's collection 
numbers. For those who choose to fight, it automatically 
guarantees a significant financial and emotional toll.
    Mr. Chairman, the American taxpayers are not stupid. They 
clearly recognize unfairness. Under present IRS management it 
has become so distorted that, when reviewing a tax case, it is 
now our job to ``stick it'' to the taxpayer rather than 
determine a substantially correct tax assessment for that 
taxpayer.
    In the past, the latter was our job. If our present task 
has changed, then the IRS mission statement needs to be 
revamped to reflect what the service's current mission really 
is, and God help the taxpayers.
    The IRS mission statement of the IRS Examination Division 
states, ``Examination supports the mission of the service by 
encouraging the correct reporting by taxpayers of income.'' 
Yet, in reality, when valid changes could be made by the IRS on 
a taxpayer's return that favored that taxpayer, we are 
instructed not to make those changes.
    However, on the other hand I know of certain IRS employees 
that have been instructed by IRS management not to conduct 
audits of particular taxpayers who happened to be personal 
friends of someone in management.
    Far too often, the IRS management automatically assumes 
that everyone is a criminal. When a taxpayer comes to the IRS 
office to negotiate a tax payment issue in good faith, they are 
subjected to provocative behavior on the part of the IRS in 
order to set them off. Management will then use the taxpayer's 
response as proof that they are, in fact, a reactionary, 
saying, see, this person is a troublemaker, a real hot-head.
    Based on this pretext, the IRS can then justify taking 
severe action contrary to the law in order to pursue the 
collection. The immediate and direct consequences of these 
actions is the deprivation of the taxpayer's lawful rights.
    I look forward to your questions, and I hope that in some 
way I will have assisted you in restoring the IRS to a level of 
integrity that will regain the respect of the American people.
    The Chairman. Thank you very much, Ms. Long.
    [The prepared statement of Ms. Long appears in the 
appendix.]
    The Chairman. I have to say to each of you, your testimony 
is certainly indicative of a troubled agency. It is a matter of 
real concern to this committee that the agency be seen by the 
American people as serving them.
    I have a series of questions I would like to ask each one 
of you to answer. I would ask that you try to be as brief as 
possible because the hour is growing late.
    One of my concerns is the IRS' use of goals and statistics. 
Any number of you have indicated that that is the practice. 
Now, by use of goals, quotas, statistics, I am talking about 
employees being evaluated on the number of dollars assessed or 
collected, the number of cases closed, the number of liens and 
levies imposed. How widespread is this practice? Mr. Strauss.
    Mr. Strauss. Senator, it has already been testified to that 
that specific action does not occur. What is occurring is that 
this culture drives the organization in determining what is 
important.
    The question is, how do you get promoted or how do you 
retain your job? If the managers are being evaluated on 
specific operational objective goals or statistical goals, then 
that is what dictates the issues. I have never seen, from all 
my years, any specific employee evaluated on achieving specific 
statistical objectives. That does not mean the influence is not 
there, Senator.
    The Chairman. Ms. Larsen?
    Ms. Larsen. As Mr. Lilly stated earlier, I was an employee 
in the Office of Chief Counsel, so I was never actually an 
employee of the Internal Revenue Service. So my impressions and 
my beliefs about how the Internal Revenue Service operates 
really comes sort of indirectly, either from people I have 
known that have worked for IRS or my conversations with other 
managers and such.
    But my understanding is, at least with respect to the 
Collection Division, is that individual employees are not 
evaluated based on the number of seizures that they make or the 
number of dollars they collect. I do not even believe that they 
keep those statistics by employee.
    However, my understanding is that the managers themselves 
as you go up the line, they are evaluated based on overall 
efficiency of their group or their division, and then they do 
look at total number of cases closed, the total number of 
dollars per staff year, that kind of thing.
    So even though each individual employee is not told, go out 
and collect $10,000 today, there is always this pressure, their 
job as a revenue officer is to collect taxes, close cases, and 
move things along. So, there is always that pressure to do 
that.
    But I do not have any specific examples of where they have 
told people to go do certain things, to meet a certain 
statistical goal.
    The Chairman. Mr. Patnoe?
    Mr. Patnoe. Senator, having been evaluated many times as an 
employee, I was never evaluated on how many seizures I did, 
although I did plenty. I was never evaluated on the basis of, 
well, you closed so many cases per hour.
    But what was interesting were the group meetings when the 
quarterly or the monthly reports would come out, and it would 
be pointed out to the employees of the group where that group 
stood in relation to other groups in the district and where 
that branch stood in relation to other branches, and you would 
see where you sat on this chart that showed you are the last 
one.
    The manager would say, nobody wants to be the last one 
because it does not look good. So I never knew of anybody that 
was just pulled aside and said, you really need to get your 
numbers up. It was not that way.
    Basically, Congress itself has got to evaluate the IRS on 
something. One of the things it evaluates the IRS on is, hey, 
we have so many dollars uncollected, we have so many cases 
open; what are you going to do to improve this?
    That is a direct statement to the IRS saying, we want you 
to produce, we want you to do something. You have got to find a 
way to get the very bottom employee to produce and they cannot 
really say, boy, we want you to go out and close 20 cases 
today. But our group sits right here, and we cannot stay there. 
We have got to do something. That is the way it is done.
    The Chairman. Mr. Lilly?
    Mr. Lilly. I think the prior speakers have put their finger 
on the way it is done. The lower ranking agents, revenue 
officers, and attorneys do not receive goals, per se. Their 
higher managers receive quite definite goals of what to 
accomplish. Then when they talk to their subordinates, they 
talk to them in the terms of what their goal is.
    Now, if I am a manager and I have a goal to obtain 10 of a 
certain item and I have 10 agents working for me, I think you 
know what I am going to do, I am going to tell each of my 
subordinates that I want them to do one of these actions. If 
one of them does three, then I am going to praise that person. 
So what is happening, is that the goals are being used 
indirectly because it is forbidden to use them directly.
    The Chairman. Ms. Long?
    Ms. Long. Well, just in the last month I was told I would 
be getting a cash award because I had closed and collected the 
third-highest amount of tax in cases in the group. In the last 
meeting I was in, it just seems like every meeting with upper 
management all we are talking about is hours per case, dollars 
collected. I do feel like the statistics are definitely kept on 
all the agents and that they are used in evaluating the agents.
    Mr. Patnoe. Senator, may I say one additional thing, 
please.
    The Chairman. Yes.
    Mr. Patnoe. The RD issue, the accounts receive delinquency 
inventory that has been around between Congress and the 
Internal Revenue Service since the early 1980's and the 
continuing growing of that delinquency or the growing of that 
inventory, which was stated earlier was $216 billion currently, 
if you include the interest and the penalties.
    That has been a major drive for the IRS. They have been 
very defensive about it and have not been able to solve it, 
obviously. So we may have to think about what kind of issues we 
bring up from the congressional side.
    The Chairman. I have put up a chart, and I am asking that 
it be passed around to all the people on the panel. This is a 
chart that I requested from the IRS. The document pertains to 
the San Francisco district and certainly appears to suggest 
quotas and goals. Now, we have a revenue agent here, although 
she is not from San Francisco. I wonder if you could explain 
what this chart appears to mean.
    [Chart appears in appendix on p. 325.]
    Ms. Long. Well, it just tells you what the dollars per hour 
are, the average dollar per hour on 1040 cases, individual tax 
cases. It tells you what the average dollar per hour is on 1120 
corporate cases. It is from the revenue agent's side, then it 
tells also what the tax examiner's 1040 individual dollars per 
hour are. It tells what the goal is and what the average 
collections were.
    The Chairman. Let me make sure that I understand what this 
is saying. On the left-hand side it says, ``Category RA.'' That 
is revenue agent?
    Ms. Long. Yes, RA is revenue agent.
    The Chairman. 1040 dollars per hour. It says, ``Goal: 
$1,000.'' Now, what does that mean, $1,000 goal?
    Ms. Long. That means that the goal is to collect $1,000 per 
hour.
    The Chairman. At what level is a revenue agent?
    Ms. Long. I guess Grade 5. You start out as a Grade 5, 
Grade 7, Grade 9, probably up to a Grade 13.
    The Chairman. So is it fair to say that this is setting a 
goal as to how much revenue agents should assess?
    Ms. Long. Well, we talk about this in our district and I 
certainly try to beat the goal. To me, that is the way to be 
considered a good performer or doing a good job.
    The Chairman. And you have the same thing, it says ``TA.'' 
You say that is tax auditor?
    Ms. Long. Tax auditor.
    The Chairman. The goal is for them to collect $1,012 per 
hour.
    Ms. Long. Yes.
    The Chairman. Below that it says, ``For both RA and TA 1040 
dollars per hour, a general improvement is needed. A large 
improvement can be made by bringing down hours per return.''
    Mr. Lilly, I think you spoke about quality, or one of you 
gentlemen talked about quality. Does creating goals, incentives 
of this type make for quality treatment of the taxpayer, or 
does it provide other incentives?
    Mr. Lilly. No, Senator, this would not provide quality. 
What you are saying is, spend less time with each taxpayer, 
produce more dollars. That means that you have to look quicker 
at what the taxpayer has to offer. You may not have time to 
consider it fully.
    Now, they are setting goals here measured in dollars. I 
again remind the committee that I believe similar goals to 
measure quality can be established. That is what is needed.
    The Chairman. Well, does the emphasis on quota and 
statistics for employee evaluations put pressure on IRS 
employees to artificially inflate taxpayer income or to focus 
on taxpayers whose cases will not take much time? Mr. Strauss?
    Mr. Strauss. Well, certainly that has to be the result of 
this type of approach to managing the employee. This is the 
first time I have seen something like this, quite honestly. 
Again, I have been gone for 5 years so I do not know what is 
currently going on in the organization, per se. But this is 
wholly unacceptable. I do not know how this is being used, but 
if it is being used and given to the first-line employee, that 
is wholly unacceptable and we see the results in the 
testimonies.
    The Chairman. Ms. Larsen?
    Ms. Larsen. Well, I think that if the goal of the IRS is to 
become more efficient, and by setting up these figures they are 
telling their employees, we want you to work smarter, I mean, 
they have some kind of a sense of how productive an examiner 
should be and they have come up with this $1,000 an hour as 
being a goal to reach, I think that it could be worked out 
where if the work is reviewed by the manager and they see that 
they are not artificially creating numbers but they actually 
are working more efficiently, they are more skilled at what 
they are doing, they are able to review returns quicker without 
sacrificing anything, then I think this could work. But again, 
I have never seen this either, so this is something that may be 
relatively new.
    The Chairman. Mr. Patnoe?
    Mr. Patnoe. Indirectly, it could be a way to put pressure 
on employees. I mean, I did not deal with the exam side that 
much, I just dealt with collection all the time I was there. 
When it came out that other people were closing cases at a 
certain rate, then it would be nice if the group I was in 
closed cases at that rate.
    It just turned out, if the revenue officers got out there 
and closed cases over that rate they seemed to do a little 
better than revenue officers that seemed not to be working.
    The Chairman. Mr. Lilly?
    Mr. Lilly. Mr. Chairman, if I may, I do think this puts 
undue pressure on the agents. The best place to resolve tax 
issues is at the agent level. The agent has more discretion 
basically in determining issues than anybody else in the whole 
process.
    But by having such a goal as this, what you are doing is 
you are saying, agent, do not resolve it, set it up as a 
deficiency, let us make the assessment and get our statistics 
up. It works directly contrary to providing service and quality 
to the taxpayers.
    The goal of the Internal Revenue Service is to collect 
every penny to which the government is entitled, but they 
forget the other aspect of it: not a cent more.
    The Chairman. Ms. Long?
    Ms. Long. Well, I think in doing these goals, and I agree 
that you do need some idea of what you are supposed to be 
collecting and the mission statement of examination says that 
we are going to cost effectively allocate resources to those 
returns most in need of examination. But the problem is, as a 
revenue agent I do not have that much control any more about a 
choice of cases.
    Before, I did have a much wider choice of cases that I 
could choose from and I could do that. Now I do not know how 
the cases are being chosen, but the quality of the cases, like 
I said, I feel like there are a lot of poor people that are 
being chosen, or lower income people.
    Just because someone does not report a high level of income 
does not mean that there is not something there, but the type 
of people I am auditing are not people I would think would have 
anything. It would not be cost effectively allocating resources 
to audit the type of people I have been sent out to audit.
    The Chairman. I have a number of separate questions.
    Mr. Strauss, in your prepared statement are you stating 
that on its own initiative the IRS can simply inflate a 
taxpayer's stated income based solely on Bureau of Labor 
Statistics figures?
    Mr. Strauss. I have one case in progress where that 
specifically happened, and I know of at least two other cases 
where that specifically has happened. So my answer to you is, 
yes.
    The Chairman. If you impose a stated income on BLS, how 
does the taxpayer defend himself, prove to the IRS that he or 
she did not earn that much?
    Mr. Strauss. Well, obviously he cannot, certainly not to 
the satisfaction of the IRS. The fundamental concept of 
taxation when it goes to an examination issue should be that 
the taxpayer has the responsibility to prove the deductions and 
the IRS should have the primary responsibility to prove any 
additional income. Obviously, that appears to be no longer the 
case regarding the income issue.
    The Chairman. Let me ask you this. I have heard vocabulary 
I never expected to hear, words like blue sky, or box car 
assessments, water, whipsaw. What do they mean; are they 
commonly used among IRS employees?
    Mr. Strauss. Whipsaw I am not fully familiar with. Blue 
sky, box car, water, I am. They have been around the agency for 
years.
    The Chairman. What do these terms mean?
    Mr. Strauss. It goes to the issue of inflating taxes, 
proposed taxes, what I testified about, Senator, taxes which 
they know are not owed. The motivation is primarily to try to 
have the taxpayer come in. That is one of the motivations if, 
in fact, a taxpayer is uncooperative or has not filed.
    The other issue is, what we testified about regarding what 
drives the organization--the statistical figures and 
operational goals. I have several examples. If you have got 
time, let me just cite a couple of examples.
    There is a process that has been going on for years in the 
service center called Substitute for Return. These are prepared 
for folks who have not filed 1040's per the records of the IRS, 
and include data as to wages, 1099 data, interest, whatever.
    The program was set up in the early 1980's. The concept has 
been for years that, we will go ahead and prepare returns for 
the taxpayer. But if we have a joint return being filed with 
four or five exemptions, we will file the taxpayer as married 
filing single, with no other exemptions and no dependents, and 
then they go ahead and send those out to the taxpayers. Most of 
those wind up not being signed and it goes into the collection 
process, and very, very few of those are ever collected.
    The Chairman. Do any of you others have any comment on 
those terms, are they fairly commonly used? Mr. Lilly.
    Mr. Lilly. Mr. Chairman, those terms are quite common. 
There is always water in every statutory notice. I have never 
seen one which correctly stated the amount of tax due. As an 
attorney who was involved in managing a great deal of 
litigation before the Tax Court, I can tell you that it was 
indeed a rare situation where we were able to prevail 100 
percent if we had to settle the case out for lower numbers. We 
did win some, of course, 100 percent. But there is water in all 
assessments, for the most part.
    Ms. Larsen. I would like to add though that often the 
reason why there is water is because, at the previous levels, 
at the revenue agent level, that the taxpayer has not been 
totally forthcoming with their own information because the 
taxpayer ultimately does have the best information about his or 
her own income.
    Where that information is not there, the IRS will proceed 
to set up the tax based on the best information it has. In the 
substitute for return situation especially, the IRS really does 
not have any option if the taxpayer is not cooperating. If the 
taxpayer does provide the information, obviously that is a 
different story.
    Mr. Strauss. Let me debate the issue just briefly with my 
colleague. If, in fact, a taxpayer has historically filed 
married with four dependents, for example, and for whatever 
reason he has not filed for a given year, there is absolutely 
in my mind no reason and no authority to take a position that 
we are going to water this case and over-assess a tax. That, to 
me, is wholly unacceptable.
    Ms. Long. I would like to say something on that, too.
    The Chairman. Yes.
    Ms. Long. The taxpayer does not know that this is 
inflating, that in this part of the process we are inflating 
the adjustment. It is very frightening to them because they 
think, my gosh, I can never pay this. I never even made this 
much. So that does happen, even when the taxpayer is 
cooperative. I feel like now, with the problem with the lack of 
response to legitimate complaints, it is really happening a 
lot.
    The Chairman. Any further comment? Mr. Lilly.
    Mr. Lilly. Could I relate a horror story which exemplifies 
the problem. I am currently representing a taxpayer who was 
subjected to an examination that took approximately 5 years, 
which is inexcusable. It started out as a criminal 
investigation because this taxpayer had not filed tax returns, 
so he was wrong in that respect.
    He pleaded the 5th amendment and declined to furnish his 
records to the Internal Revenue Service. Of course, that was 
his constitutional right to do that while he was under such 
criminal investigation. The criminal investigation was 
concluded because it was determined that he had not willfully 
violated the tax laws.
    The records which had been accumulated by the internal 
revenue agent were then transferred to yet another revenue 
agent, who set up the deficiency for civil purposes. The civil 
agent set up the gross income. This happened to be a restaurant 
operator, and all the money taken in and deposited is treated 
as gross income.
    While this agent had, or at least the service had, the 
records indicating the expenditures, there was no money allowed 
for food. No deduction for food in a restaurant. This was based 
upon information before the agent.
    That is a situation where you have water in a statutory 
notice of deficiency. The service knew that the man was selling 
prepared meals. The service knew that he had to buy food, but 
allowed no deduction for food. They had the records with which 
to do it.
    The Chairman. Let me ask you this question, Mr. Lilly. Do 
you believe that regions and districts determine their own 
directives and ignore those from the national office if they 
prefer not to implement?
    Mr. Lilly. I do not want to say they will basically ignore 
it. They will be dilatory in implementing. They determine how 
much manpower they will give to these things and how quickly 
they will do them. I do not want to say that they would flat 
violate a directive, but they might not be very aggressive 
about doing it.
    The Chairman. Let me ask you this, Ms. Long. You stated 
that some managers actually use their position to influence 
subordinates into fabricating evidence against fellow employees 
who have been targeted for dismissal. Have you witnessed such 
behavior?
    Ms. Long. I have been asked to do that against fellow 
employees.
    The Chairman. You yourself have been asked to do that 
against fellow employees.
    Ms. Long. Yes.
    The Chairman. Have you any idea, is this a common practice?
    Ms. Long. It has been my observation that it is being done, 
that people are promoted for doing this.
    The Chairman. Senator Grassley.
    Senator Grassley. I was thinking as you were talking about 
water, Mr. Chairman, is it not ironic that your constituent, 
Mr. Purdue, has the water that he can put in his chickens 
regulated by the USDA, but we do not have any government 
regulation in the amount of water that the IRS can put into a 
tax assessment.
    The Chairman. That is ironic.
    Senator Grassley. I am not going to take a lot of time 
because there are a lot of other people who want to go here. So 
I am just going to ask Ms. Long not really some in-depth 
questions, but I have got some observations and basically I am 
just asking you to say whether or not I have got this figured 
out right or wrong.
    But first of all, I think we have to acknowledge your 
courage in coming forward today at a very great risk to your 
career to help us understand the questionable practices of IRS 
management.
    I know this is a very anxious moment for you. But I would 
like to put you somewhat at ease this way, because often when 
people like you show the courage to come forward, their 
agencies retaliate. I have been dealing with people who have 
been willing to talk like you are for a long period of time in 
other agencies, and I know that is true.
    Now, I am not alleging that the IRS will retaliate against 
you, but I also was not born yesterday when it comes to 
understanding how the government operates. So I want you to 
know that, as a witness of this committee, we will not tolerate 
retaliation by the IRS, and you can be sure that if it happens 
we will take action. In fact, not only that, we have a 
responsibility to take action. There are codes protecting 
people like you who are willing to talk to the Congress of the 
United States.
    You have described, in essence, a system of incentives that 
might explain IRS managers' behavior. As you describe it, they 
are motivated to pursue the collection, as you said. In the 
process of pursuing the collection, I get the impression that 
the taxpayers' rights are trampled on.
    In other words, a citizen's rights which he or she enjoy 
vis-a-vis other law enforcement agencies like the FBI or your 
typical police department are simply in the way of the 
collection process, and that is why there is allegedly so much 
abuse by the IRS. Is that a fair description of your testimony?
    Ms. Long. I do feel like taxpayers' rights are being 
violated. I think, to speak in defense of employees, we are 
terrified by what is going on. It is terrifying. We are afraid 
to turn in a case that we cannot find an adjustment on.
    The chart that you have up here, I mean, this is shown to 
us frequently and you feel that pressure to turn in cases with 
more than what the goal is. You try to find technical ways that 
are correct to do it, but you are evaluated poorly if you spend 
time reading IRS manuals or reading the Code to try to find 
legitimate adjustments to make.
    Senator Grassley. In other words, there are certain rights 
that a person has if they come in contact with the FBI that 
they obviously do not have with the IRS. To me, this is the 
real key to our understanding of why things work as they do at 
the IRS.
    There is a parallel that we have found with the FBI. You 
may have read about problems with the FBI crime lab, as an 
example. The lab managers were getting careless about the use 
of good science in the laboratory, and instead they would 
pursue a conviction rather than just pursuing the truth.
    They would often cut corners with science and with the 
truth just to get a conviction, and that is an abuse of power 
and obviously of civil liberties. Is that FBI parallel not 
somewhat what we are talking about here as it relates to the 
things that have been described on this panel?
    Ms. Long. I see many, many similarities with that case and 
with the IRS. When I was reading the articles about that I 
thought about the work situation where I am.
    Senator Grassley. Yes. Now, you have made some very serious 
statements and charges in your opening statement. I would like 
to ask you if you are prepared to document and back up these 
charges. That is, for instance, the fabrication of evidence, 
the manipulation of collection numbers, the incentive to pursue 
collections, and there are others. Could you help us with 
documents in regard to this?
    Ms. Long. Now, some of this information, I would have to 
have the proper disclosure release to help you with.
    Senator Grassley. Yes. Well, I know what you are talking 
about there.
    The Chairman. I think it is important that everyone 
understand that.
    Senator Grassley. That is a 6103 situation.
    The Chairman. That is correct.
    Senator Grassley. But, Mr. Chairman, I think then this is 
something that I should ask you. It is a problem and we have 
got to make sure that the privacy rights of the taxpayers are 
protected, I understand that.
    The Chairman. That is correct.
    Senator Grassley. I would not argue otherwise. But could I 
ask you, if under the proper people with the proper credentials 
that could pursue this, if we as a committee should not be 
pursuing these documents so we get a chance to look these over, 
it seems to me that that is what we should do.
    Ms. Long. I wanted to say something else just on an issue 
basis. But one of my problems with what they are doing is they 
are making these assessments on these people that I feel like 
are not honest and are unfair, and this money will never be 
collected. Then what happens, is these people are encouraged to 
file or do an offer and compromise.
    When the offer and compromise comes in, it is like, 
Collections does not want to deal with it, so they pass it to 
Exam. Exam does not want to deal with it, so they pass it back 
to Collections. Basically, they are going to have to write off 
the assessment and nobody wants to write off the assessment 
because it will hurt the statistics. It is just something that 
has gone on for a long time.
    Senator Grassley. Did you ever raise your concerns and the 
charges contained in your statement with the appropriate 
officials at the IRS?
    Ms. Long. Yes, I have.
    Senator Grassley. This is my last question. Why did you 
decide to come forward today with your identity known as 
opposed to coming forward tomorrow when your identity could be 
protected?
    Ms. Long. Well, on the advice of my attorney I decided to 
do it openly.
    Senator Grassley. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Grassley.
    Senator Grassley. I do hope you will think about what I 
said about 6103, because we need as many documents that we can 
legally have where the taxpayer can be protected to back up 
what has been said here today.
    The Chairman. Senator Gramm.
    Senator Gramm. Thank you, Mr. Chairman.
    Ms. Long, I want to join Senator Grassley in making it 
clear that we are not going to tolerate anybody retaliating 
against you. Now, obviously we expect you to be judged like any 
other employee, based on your performance and what you do, but 
I think it ought to be clear that when somebody is willing to 
come forward publicly and do what you have done today, that we 
are not going to tolerate people trying to take reprisal 
against them. I want to thank you for coming, and I want to 
thank all of our witnesses.
    Ms. Long, you say on page 4 of your testimony, ``I know of 
certain IRS employees that have been instructed by IRS 
management not to conduct audits of particular taxpayers who 
happen to be personal friends of someone in IRS management.''
    Now, that is a very, very serious charge, it seems to me, 
and I would think any IRS manager that issued such a directive 
ought to be fired, at a minimum, and probably ought to be 
prosecuted for obstructing justice.
    Let me go back to Senator Grassley's question. Is this one 
of the areas that you have shared with whatever internal 
mechanism IRS has in terms of self-policing?
    Ms. Long. I was not personally involved in this case, but 
it was reported to the Inspector's office and no action was 
taken against the manager who did this.
    Senator Gramm. Now, was this something that somebody heard 
or something someone was told?
    Ms. Long. The person that was told this made a very big 
scandal about it and it is very hard to be around these two 
people together because it is a very tense, unspeaking 
situation. You cannot be around them without asking someone, 
what is the problem here, what happened. It is commonly known 
that this happened.
    Senator Gramm. Well, one of the two of them ought not to be 
there. That would be the solution to that problem. I would like 
to just say, Mr. Chairman, I know somebody in this audience is 
from the IRS. I would like to ask that these accusations be 
looked at, that there be an investigation, that there be a 
report to this committee.
    If we have got somebody who is a supervisor in the IRS that 
is ordering people not to audit the tax returns of their 
friends, I think that is criminal activity and something ought 
to be done about it.
    I would like to ask the IRS officials that are present to 
look at this, to go through this testimony, to look at each and 
every one of the points raised and try over the next 30 days to 
at least give us a cursory review of what is going on here and 
is there substance to each of these charges, or any of these 
charges.
    I think, at an absolute minimum, that is what ought to be 
done. I would like to make the request to whoever is here that 
something be done, and 30 days from now I am going to follow up 
to find out what has been done.
    You talk about the types of people that are being audited. 
Now, let me make it clear, I think poor people, not-so-poor 
people, and rich people ought to all pay their fair share of 
taxes.
    Ms. Long. So do I.
    Senator Gramm. I have no sympathy for tax cheats of any 
kind.
    Ms. Long. I do not, either.
    Senator Gramm. But I want you to tell me, Ms. Long, more 
about this singling out low-income people. Do we do it based on 
somebody buying a Cadillac or something? How are these people 
singled out?
    Ms. Long. Well, Senator Gramm, the last, I would say, 6 
months to a year--and you are from around Houston. I have been 
going out to people's homes that do not have air conditioning. 
In my opinion, you are going to get air conditioning before you 
get the Rolls Royce in a city like Houston. I cannot see any 
signs of wealth.
    I cannot find any resource that would indicate that these 
people had assets that they would be hiding from me. If maybe I 
was sent out to one person like that I would think, well, maybe 
something has come to someone's attention, but it is common.
    Senator Gramm. Who sends you? Who makes this decision?
    Ms. Long. Well, the cases are assigned to you and you are 
told to work them. I do not know why there is this small amount 
of inventory, but I really do not have anything else to work on 
and I am not going to just charge my time to nothing. I have to 
account for my time, and this is all I have to work on. So, I 
go and work on it.
    Senator Gramm. Well, do you think that is an indication 
that we have got too many people, or what kind of agenda can 
you imagine anyone would have? God knows, if you live in the 
Houston area and you do not have air conditioning, it is hard 
to imagine that you have got any money for anything. I cannot 
think of anything----
    Ms. Long. Anything that would be before air conditioning.
    Senator Gramm [continuing]. Other than food and tickets to 
the Texas A&M football games, I cannot imagine what would be 
more important than air conditioning.
    Ms. Long. Yes.
    Senator Gramm. Do you have any theory as to why you get 
these assignments?
    Ms. Long. Comments have been made, and I have asked agents 
in other areas like in International. In the past, I would 
audit people that would hire, like, someone from a large 
accounting firm downtown or a well-known attorney to defend 
them. That is the type of people I would deal with. I do not 
see that anymore. I do not know what has happened to those 
people. It is like, they are afraid to audit people that can 
hire a big-name attorney or a big-name accountant to defend 
them.
    Senator Gramm. But you have no theory as to why you are 
auditing people who do not have air conditioning.
    Ms. Long. Well, I feel like it is because they are 
defenseless, they cannot fight back.
    The Chairman. Could I just interject a question there.
    Senator Gramm. Sure.
    The Chairman. Is that true of the other employees that hold 
the same position you do, is that common practice?
    Ms. Long. This is commonly being said all around the 
office.
    The Chairman. Thank you.
    Ms. Long. It is something that is hard for me to do this to 
somebody. I mean, this is not the kind of person that I am. I 
can be very tough on someone who is not following the tax law, 
but to go out to somebody who is in their 60's, who has worked 
very hard all their lives and they do not have air 
conditioning, they are old, their employees are like in their 
80's, they are providing jobs for people that would have a hard 
time getting a job someplace else, and to just harass this 
person, and I am encouraged to harass them, I do not like it. I 
do not think it is right, I do not think it is ethical.
    Senator Gramm. Not only do you not like it, but it just 
does not make any sense.
    Ms. Long. I agree.
    Senator Gramm. I mean, I have always assumed, and maybe I 
am naive, Mr. Chairman, that when you audit somebody, that you 
have got a reason. You have got somebody who is reporting 
$18,000 worth of income and they bought a Cadillac. I would say 
that is a good reason to audit, and they ought to be audited.
    Ms. Long. I assume that myself. But when I actually go out 
there and look at the books and records and look at the 
evidence, I am wondering why I am out there. But I am also 
getting an enormous amount of pressure not to bring that case 
back in without making some kind of an adjustment.
    Senator Gramm. Well, I do not get it. If the objective is 
to collect money, and I understand it----
    Ms. Long. And I have actually asked in training classes 
members of upper management, what are we looking for with 
someone who does not have air conditioning? I do not see a way. 
He said, well, there is a way, there is a way. I am like, well, 
where is it? Where are the procedures that we would use with 
somebody like this? And he just ignored me.
    Senator Gramm. Well, maybe we can find out.
    Ms. Long. Maybe so.
    Senator Gramm. My time is up Mr. Chairman.
    The Chairman. Senator Moseley-Braun.
    Senator Moseley-Braun. Thank you very much, Mr. Chairman. 
At the outset, I would like to thank the panel and the panels 
that have gone before for the courage that they have 
demonstrated and the public service nature in which you have 
come forward, because this really is a public service that you 
are performing today.
    Particularly, I was an assistant United States Attorney 
when I started off in my career, and I know the kind of sense 
of camaraderie and the closeness that you feel when you are 
engaged as a member of the service.
    It is kind of like a family. You almost feel hesitant. You 
generally would feel hesitant to say anything outside of the 
family. But the fact is, here the family is the American 
people. We are all in this together and we have to try to find 
and strike some balance here.
    The service feels a little beleaguered. I mean, you kind of 
get that from the sense in all the employees who are sitting 
there saying, I am working hard, trying to do my best, why are 
they picking on us like this. But the truth is that this 
testimony and this effort, I think, is a reality check for all 
of us. It is a reality check for the service in the first 
instance, but it is also a reality check for the Congress.
    Rather than seeing it as an assault on the IRS, I hope that 
we all see this as an opportunity to try to correct some of the 
abuses and to fix what is broken, particularly as it pertains 
to the administration.
    Quite frankly, we in the Congress tend to focus more on the 
global big picture issues of tax policy and the Tax Code and 
not on the administration. We do not focus in on the details. 
It is absolutely the truth, the devil is in the details and 
this may be where he is to be found.
    Because the testimony today, some of it--I was talking with 
one of the staffers, Senator, your staffer in fact, and she was 
saying how it almost brought tears to her eyes. I said, well, 
it did bring tears to mine and I had to leave the room for a 
minute because the horror stories are just heart-wrenching.
    Again, I hope that this is not only a reality check for the 
Congress, but that we will be vigilant in making certain that 
there is a conclusion to what we do, because the worst thing we 
could do here would be to open up this Pandora's Box, rummage 
around in it a little bit, then go away.
    I think there is more than a little suspicion that the 
politicians will hit on this issue and then move off and do 
something else, and the bureaucracy will still be there, the 
people will still be there, there will be hard feelings, there 
will be some anxiety, a little moving the deck chairs around, 
but essentially the ship will not have been radically 
refigured. There is no question but that we have to do some 
reform here. There is no question but that we need to take 
these stories as reality checks.
    There is no question but that we all have, I think, an 
investment in seeing to it that the true facts come out, the 
true facts with regard to the cases, the true facts with regard 
to practice and procedure as part of the administration.
    In fact, every time you look at something like your chart 
over there, Mr. Chairman, more questions get raised, and I will 
ask a couple of them. But I would just say to all of you, I 
very much appreciate your helping us.
    I believe that the Chairman and the members of this 
committee are trying to find common ground between a fair and 
honest effort to support the service on the one hand so that it 
can collect taxes where due, but then to make certain that the 
controls and the checks and the balances are there so that the 
service does not overbear, does not mistreat, and does not 
treat unfairly with any, any taxpayer of any sort.
    So, having said that, Mr. Chairman, again, I just hope that 
we make certain that not only that Ms. Long does not get drawn 
and quartered when she goes back to work, but also that any 
other Ms. Longs out there, any other people who are willing to 
help us, are not penalized by virtue of their public service.
    The Chairman. Let me say to my distinguished colleague and 
friend that this investigation is only a beginning. I intend to 
follow through. We have heard some facts and figures of 
discussions that are, indeed, troublesome. I think it is 
important that we shall continue to investigate.
    I want to emphasize that maybe there has not been any 
monitoring or oversight hearings in the past, that this is the 
first one, but I can assure you, we will make it a continuing 
practice. I think that is the one way we have that can 
effectively bring about change.
    I will not be satisfied until every American feels that 
they are going to get fair and civil treatment by the IRS, as 
well as other agencies.
    So your point is well taken and we will continue these 
hearings to ensure that. We want an IRS that operates like 
Congress and the President intends, and nothing short of that 
will be satisfactory.
    Senator Moseley-Braun. Well, I very much appreciate that, 
Mr. Chairman, again, because the transparency has to be 
achieved here so there can be some accountability. We have a 
bureaucracy, and what is coming out is nobody exactly knows how 
it works. I mean, that is kind of a fundamental problem, and 
particularly if you have got different pieces of it working 
different ways.
    I have got a few questions.
    The Chairman. Please proceed.
    Senator Moseley-Braun. This actually goes to the IRS, 
because I know they are going to testify tomorrow, but with 
regard to your chart I am interested to know, it says in the 
first paragraph, ``Below are the goals for fiscal year 1996.'' 
Where do these goals come from; is there some internal circular 
that goes to all the districts or is this just within this 
particular district? Mr. Strauss, you apparently have something 
to say.
    Mr. Strauss. Well, historically you had a functional 
program letter being issued which becomes part of each 
executive and upper level management officials' operational 
objectives for the year. That is traditionally how the goals 
are set, Senator.
    Senator Moseley-Braun. Which gets to my next question. The 
upper executives then, are they accountable for the horror 
stories that we have heard? If within a department some people 
get put out on the street, Ms. Long, to use your analogy, if 
they wind up being put out on the street, is that district 
director accountable for that? Who in the organization is 
accountable for the mistakes and the problems?
    Mr. Strauss. That is an excellent question. It is not quite 
that simple, as I recall the process.
    Ms. Long. I wanted to comment on that. I have known of 
employees who have been harassed and their rights violated by 
members of management. They have taken the case to court, won 
the case, got their jobs back, got something in writing that 
would say that management would not harass them or bother them 
again, and nothing changed. It continued.
    Nothing happened to those managers, nothing happened to the 
people that perpetrated the problem with the employee. The 
employee comes back to work and the same thing goes on and it 
continues, and it is just like with these taxpayers, that it 
goes on for years, and years, and years.
    It is my observation that several employees have died as a 
result of this treatment, either from a heart attack or 
committed suicide. I do not have any actual proof of that, but 
it just seemed like that is what happened. That is being said 
around the district.
    Mr. Patnoe. Senator, I would like to just say something 
about that. You are talking about assigning responsibility for 
these acts. Well, unfortunately some managers are insulated by 
silence. For instance, upper level management, in many cases, 
will never hear what happened. They never know that an illegal 
act or an abusive act has occurred because the taxpayer will 
not come forward.
    The reason a taxpayer will not come forward, is if you just 
had somebody harass you, take away half your live savings, but 
you still owed tax and it was still in the hands of that 
person, are you going to come forward knowing what that person 
just did and was capable of? So you will find managers who are 
totally ignorant of what has happened at the lower levels.
    This fear by the taxpayers, some of it rightly earned 
because people have done things that are outrageous, some of it 
has been earned just by rumor, keeps the taxpayer silent. For 
every case you hear today and you have been reported, there are 
hundreds that have not come forward. Upper management, a lot of 
times, they do not know it has even gone on, and they will not 
know. All they know is, the numbers have improved.
    Ms. Long. Well, I disagree with that because I think that 
they do know. My personal experience is that there is a total 
lack of response to legitimate complaints. I have observed it 
and I have personal experience with it.
    No matter what proof you bring to them, no matter what you 
do, there is just no response. If they are forced into a 
situation where they have to answer for their mistake, I just 
cannot think of any other description but cowardly. They have a 
cowardly way to address their own mistakes.
    I cannot understand it. They have more power than any other 
entity in our society. They have a fiduciary responsibility and 
a higher level of responsibility to admit and correct their 
mistakes in an honorable and professional way.
    My experience is that, instead of doing it in an honorable 
and professional way, they try to discredit and harm the 
unfortunate person who accidently gets involved in one of their 
mistakes.
    Mr. Strauss. Senator, could I just add one last thought. 
The answer to your question is, yes, upper level management is 
responsible ultimately, and they ought to be understanding and 
knowing what is taking place if they are actually engaged as to 
what is taking place at the lower levels, and that is part of 
their responsibility.
    If you read my statement, you find that I cite in several 
examples where they have been alerted to the issues and they 
are still stonewalling the issues. So I am just looking for the 
resolution.
    Mr. Patnoe. My experience has been, if I may, that lower 
level managers, sometimes if they find a mistake that has been 
made, they will do their best to sweep it under the carpet. 
They do not want to report it because, heaven knows, you do not 
want to report that inside your group you have got an employee 
causing problems. It does not make you look good.
    Senator Moseley-Braun. Again, I did not mean to cut you 
off, but I do not want to run out of time either, Mr. Chairman, 
unless you want to indulge me my questions in this area.
    But I guess my question to the service is, what happens if 
an employee, for example, takes a complaint to the 
commissioner? What happens to it? Or is there some intermediate 
to whom a complaint will be taken; what happens to it? Does 
that get tracked and evaluated?
    Ms. Long. When I have had a problem I went to every single 
level, and I never got a single response until I went to 
Congressman Bill Archer.
    Senator Moseley-Braun. Well, that will be a campaign ad for 
him, I am sure. [Laughter.]
    Ms. Long. But, I mean, you could have gone to any 
Congressman. But I have known taxpayers that have gone to every 
single level and they never got a response. When they went to 
their Congressman they might get a response that was just for 
show, and then calls were stopped.
    Sometimes they would not even call back the Congressman 
anymore. They had clear evidence that a mistake was being made 
and nobody would acknowledge the mistake on the record. What 
these taxpayers said today, it is true.
    Senator Moseley-Braun. It is a reality check, that is 
right.
    Well, Mr. Chairman, I know I am running out of time here. I 
just have a couple of questions that I hope we can get answers 
to when the service testifies tomorrow. Part of it touched on 
in these witnesses' testimony and other parts touched on it 
before.
    As to this chart, it would be very helpful to know, again, 
what goals are they referring to, what categories in the last 
paragraph it mentions, or the penultimate paragraph, ``The 
percent above delineates the district's effectiveness rating in 
the categories.'' What categories, is this standardized or is 
it just for this district?
    The second, is does the calculation include all the time 
that is devoted to a given 1040, a given person's filing? That 
is to say, are there investigators involved or is this just the 
agent who is being evaluated as to this thing? I mean, I would 
like to know specifically with regard to this form if it exists 
in other districts and how the calculation is arrived at.
    Then finally, an issue raised by Ms. Long when she talked 
about the cases, how cases are chosen, the exercise of 
discretion in the first instance in terms of what goes forward.
    Everything I have heard suggests that more than a computer 
is involved. But if it is just a computer involved, if it is 
all kind of randomly cranking out the names, then what are the 
determinants that go into that computer? I mean, people program 
computers.
    What are we asking the computers to tell us? Are those 
recommendations reviewed once the case has been burped out by 
the computer? Where are they reviewed and the decision made, 
does the discretion to go forward with a case simply reside 
with the agent? I thank you for your indulgence, Mr. Chairman.
    The Chairman. I would urge you to be here tomorrow.
    Senator Moseley-Braun. I will.
    The Chairman. We will have a representative from the IRS, 
and I think a number of those questions would be very 
appropriate to propound then.
    Senator Moseley-Braun. Well, I thought if they got the 
questions now then they could not just sit there and say, well, 
we will get back to you.
    The Chairman. Thank you very much, Senator Moseley-Braun.
    Senator Moseley-Braun. Thank you.
    The Chairman. Again, I want to express my appreciation to 
each of you. I know that there is significant risk for any of 
you to appear here under these circumstances, but I think it is 
critically important.
    I want to underscore what Senator Grassley and others said 
to you, Ms. Long, that you are only doing your civic duty by 
being here today and we will watch with interest your future 
opportunities and career.
    Ms. Long. Well, I thank you very much for your assurances.
    The Chairman. I thank all of you again. We undoubtedly will 
be in contact with you later as we proceed with these hearings. 
Thank you very much.
    The committee is in recess.
    [Whereupon, at 3:27 p.m. the hearing was recessed, to 
reconvene at 9:00 a.m. on Thursday, September 25, 1997.]


        PRACTICES AND PROCEDURES OF THE INTERNAL REVENUE SERVICE

                              ----------                              


                      THURSDAY, SEPTEMBER 25, 1997

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to recess, at 9:06 a.m., 
in room SD-106, Dirksen Senate Office Building, Hon. William V. 
Roth, Jr. (chairman of the committee) presiding.
    Also present: Senators Chafee, Grassley, Hatch, D'Amato, 
Murkowski, Nickles, Gramm, Lott, Mack, Moynihan, Baucus, 
Rockefeller, Breaux, Conrad, Graham, Moseley-Braun, Bryan, and 
Kerrey.

OPENING STATEMENT OF HON. WILLIAM V. ROTH, JR., A U.S. SENATOR 
         FROM DELAWARE, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will please be in order. This 
is the third day of this set of hearings.
    And I want to say I was pleased to read this morning in a 
press release that Deputy Treasury Secretary, Larry Summers, in 
an interview Wednesday, agreed that there is a need for a 
cultural change in IRS.
    I am pleased to read that, because I think in order to 
bring about the kind of reform--the kind of change that is 
essential--it's going to be important for all bodies of concern 
to recognize the problem.
    And we are particularly pleased to welcome today our first 
panel which is made up of five current IRS employees and one 
former employee.
    These people have come before the committee to relate from 
their own experiences how the agency works, a view from the 
inside.
    In fairness, we recognize that these individuals speak only 
for themselves, not for the IRS, but what they bring to this 
hearing is a cross section of several different segments of the 
agency itself.
    You will hear from collection officers, auditors, lawyers, 
and even inspection personnel, the IRS' form of internal 
affairs.
    And another reason to listen well to the statements of 
these witnesses is that they range from 8 years of service to 
over 35 years of service with the majority of the witnesses 
having served the IRS for over 20 years.
    I am grateful for their cooperation and appearance today.
    These witnesses have asked for their identity to be 
protected, but have provided their credentials to a member of 
both the majority and minority staff.
    I want to say to each and every one of them how much I 
appreciate their being here today.
    I know it takes a great deal of courage to come here and 
testify. I want them to know that they will have our continued 
support for being here.
    What they are doing is discharging their public 
responsibility as a responsible civil servant.
    And to each one of you, thank you for your contribution.
    Now, because of the height of the screen, I would ask that 
you remain seated while I administer the oath.
    [Whereupon, the six witnesses were duly sworn.]
    The Chairman. Thank you.
    Now, we will proceed with the testimony.
    I do want to remind the witnesses, as well as my colleagues 
that the witnesses are prohibited from disclosing taxpayer 
information which is protected by Internal Revenue Code, 
section 6103.
    I just call that to your attention, to the members of the 
committee because it is a matter of concern in their questions.
    At this time, it is my pleasure to call on Witness No. 1.

                   STATEMENT OF WITNESS NO. 1

    Witness No. 1. Mr. Chairman, thank you for the opportunity 
to appear before you and this committee.
    The Chairman. Would you let me just interrupt?
    A number of witnesses have asked that we use a mechanism 
which also distorts the voice. And that's the reason that you 
will get the sound in certain instances.
    Please proceed.
    Witness No. 1. I spent the last 25 years either working for 
the Internal Revenue Service Collection Division or 
representing taxpayers before the IRS Collection Division.
    I have collected taxes for the IRS from thousands of 
taxpayers. And I have also represented hundreds of taxpayers 
with tax problem before the Collection Division.
    It is my sincere hope that my testimony today will serve to 
improve the operation of the IRS for the benefit of the 
taxpaying public.
    The Internal Revenue Code does not abuse taxpayers. A 
complicated tax code may result in some unfair taxation, but 
rarely is the cause of abuse while multi-page tax forms also do 
not in themselves cause abuse, frustration maybe, but not 
abuse. Even an audit while certainly stressful should not 
result in taxpayer abuse.
    What then has been the outcry of American citizens about 
the abuse from the IRS and the many media reports of the heavy 
hand used by the IRS?
    Abuse of the taxpaying public occurs when the IRS 
improperly and sometimes illegally uses its vast power in the 
process of implementing some type of enforcement of the tax 
laws.
    Enforcement is the levy of a paycheck or bank account, the 
seizure of a car, a home, or a business.
    It can also result in the forced liquidation of a 
taxpayer's life savings, IRA, or retirement account.
    There is only one small part of the IRS that implements all 
of these types of enforcement. And that is the IRS Collection 
Division.
    The Collection Division is charged with the collection of 
unpaid taxes and the securing of un-filed delinquent tax 
returns.
    The Collection Division serves wage and bank levies, files 
tax liens, seizes cars, homes, and businesses to enforce the 
collection of unpaid taxes.
    The Collection Division takes literally hundreds of 
enforcement actions every day. Yes, that's hundreds of actions 
against taxpayers every day.
    This results in some abuse of taxpayers on a daily basis.
    It is the Collection Division of the IRS that is 
responsible for the overwhelming majority of enforcements and 
actions.
    Enforced collection of unpaid taxes is a necessity. As a 
result, the danger of taxpayer abuse is both inherent and 
inevitable.
    Many taxpayers will feel they have been abused simply 
because they do not like the fact that they are being compelled 
to pay their fair share.
    We understand that that comes with the territory when 
enforced collection of taxes is part of one's every day job.
    So how does one fair out the true cases of taxpayer abuse? 
The answer to that question is the important issue to be 
addressed.
    First of all, does the IRS correct abuses when they become 
aware of them? Oftentimes, they do.
    However, the more important question is, does the IRS cover 
up abuses? The answer is, yes.
    If the true number of incidence of taxpayer abuse were ever 
known, the public would be appalled.
    If the public also ever knew the number of abuses covered 
up by the IRS, there could be a tax revolt.
    Why do we not know of these covered up abuses? The answer 
is simple. The IRS protects itself by management support of 
management actions whether those actions are right or wrong.
    This acceptance of abusive actions by management is the 
root cause of taxpayer abuse.
    The initial cause of taxpayer abuse is IRS employees who 
actually implement enforcement actions, many of which are 
approved by management in advance.
    The enforcement may be necessary. However, it is the 
improper or sometimes illegal enforcement that causes 
unnecessary abuse.
    Sadly, some employees repeatedly do not follow proper 
collection policies and procedures and thereby repeatedly abuse 
taxpayers.
    There are several reasons why this occurs. One, many IRS 
tax collectors, revenue officers, but more importantly, 
managers are not properly trained in IRS policies and Internal 
Revenue Manual procedures.
    Many revenue officers, but more importantly managers often 
respond that the Internal Revenue Manual policies and 
procedures are guidelines only and do not the carry the force 
of law.
    Three, many revenue officers learn the general perception 
from management that most tax debtors are trying to cheat the 
government, are crooks or flakes and are generally not willing 
to pay their fair share of taxes.
    Many revenue officers capitalize on the taxpayer's inherent 
fear of the IRS and the intimidation that they can inflict on 
taxpayers without any consequence for their improper 
enforcement.
    Five, revenue officers often with management approval use 
enforcement to punish taxpayers instead of trying to collect 
the most money for the government.
    There is an IRS policy statement on collecting principles, 
P-5-2 No. 7 which is the most often ignored.
    In part, it states ``We should help taxpayers who try to 
comply with the law and take appropriate enforcement actions 
when taxpayers resist complying.''
    Good judgment is needed in selecting the appropriate 
collecting tool.
    The key word here is ``resist'' complying. If this one 
policy statement were properly applied, it would eliminate most 
all taxpayer abuse, but it is IRS management that must lead the 
way.
    The most important factor in all the foregoing information 
is that occasional front-line employee errors in judgment, 
violations of the Internal Revenue Manual, and lack of 
understanding of policies statements are to be expected.
    However, what is not acceptable is front-line management's 
support of these mistakes.
    What is unconscionable is upper management's support or 
tolerance of front-line management abuse of taxpayers.
    The bottom line is that the abuse of taxpayers by the IRS 
is most often caused by the Collection Division. And the 
problem with the Collection Division is mismanagement.
    The following are some general scenarios of Internal 
Revenue Manual violations and taxpayer abuse that I have 
personally encountered.
    One, on far too many occasions when a taxpayer fails or 
forgets to supply one or two items of a long list requested by 
the revenue officer, the officer's response is the heavy hammer 
of a paycheck or bank levy.
    Two, even when a taxpayer is represented by a power of 
attorney, the representative is quite often treated more 
aggressively than the taxpayer.
    Revenue officers generally learn from management the 
perception that most representatives intentionally try to delay 
the resolution of a case.
    This attitude is what causes the greatest animosity between 
the tax representation community and the IRS.
    Disregarding the policy statement that I read to you 
earlier results in damaging the credibility of the IRS and the 
integrity of the revenue officer.
    Three, quite often, the revenue officer finds a specious 
reason to serve levies on the very source of income or assets 
that the taxpayer disclosed to the IRS.
    Again, this only serves to undermine the credibility and 
integrity of the IRS.
    It is no wonder that the taxpaying public has an aversion 
to providing any information to the IRS.
    It is an aversion created by the IRS' repeated misuse of 
information provided to them by the cooperative taxpayer.
    Four, when a levy is served in error or prematurely, even 
when the IRS admits that the levy was improperly served, the 
routine IRS response is that when the taxpayer provides 
additional information, the IRS will consider releasing the 
levy.
    When the information is provided, the IRS adds insult to 
injury by not releasing the levy.
    The IRS cannot seem to grasp the concept that when it makes 
a mistake, it should reverse the error immediately, no matter 
what the consequence to the IRS.
    Five, revenue officers routinely violate the relationship 
with the taxpayer representative by contacting the taxpayer 
directly.
    It is also a common practice of revenue officers and front-
line managers to try to intimidate a taxpayer representative 
into thinking that the IRS has the right, false though it may 
be, to interview the taxpayer personally.
    Six, I have heard of revenue officers trying to discourage 
taxpayers from hiring representatives and making disparaging 
and slanderous statements about representatives.
    Today, many taxpayer representatives know IRS collection 
procedures better than the revenue officers. And this becomes a 
threat to the revenue officer.
    In many instances, I have heard and experienced more harsh 
treatment of representatives simply because the representative 
was former IRS. And this leads to violating the rights of the 
taxpayer.
    Seven, the Internal Revenue Manual states that reasonable, 
necessary living expenses are always allowed.
    However, on more than one occasion, I have seen the IRS 
punish a taxpayer by not allowing reasonable, necessary living 
expenses, even current tax payments.
    Why? Because the revenue officer and the manager did not 
think the taxpayer obeyed their commands appropriately and 
simply felt that the taxpayer could somehow survive without 
reasonable, necessary living expenses.
    Eight, a revenue officer with the IRS District Counsel 
concurrence can serve what are termed ``nominee liens'' and 
levies against third parties whom the IRS believes are in 
possession of assets belonging to the taxpayer.
    The problem is that the IRS is not required to provide 
documentation to the taxpayer or the third party supporting the 
basis of their beliefs.
    The IRS basically has the attitude, sue us to prove that we 
are wrong.
    I have seen more violations of IRS procedures and policies 
than I can count.
    The most appalling aspect of the foregoing examples is that 
in most every instance, IRS management supported the erroneous 
actions of the revenue officer.
    The Problem Resolution Office or the taxpayer's advocate is 
responsible for protecting the taxpayer from IRS abuse.
    But having appealed many taxpayer abuses to the PRO, I 
found them to be useless.
    If the public thinks that the PRO is being objective in 
assisting with abuse cases, the public is being hoodwinked.
    What are the solutions to end this suffering of repeated 
abuses? I have two basic answers.
    First, require the IRS to follow its Internal Revenue 
Manual as though it were law.
    The IRS should be required to follow the manual to the 
letter.
    Taxpayers are required to follow complicated tax return 
instructions. So why shouldn't the IRS be required to follow 
their own procedures?
    Second, make the IRS and management responsible for 
violations of manual procedures. By that, I do not mean holding 
front-line employees responsible for accidental or 
unintentional mistakes.
    However, when upper management condones the violations 
which bring great detriment to taxpayers, then management 
should be held personally responsible.
    As only one taxpayer representative out of thousands across 
the country, I have seen dozens of taxpayers severely damaged 
and even made homeless by the IRS Collection Division.
    The true bottom line solution to resolving taxpayer abuses 
is IRS management.
    Restitution by an administrative claim as opposed to court 
action for erroneous or improper actions would be a giant step 
in the right direction.
    But who will decide when the action is improper? If left in 
the hands of the IRS, you will have an IRS proud of the fact 
that they paid out a minimal amount of restitution funds over 
the course of the year.
    The culture of the IRS must change. And it will not change 
on its own.
    Thank you.
    The Chairman. Thank you very much.
    I now turn to Witness No. 2. Please proceed.
    [The prepared statement of Witness No. 1 appears in the 
appendix.]

                   STATEMENT OF WITNESS NO. 2

    Witness No. 2. Mr. Chairman and respective members of the 
Finance Committee----
    The Chairman. Would you pull the microphone a little 
closer, please?
    Witness No. 2. It's a pleasure to be able to address you 
here today. Currently, I am a Criminal Investigator for the 
Internal Revenue Service's Internal Security Division.
    IRS' Internal Security Division has a multi-functional 
purpose. In a broad sense, we're like a Federal office of 
Inspector General or a local police department's internal 
affairs unit.
    Our main responsibilities conducting investigations into 
allegations of IRS employee misconduct, outside attempts to 
correct the administration of Internal Revenue laws, and 
employee safety.
     I am here to speak about some of the problems I have 
observed in performing my work for the Internal Security 
Division.
    By the nature of our mission, it is imperative that we be 
unencumbered in opening and investigating violations of the law 
within the scope of our office.
    However, the culture and climate of the Internal Revenue 
Service often prevents Internal Security from fulfilling our 
responsibilities.
    In addition, the distrustful and secretive nature of the 
IRS often hinders an investigation.
    A lack of independence from district and regional forces 
intent on not tarnishing IRS' image has reduced administrative 
sanctions against employees to a point where they have no 
effect on controlling employee conduct.
    IRS does not want bad press on employee conduct at a time 
when the agency's public image is at a low point.
    This has affected who we investigate and what happens after 
an investigation has been completed.
    Allegations against Internal Revenue Service managers and 
National Treasury Employee Union officials have not been 
investigated.
    The IRS is aware of the administration's favorable view of 
the unions. The NTEU greatly benefits from this.
    High-level internal security employees do not want to take 
on a case involving union or union officials.
    Allegations against IRS managers, including Criminal 
Investigation Division managers are only worked when an 
allegation is serious and internal management cannot find a way 
out of assigning a case, as when it has made the newspaper or 
other people are aware of it.
    Some internal security managers believe that there is a 
bond between IRS managers that should be maintained in the name 
of working relations.
    There have been violations concerning the taxpayer's 
attorney/client privilege. IRS management often knows of these 
violations for months before reporting them to Internal 
Security. These types of cases can involve compromises of 
privileged communications.
    Investigation into serious allegations are shortened by 
nature of a 180-day baseline.
    Six months is insufficient time to conduct a complex 
investigation, especially when new allegations are developed 
during the investigation.
    After 180 days, the investigator and the immediate manager 
start to feel pressure on closing a case.
    This is where the IRS' bean counter mentality hurts us. And 
employee cases are considered an actionable case.
    That means prove it or not, opening the case earns the 
agent credit or a stat.
    A case not involving an employee only gets a stat if there 
is judicial action.
    In other words, hypothetically, a case involving armed 
militia or anti-government forces get less credit for the 
Inspection Division than a case involving the misuse of a 
government car by an IRS employee.
    Management feels that since the stat is obtained just by 
opening an employee case, there is no justification to have any 
case older than 180 days.
    Proven violations of criminal misconduct against an 
employee have been whitewashed by Internal Revenue Service 
managers and labor relations. Serious violations, such as 
browsing, unauthorized access to taxpayer's records, and 
unauthorized release of taxpayer's information have received 
nothing more than counseling letters.
    These letters are often removed from the employee's 
personnel file after a year. This kind of action does not serve 
as a deterrent for misconduct.
    The IRS can and does investigate its own employees when it 
is suspected that an employee has acted improperly or 
illegally.
    However, Internal Security management has improperly 
notified and kept the IRS district management officials abreast 
of these investigations.
    Such investigations are supposed to be kept confidential. 
However, more often than not, if these investigations target 
employees who are friends of management, they will be informed 
of the probe in time to quit the agency before adverse personal 
action can be initiated against them.
    Another example would be someone who is a rising star that 
is favored by management. When they are notified, they can take 
steps to minimize the consequence of their actions.
    Once an employee resigns, it's rare that a U.S. attorney 
will accept the case for prosecution.
    At the same time there is outside interference on the 
Internal Security's mission, there are internal pressures that 
correct our ethical standards and place morale at low levels.
    Internal Security managers exhibit arrogance while they 
themselves violate laws and commit prohibitive personal 
practices.
    Investigators have been told by Internal Security managers 
to record conversations of other IRS employees without the 
Attorney General's approval.
    In other words, we have been directed to make non-
consentual recordings of other employees without filling 
Justice Department requirements.
    Investigators are often not able to share taxpayer 
information on a multi-agency investigation.
    Yet, Internal Security managers have unofficially provided 
taxpayer information to managers at other agencies.
    IRS Internal Security managers are notorious for committing 
prohibitive personnel practices. After an employee litigates, 
settles out of court or obtains a favorable grievance or a 
Merit System Protection Board ruling, the agency takes the 
corrective action without consequence to the offending manager.
    In other words, a manager violates an employee's rights. 
The employee seeks and obtains redress from the agency. But the 
manager is never sanctioned for violating the employee's rights 
in the first place.
    There is no consequence of the offending manager's action.
    Internal Security managers are aware of how difficult it is 
for an employee to litigate against the agency.
    After all, the agency and their managers do not pay for 
legal representation. If a manager does not like an employee 
for personal reasons, there is nothing to stop the manager from 
violating the employee's rights.
    This is an ``us versus them'' mentality that is more 
flagrant at this agency than anywhere else that I've seen.
    The corporate culture at 1111 Constitution Avenue is not 
conducive towards independent, well-worked criminal 
investigations.
    In general, IRS pushes employees to open and close a tax or 
collection matter as quickly as they can.
    Often getting the proper tax is secondary to reducing 
overall case load as quickly as possible.
    For Internal Security, this ``bean counter'' mentality 
means numbers, numbers, numbers, cases opened, cases closed. 
Let's count them up so we can report at the end of the year 
what a good job we've done.
    Quality, where is that found in the accountant's book?
    Matters that were never investigated before because they 
did not warrant investigation are now opened as cases just so 
we have more numbers to report.
    In a way, this has created an atmosphere that has given us 
many of our employee misconduct cases.
    However, criminal law does not afford us the opportunity to 
work an investigation in the same manner.
    As long as Internal Security is part of the IRS, there can 
be no real oversight or independence. We are just part of the 
greater problem.
    Over my 20 years of service, I've become painfully aware of 
the ability of IRS to retaliate against employees who dare to 
speak out.
    Many of the witnesses you will have before you in this 
hearing could be retaliated against for their testimony before 
this committee.
    At times, I have been assigned an employee case and been 
told that management does not like that employee.
    I've been told I need to find something that they can use 
to terminate their employment.
    In the IRS, retaliation is swift and severe. I know of 
three cases off the top of my head where employees have spoken 
out.
    During prior reorganizations, the IRS eliminated a prior 
manager's job. He had to fight, litigate to some sort of a 
safety net for him to continue to retirement.
    Another manager that spoke out and asked questions 
inappropriately was counseled to go to an employee assistance 
program for counseling because he dared to rock the boat.
    Another person complained to their Congressman. And it was 
held the against the employee during promotion and advancement.
    I hope you will respect the risk that these witnesses took 
to appear before you and protect them from any act of revenge 
by IRS management. We all have families.
    I came here today not to harm this agency, but to help it 
heal. You must decide the best method to accomplish the goal.
    The IRS cannot heal itself, so others and I have taken the 
chance that you are serious about changing and improving this 
agency.
    I thank you for the opportunity to participate in the 
healing process.
    The Chairman. Well, I want to thank you for your testimony 
today. I recognize that you have served 20 years in the service 
of the IRS.
    I can assure you that I and this committee will do 
everything in our power to protect those of you who have had 
the courage and public sense of duty to come here and testify. 
And I appreciate your testimony.
    Witness No. 2. Thank you.
    [The prepared statement of Witness No. 2 appears in the 
appendix.]
    The Chairman. I will now call upon Witness No. 3.

                   STATEMENT OF WITNESS NO. 3

    Witness No. 3. Good morning Mr. Chairman and members of the 
Finance Committee. I am presently a grade 12 Revenue Officer 
which is also identified----
    The Chairman. Would you move the microphone a little 
closer, please?
    Witness No. 3. Which is also identified as a Field 
Collection Officer with the Internal Revenue Service.
    I have worked as a Revenue Officer for over 35 years, 
having begun my career with the IRS when John Kennedy was 
President.
    I am here this morning to cite numerous incidents that I 
have observed in the course of my career as a Collection 
Officer with the IRS.
    I hope to use these examples to assist you and the 
committee in making our agency a better place and ensure 
greater fairness for the American people.
    Over the last few months, you have heard a great deal about 
browsing of taxpayer files. Allow me to focus on this problem 
for a moment and describe to you specific situations that I 
have personally observed in the IRS work place which I once 
considered commonplace.
    Tax data being accessed by IRS employees to check on 
prospective boyfriends.
    Tax data being accessed by IRS employees to check ex-
husbands for increasing income in order to receive increased 
child support payments.
    Tax data being accessed on people with whom IRS employees 
were having some kind of personal disagreement.
    Tax data being accessed on locally prominent or newsworthy 
individuals, public figures, even team coaches.
    Tax data being accessed out of simple curiosity about a 
friend, a relative or an employee's neighbor.
    Tax data being accessed on individuals who are perceived as 
critical of the IRS, such as people labeled tax protestors or, 
as in one case, a person who had simply written a letter to the 
editor.
    The following instances, which I consider to be 
institutional misuse of taxpayer information, are cases in 
which the IRS has tacitly sanctioned looking up data on 
citizens who are not the subject of any investigation being 
conducted.
    Tax data being accessed on relatives and acquaintances of 
the subject taxpayer, such as cases where the taxpayer is 
suspected of using friends and relatives to hide income or 
assets.
    Tax data being accessed on potential witnesses in 
government tax cases.
    Tax data being accessed on jurors sitting on government tax 
cases.
    Senators, there is no excuse for this type of action.
    Until recent years, the agency had an almost casual 
attitude about privacy and misuse of taxpayer records.
    It has tightened up now to the point that good employees, 
who never think of browsing or gaining illicit tax accesses, 
are fearful that they may be subjected to investigation for an 
innocent error.
    I have witnessed other serious abuses by the IRS. While 
these are separate incidents, they are indicative of a 
pervasive disregard of law and regulations designed to achieve 
production goals for either management or the individual agent.
    One particular incident that occurred in 1994 shows how at 
least some managers figure they can get away with almost 
anything.
    A listening device was discovered to exist in our IRS 
office. Its ostensible purpose was a public address system, but 
the users--managers and secretaries, had a receiving capability 
as well.
    With the receiving capability in place, they could press a 
button and overhear conversations taking place in the employee 
break room.
    While I have no personal information of the existence of 
similar devices, I understand from others that some indeed 
existed in conference rooms used by taxpayers and their 
representatives.
    A co-worker and I found the device in the break room and 
learned how it worked.
    Learning of our discovery, higher-level officials 
immediately had the devices removed and attempted a reprisal by 
initiating an investigation of those who brought the matter to 
light.
    Another instance involved what would be called fraud if it 
were perpetuated by any other institution.
    And I still cannot believe it was done in the face of my 
objection. This was the case of a fake tax lien.
    While I made the matter known to superiors, they did not 
even seem to want to hear about it.
    When a taxpayer gets a notice a tax due from the IRS, a 
lien on the taxpayer's property arises under the Internal 
Revenue Service Code.
    To be effective against third parties and lenders, a notice 
of lien must be filed in the local court house.
    The public accepts that the IRS files only legitimate 
notices, but this is the case a notice was filed by the IRS 
when there was no assessment and no legitimate lien.
    Mr. Chairman, there must be an assessment of tax due in 
order to file a lien. That is the law.
    And if that wasn't bad enough, the IRS asserted its 
seemingly correct lien against a third party. And that third 
party, a bank, had no way of knowing that the lien was not 
legitimate.
    The amount involved was not large, only a few thousand 
dollars, but the collection employees were motivated to close 
the case rather than take the correct and legal action and lift 
the false lien.
    In this case, the Service acted illegally by collecting 
money from the taxpayer and quietly closing the case.
    I believe this instance is indicative of a systematic 
problem plaguing the agency.
    It's original mission of collecting tax revenues has now 
become incidental to the production of statistics.
    A case that is written off as uncollectible, a Form 53, is 
counted as a closed case just the same as if it were fully 
collected.
    When I started with the IRS in the early 1960's, warning 
flags went up if uncollectible accounts amounted to more than 
15 percent.
    I have now seen months in which over 60 percent of case 
closures were ``53'd'' closed as uncollectible.
    Senators, I have voluntarily come before you today to 
relate to you some of the deep concerns I have regarding the 
current mind-set of the IRS.
    I have been in a position to watch the gradual changes 
taking place among IRS management and agency attitude.
    These are not positive changes. And I'm very concerned 
about the Service's future role.
    Although my comments today may appear negative and anti-
agency, it is my sincerest hope that they will help to bring 
about the opposite result.
    I hope you will come to the aid of the IRS with the 
positive and forthright oversight it so badly needs.
    The IRS needs help. It needs careful attention it cannot 
possibly provide itself.
    The help must come from the outside through effective and 
forthright oversight of an ailing system.
    It is my deepest hope that this hearing will initiate these 
badly needed steps.
    The Chairman. Thank you very much.
    Again, I would remind the members of the panel of the 
committee that this witness has had over 35 years of experience 
with the agency.
    And I can assure him that what we seek to do is to bring 
about reform that will be fair to the taxpayers and fair to the 
IRS employees.
    [The prepared statement of Witness No. 3 appears in the 
appendix.]
    The Chairman. It is now my pleasure to call on Witness No. 
4.

                   STATEMENT OF WITNESS NO. 4

    Witness No. 4. Mr. Chairman, Senators, thank you for 
allowing me to appear before you today and share with you some 
personal observations I have made during the more than 25 years 
I have been employed by the Internal Revenue Service.
    For the majority of these years, I have served as a Revenue 
Officer in the IRS Collection Division.
    Until very recently, I felt a great sense of pride in my 
job. I actually looked forward to going to work.
    Over this past year, however, I have seen dramatic changes 
take place in this organization. And in my opinion, most were 
not for the good of the Service or the public that we are 
supposed to serve.
    In the past, with few exceptions, I felt that management 
truly cared for its employees.
    I find this no longer to be the case. I have never seen 
overall morale in the IRS as low as it is right now.
    Many of my fellow colleagues have expressed to me recently 
that they no longer feel motivated. And many are feeling the 
physical and emotional effects of constant stress.
    Management fails to acknowledge employee concerns as 
evidenced by the fact that they refuse to hear grievances or 
address work-place concerns.
    Managers fail to realize that if the employees are under 
stress or disillusioned with the Service, their attitude will 
surely flow to the taxpayers, the people we are paid to serve.
    I have recently seen many abuses by IRS managers, as well 
as first-line employees. These abuses range from the deception 
of taxpayers to gross misuse of travel funds.
    I could write a book on the subject of IRS abuse of both 
its employees and of the American taxpayers. Please allow me to 
provide some brief examples.
    But before doing so, allow me to point out that I have 
never had a performance problem during my employment with the 
IRS.
    To the contrary, I have received numerous annual 
performance awards. So I am not here today because I have an ax 
to grind.
    I truly hope that by appearing before you that I can 
contribute positively to restore pride in our organization and 
reestablish the confidence of taxpayers.
    The area that causes me significant concern is the widely 
varied treatment that taxpayers can and do receive.
    The IRS approach for the taxpayer can vary dramatically, 
depending upon the IRS group manager, whose group is assigned 
the case, depending on the employee working the case, and/or 
depending on the Collection Division policy in effect at the 
time the case is received.
    For example, you may have one business owner who is allowed 
to make monthly payments on delinquent employment taxes, while 
another business owner with the same set of circumstances is 
put out of business or forced into bankruptcy.
    One taxpayer may have their taxes written off as 
uncollectible, while another taxpayer under the identical 
conditions may be forced to pay their taxes in full or risk 
losing a home or business.
    Taxpayers deserve a consistent and fair policy when it 
involves the survival of their businesses.
    Another concern I have is based on the fact that the 
collection initiatives change regularly.
    It appears that management is more concerned about 
maintaining high statistics than the quality of work being 
performed or even whether the taxes are collected are simply 
written off.
    Whenever there is pressure to maintain high statistics and 
the performance levels of the different departments within the 
organization are a source of constant comparison, you can be 
certain that someone is going to suffer the consequences of 
such an explosive situation. And it's usually going to be the 
taxpayer.
    Recently, a revenue officer planned an elaborate sale to 
dispose of assets seized from a taxpayer. Many IRS employees 
were invited to help in the effort. The group manager was also 
present.
    Even though the revenue officer failed to achieve the 
minimum bid, as required by law, before selling the assets, he 
went ahead and sold the property at a significant loss to the 
taxpayer.
    Property which had a minimum bid of at least $40,000 was 
sold for roughly $7,000.
    Although this wrongdoing was found out and the revenue 
officer now faces possible disciplinary action, the real victim 
is the uncompensated taxpayer.
    In terms of travel abuse, I know of situations where 
managers arrange travel to outlying IRS offices simply to 
accommodate their own personal travel.
    They charge the government mileage and occasionally even a 
night's lodging in their effort to get to their final vacation 
destination.
    A previous district director who had a condo at the beach 
would frequently make brief appearances at the outlying IRS 
offices while his family waited for him in the car.
    When his visit was over, he and his family would simply 
continue their drive to the beach.
    All of this was done at the taxpayer's expense while 
management was telling employees that they had to conserve on 
official travel and that overnight lodging was not permitted.
    While this may seem minor compared to many other things 
that you will hear in this hearing, trust me when I say that 
these activities by management have a devastating effect on 
morale.
    In another abuse of travel funds, a Collection Division 
chief assigned a revenue officer in their office to travel out 
of state in an effort to check up on the work habits of other 
IRS employees.
    Extensive travel was involved. And the secret investigation 
of one of our agents caused significant confusion among 
taxpayers and IRS employees alike.
    When contacted by this IRS employee who was following up 
behind the work of the real case agent, some taxpayers called 
their local IRS offices.
    Some local officials initially thought that an impostor was 
at work.
    In fact, a taxpayer with whom I had been working with was 
contacted by this spy employee and contacted me wanting to know 
what was going on.
    Fortunately, in this case, nothing detrimental occurred to 
effect my taxpayer's case.
    But the manner in which this secret study was conducted was 
underhanded and humiliating to the rest of the employees 
involved.
    In addition, if this information was determined to be of 
such importance to this out-of-state Collection Division chief, 
why not inquire about such information in a professional, 
above-board manner, not deceptively behind employees' back.
    The effort undoubtedly would have been far more effective, 
less disruptive, and certainly far less costly to everyone 
involved, taxpayers and IRS employees alike.
    Mr. Chairman, I greatly appreciate being afforded this 
opportunity to inform this committee of what I have observed 
while working with the IRS, and the great disservice the 
actions of some of my colleagues have brought upon unsuspecting 
and undeserving taxpayers, not to mention each other.
    When the American taxpayer is defrauded of their due 
rights, we all stand to suffer.
    It is not a pleasure for me to share such stories with you. 
These stories are about my colleagues, those with whom I work.
    But my intention to do so is simple. I, too, am an American 
taxpayer. And I'm asking this committee to return the Service's 
management and operational standards to the level that will 
again earn my own trust, as well as all the trust of the 
taxpaying American.
    Thank you very much.
    The Chairman. I appreciate very much your testimony today.
    Again, I would point out that you have served in the IRS 
for 25 years. And we take very seriously what you have to say 
today.
    [The prepared statement of Witness No. 4 appears in the 
appendix.]
    The Chairman. Now, I will call upon Witness No. 5.

                   STATEMENT OF WITNESS NO. 5

    Witness No. 5. Good morning. I am a long-term employee of 
the Internal Revenue Service, employed as a Revenue Officer.
    I am appearing before you today to bring to your attention 
concerns shared by many of the employees in my district.
    In the past 2 years, all of the standards of ethics by 
which we have been led to believe were an integral part of our 
job and responsibility in dealing fairly with both taxpayers 
and employees have been replaced with practices that were 
widely viewed as not only unethical, but often illegal.
    To elaborate on this statement, let me refer you to IRS 
policy statement P-1-20 which essentially states that employees 
will not be evaluated on statistics.
    This mandate was made in an effort to ensure that taxpayers 
would be treated fairly by the Internal Revenue Service so as 
to curtail the IRS from being overly zealous in their 
collection activity.
    However, our office has taken to disregarding this policy 
and has unfairly targeted long-term, good employees in an 
effort to motivate others into making more seizures.
    We are told that if we are to justify our jobs, we must 
prove that we are willing to take strong enforcement action.
    I would like to point out to you that my evaluations over 
the years have always been very high.
    I am considered to be one of the most effective collection 
officers in my district.
    However, I find it disturbing to learn that even though I 
collect more money with a substantially high number of my cases 
paying in full that I am now evaluated on my number of seizures 
rather than my overall effectiveness.
    The message we are receiving from upper management is let's 
take the action that will get us noticed. Don't worry about 
whether it's the right thing to do or not.
    Many other issues have come to my attention over the course 
of time that have created a threatening environment for myself 
and many other employees.
    Examples of these issues are: managers are targeted for 
termination on the basis of who their friends are.
    Statistics are manipulated to make it appear that our 
office is producing much higher statistics than what is 
factual.
    Selected employees are encouraged to file EEO complaints on 
the basis of trumped up charges with the promise that their 
claim will be settled so they can then be promoted unfairly 
without having to compete for the job against more qualified 
employees.
    Revenue officers have been directed to release seized 
assets because management personally feels indebted to the 
taxpayer's representative, a former IRS employee and a friend 
of management.
    The list of code and ethics violations is too long and 
cumbersome for me to further elaborate on at this time.
    I will be happy to provide the committee with further 
documentation and information under proper disclosure 
guidelines.
    However, I am willing to answer any questions you may have.
    I am not revealing my identity here today for fear I would 
run the risk of retaliation, not only for myself, but for my 
colleagues with whom I work.
    However, I am thankful that you permitted me this 
opportunity to come before you to make my concerns for the 
agency known to you.
    If I did not believe in this agency, I would not have 
dedicated many years of my life working for it.
    However, motivation to execute one's responsibility should 
not be based on statistics at the expense of quality, nor 
should motivation be based on unfair competition among 
colleagues for promotion, nor for any other reason I sadly 
offered to you today.
    I hope you can bring integrity back to the IRS and allow 
the good and ethical employees to do their jobs well while 
serving the American taxpayers with a fairness they deserve.
    You have an opportunity to take an action which would 
improve the integrity of the Service, relieve stress on 
employees who are already in a position classified as one of 
the most stressful in the country, provide for more fair and 
equitable treatment of the taxpaying public, while encouraging 
more efficient collection of outstanding taxes to support our 
country.
    I thank you for your efforts to address this issue.
    The Chairman. Thank you for your testimony.
    Again, we are much concerned and interested in ensuring the 
employees of IRS of working in a fair and equitable 
environment.
    [The prepared statement of Witness No. 5 appears in the 
appendix.]
    The Chairman. Finally, it is my pleasure to call on Witness 
No. 6.

                   STATEMENT OF WITNESS NO. 6

    Witness No. 6. Mr. Chairman and honorable members of this 
committee, I thank this committee for the light of day it is 
attempting to shed at the IRS.
    I am a Criminal Investigator in the Inspection Division of 
the IRS which is responsible for investigating among other 
things allegations of IRS employee misconduct and responding to 
and investigating threats and assaults perpetrated against IRS 
employees.
    I have over 24 years of law enforcement experience. I am 
appearing here today at great personal risk to my career with 
the IRS.
    But given the current climate in the IRS, I feel a need to 
bring to light and express my concerns.
    I have personally seen how vindictive IRS management can be 
in retaliating against those who express conflicting opinions, 
different to their own or do not conform and blindly follow and 
agree with the corporate mentality and attitude.
    I know only too well how IRS management has tried to kill 
the messenger while ignoring the message.
    I am not here today to hurt or bash this agency or the vast 
majority of hard working, dedicated, career public servants who 
staff IRS services and serve the public well.
    But I have seen the efforts by IRS management to try and 
heal itself. And they are just window dressing to appease you 
in Congress, while behind the shield of taxpayer secrecy, they 
shun public accountability and oversight. And so it's business 
as usual.
    The IRS and the public need and deserve no less than a 
strong independent, fully staffed and fully funded inspection 
division, able to carry out its investigative mission 
independent of interference or manipulation, subtle or 
otherwise, from within or without.
    A track record of falsehood and misrepresentation, poor or 
nonexisting communication, and a service-wide distrust of 
management has taken its toll in the IRS and perpetuates from 
the top down.
    The current atmosphere of impunity or arrogance and 
indifference, three generations of nationwide surveys of IRS 
employees bears this out.
    For example, during IRS all manager training conducted in 
the late 1980's, one of the blocks of instructions dealing with 
employees stated that it was acceptable and permissible to lie 
or mislead as long as it accomplished the goals and missions of 
the agency.
    This was told to me by a former manager who attended this 
training and could not believe the IRS condoned and instructed 
its managers to do this.
    He very vocally questioned the ethics and appearance of 
such a course of action. And subsequently, his position with 
the IRS, coincidentally or not, was later eliminated in one of 
the IRS' reorganizations.
    These reorganizations did no more than change job titles 
and upgrade middle and first-line managers' salary levels.
    It did nothing to improve conditions or staffing for the 
field agents.
    The current proposed office closures and RIFS being 
proposed for field personnel with Inspection are in stark 
contrast to the apparently super human, gerrymandering efforts 
employed to retain displaced inspection managers' positions 
whose positions were abolished in the 1992 and 1995 
reorganization and restructuring.
    Ad hoc and previously nonexisting positions were created, 
as well as extended, long-term acting assignments on full per 
diem as golden parachutes to reward these managers when viable 
candidates existed to immediately fill any vacancies without 
undue taxpayer expense.
    No such efforts or special dispensation is now being 
offered for field personnel who since February have been put on 
notice that their positions are targeted for elimination and 
their offices being shut down.
    With the closure of these offices, the nearest investigator 
could be hundreds of miles or states away.
    Three members of this committee are having Inspection 
offices in their areas closed or severely gutted, losing 
valuable liaison with local law enforcement and other Federal 
law enforcement agencies.
    Criminal investigations cannot be conducted in the same 
methodology and goals as audits. In criminal investigations, 
many factors outside the agent's control dictate and affect--
I'm sorry. I've missed a page.
    A track record of falsehood--in criminal investigations, 
many factors outside the agent's control dictate and affect 
duration and scope of the investigative process, such as the 
availability of witnesses, documents, the United States 
attorney's office, vacations, training, etcetera.
    By ascribing artificial time constraint to criminal 
investigations as is now the practice has a chilling effect on 
creativity and depth of an investigation and sends out the 
message to the investigator to open and close cases as soon as 
possible.
    The message received by the investigator is that quality is 
sacrificed for quantity, numbers, and stats.
    The attitude is ``big cases, big problems, little cases, 
little problems.'' This atmospheres fosters mediocrity.
    For example, in a long-term investigation, a manager told 
the case agent to close out the current case and reopen it with 
a new case number so it wouldn't hurt the group or the region 
average and get it off the over-age case list.
    Senior special agents in the Criminal Investigation 
Division have told me that CID management encourages and 
emphasizes opening and closing traditional tax cases what they 
refer to as ``mom and pop'' cases which are easy stats and can 
be opened and closed quickly in order to bolster CID's open 
case day's average and numbers rather than investing time in 
the large cases which require more time and resources to prove.
    Big cases are often put off or overlooked in deference to 
small, quick ones.
    The agents complain that their experience and expertise is 
being wasted in playing this statistics game.
    And many become frustrated with this bean counter mentality 
and leave the Service for more traditional, Federal law 
enforcement jobs. The tail is wagging the dog.
    Morale among inspection and CID investigators is at its 
worse level I have ever experienced in my 24 years in law 
enforcement.
    Inspection is losing trained, veteran investigators who are 
frustrated and disgusted and not waiting around for the RIF 
hammer to fall again at the same time that managers' jobs are 
being insulated and protected and are taking positions in other 
law enforcement agencies.
    Ironically, the Inspection Service will probably have to 
hire and train at great expense new investigators to replace 
those who have left or are riffed at a cost to taxpayers far 
greater than retaining experience personnel and keeping field 
offices open to provide service to IRS employees and the 
public.
    Another issue is the independence of Inspection from IRS 
management. The Inspection Division's budget is directly 
controlled by IRS.
    By depleting or denying budget dollars, subtle limitations 
are placed on who and what is investigated, as well as what 
resources we get.
    To give you an example, the last 2 months, August and 
September, field investigators have been told there are no 
travel funds to perform investigations that require overnight 
travel.
    Yet, not a week ago, all inspection managers met in a 
resort in St. Simon's Island for one week at great taxpayer 
expense.
    Field agents believe that Inspection management is too 
close and cozy with IRS management to effectively investigate 
without subtle interference or pressure or the potential for 
compromising an investigation.
    Investigation into allegations of misconduct by IRS 
management or a union official are not encouraged or pursued. 
Management takes care of management.
    By detaching the Inspection Division's criminal 
investigative function, Internal Security, from Internal Audit 
and realigning our function either under the Treasury Office of 
Inspector General or the Office of the Under Secretary of the 
Treasury for Enforcement or by remaining within IRS, but 
reporting to an independent board and permanently fencing our 
budget, this trend can be reversed.
    An example of this manipulation was related to me about an 
IRS commissioner who did not get the desired answer from 
inspection last year and retaliated by threatening to cut the 
funding for Inspection's forensic crime laboratory.
    At a time when most other Federal law enforcement agencies 
are expanding, why then IRS Inspection one of the only Federal 
law enforcement agencies downsizing, closing field offices, and 
proposing RIFS?
    This is especially troubling to the field personnel when 
case loads are increasing. Militia and tax protester activity 
is at a violent, all-time high.
    And new, anti-browsing legislation, out-sourcing of IRS 
functions, and credit card tax payments promise to generate 
additional work load nationwide.
    A recent Chief Inspector's memo reports that although 
fiscal year 98 budget funds 1,214 full-time positions, 
Inspections is still planning to close field offices and do a 
RIF to get down to 1,150 FTEs.
    In fiscal year 99, this figure goes down to 1,035. This is 
directly due to IRS rating the Inspection budget to bolster and 
support the failed TSM Project and Year 2000 Project.
    In a conversation with a member of Congress, it was his 
opinion that Congress' mandate to the IRS was to streamline its 
bloated management structure, not reducing service to the 
public by reducing field positions and closing IRS field 
offices.
    The proposed Inspection restructuring targets only 
experienced field personnel positions, while only one 
management position in the entire Nation is slated for 
elimination.
    The field investigators ask, how can 105 field investigator 
positions be eliminated without a corresponding reduction of 
management positions?
    This was simply accomplished by adjusting the span of 
control in order to jealously horde and retain Inspection 
management positions at the expense of field personnel and 
offices and service to the public.
    The issues which this committee and the public find most 
distressing are the very focus of the Inspection Division: 
unauthorized browsing and disclosure of taxpayer information 
and egregious misconduct by IRS employees.
    A reduction of field investigator personnel can only 
negatively impact the IRS' ability to combat these problems.
    An atmosphere of lack of consequences and non-
accountability contributes to escalating or instigating many of 
the threats, assaults, resistance, and lack of cooperation 
experienced by many IRS employees in their interaction with the 
public.
    I do not tolerate or condone resorting to the use of 
threats or violence directed towards any government employee 
who is doing the job we citizens empower them to do.
    However, I have an understanding on how someone can be 
driven to the edge with feelings of anger and frustration and 
hopelessness when trying to deal with inflexible, indifferent, 
impersonal bureaucracy.
    As an IRS employee, I've experienced some of these 
frustrations. I have observed a lack of ``meet and greet'' 
skills necessary for dealing with the public.
    I have observed little or no accountability for misconduct, 
for mistakes, and/or errors whether innocent or intentional.
    And seldom, if ever, does the IRS or the responsible 
employee apologize to the taxpayer for errors that are the 
fault of the IRS, thus, again displaying an attitude to the 
citizen of aloof indifference or plain arrogance.
    Only recently, with all the media attention and scrutiny 
have I heard an IRS employee apologize for a mistake.
    Most of the complaints from taxpayers regarding abuse or 
misconduct on the part of IRS employees do not arise to the 
level of criminality or egregiousness at which my section would 
normally get involved.
    Such cases should be swiftly handled by the management of 
the involved employee.
    However, a desire to look good and meet dollar and time 
ratio goals and a lack of resolve and initiative by management 
create difficulty in disciplining abusive employees beyond much 
more than a reprimand or a slap on the wrist.
    Inspection is many times used as a tool by local IRS 
management to get a troublesome employee, relieving that 
employee's manager of their responsibility of having to deal 
with this employee.
    This another example of the bedfellows, cozy relationship 
between Inspection management and local IRS management and 
appearances of the lack of independence.
    Mr. Chairman, I thank you for the opportunity to testify 
before you today. As employees, we are the IRS.
    And unless you get views and input from the field, relying 
entirely upon information supplied from 1111 Constitution, you 
cannot possibly get a true picture of the problems or 
atmosphere that exists and what needs to be changed.
    I am grateful that you sought out the feelings, opinions, 
and experience of the field personnel for this hearing.
    As I stated when I began, it is not my desire to injure the 
IRS in any way.
    However, for the record, I am not a disgruntled or bitter 
employee, but rather by informing you of some of the problems 
that exist, you and this committee hopefully will provide the 
IRS with the necessary tools, means, and much more importantly 
the motivation to correct them.
    Thank you.
    The Chairman. Thank you for being here today.
    [The prepared statement of Witness 6 appears in the 
appendix.]
    The Chairman. I think we have a good cross section of the 
agency and number of witnesses from different regions.
    The one thing that is impressive is the number of years 
that each of you have served with the government.
    I would first like to ask each of you some general 
questions. And then, I have a few individual questions that I 
will propose.
    I would say to the members of the committee, when you 
direct a question to a particular witness, will you please make 
it clear so that those behind the screen know who's being 
questioned.
    My first question is, how prevalent is the use of 
retaliation by the IRS against its employees?
    Witness No. 1.
    Witness No. 1. Senator, I've been gone quite a long time. 
And I don't know what they're doing on the inside at this 
point.
    The Chairman. Okay. No. 2.
    Witness No. 2. I would say very.
    The Chairman. Very?
    Witness No. 2. Very prevalent.
    The Chairman. Witness No. 3.
    Witness No. 3. It is almost a knee-jerk reaction.
    The Chairman. Witness No. 4.
    Witness No. 4. It's very prevalent.
    The Chairman. No. 5. Do you want to pass that other one 
down so the three of you can use it?
    Witness No. 5. The retaliation that occurs in our office is 
almost on a daily basis, depending upon your individual 
relationship with upper management.
    The Chairman. Witness No. 6.
    Witness No. 6. It is very prevalent. And it depends on 
whether you're liked by management.
    I would like to just read you a short paragraph from the 
Treasury Inspector General's Semi-Annual Report that was just 
issued recently.
    ``At the request of the former Under Secretary for 
Enforcement, the Office of Inspector General, Office of 
Oversight initiated a review of allegations involving the IRS 
Mid-Atlantic Region, Office of Internal Security. The 
allegations concern possible unethical, unprofessional 
discriminatory practices by management officials. The 
complainant also maintained that he had been fired in 
retaliation for reporting the allegations. The review disclosed 
there was merit to these allegations.''
    That is very prevalent, sir.
    The Chairman. My next question is, how widespread is the 
use of goals, quotas, and statistics for the evaluation of IRS 
employees?
    And let me further ask the question, how does the use of 
statistics adversely affect the taxpayer?
    Witness No. 1.
    Witness No. 1. It appears that statistics have become very 
important based on the fact that we see more and more levies 
and seizures made that should not have been made and the 
numbers of releases of those levies and seizures that we are 
pushed into asking the IRS for.
    So there's got to be pressure coming from somewhere just to 
achieve these statistics.
    It hurts the taxpayers across the board, as I said, on a 
daily basis. I literally see taxpayer abuse by levies and 
seizures on a daily or weekly basis.
    The Chairman. Witness No. 2.
    Witness No. 2. We're driven by numbers. And it's picked up 
over the last couple of years. Our evaluations are directly 
tied in.
    It adversely affects the public in general because our 
evaluation equates to money awards, and pats on the backs.
    The average employee tries to do his job well. The carrot 
is stuck out there. Here is what you have to do to get the 
carrot. Go, get it.
    And it puts an extra dollar in their pocket or an extra 
award and recognition. If you're doing good, your manager has a 
hands-off approach in managing you.
    So for the most part, you try to give them what they want.
    The Chairman. No. 3.
    Witness No. 3. Not long after I came to work, the Service 
established a policy that said that you would not use 
production statistics to evaluate employees.
    And I think it was in 1972--62. That was routinely ignored.
    When they passed the Taxpayer Bill of Rights I, I remember 
how it was introduced at the meeting that we had. The branch 
chief said it was not as bad as it could have been.
    The written material put out by the National Office stated 
that under the new Taxpayer Bill of Rights, this is the first 
one, there would not even be a suggestion to first-line 
managers or their employees about statistics and production 
statistics, number of seizures and what have you.
    And they are very careful to keep it out of the record. You 
will not find them writing down in an evaluation that you did 
so many seizures, that you collected so much money.
    It's done on a one-to-one basis. And all levels of 
management know who their best producers are.
    Some of these best producers are good people.
    Some of them are the people we are having trouble with. 
They make too many seizures. They are what we call cowboys. And 
you just have trouble with some of them.
    As to the effect on taxpayers, it can be devastating. I 
mean, you take away their homes, their cars, and their jobs.
    But it also has an effect on the government. The revenue 
that government collects because--while this is not exactly 
taxpayer abuse, except in that it treats taxpayers in a 
disparate manner, the pressure for statistics leads to lots of 
accounts being written off as uncollectible. That means you 
don't get any money.
    But writing off the account as uncollectible gets the 
revenue officer, the collection officer just as much credit as 
if he had collected it.
    The Chairman. Witness No. 4.
    Witness No. 4. Numbers are extremely important. It really 
doesn't matter how you close the case, whether it's a full pay 
or whether you simply write it off. What matters is that you 
close the case.
    I know at group meetings, we are regularly given a sheet 
which shows the statistics in all the different areas.
    And they are broken down by groups throughout the different 
states in our district.
    And notes are written in the margin by the branch chief 
where they say, ``very good,'' or ``needs improvement.''
    But they are constantly comparing one group to the other 
group and one employee to another employee.
    This type of behavior leads to very reckless collection 
practices. And so therefore, the taxpayers are adversely 
affected.
    The Chairman. No. 5.
    Witness No. 5. Senator, in my office, seizures are looked 
at as being all important for a revenue officer in order to 
prove their value to the Service.
    As a result, the taxpayer suffers from a heavy hand that is 
often unnecessary. We have premature seizures.
    We are instructed that even if we're aware that the 
taxpayer will pay us in full within a short time and they have 
an asset that has sufficient equity, we are to go out, seize 
that asset, and demand payment at that time, following seizure, 
not before, in order to ensure that we secure a statistic to 
increase our report of number of seizures for our district.
    The Chairman. Witness No. 6.
    Witness No. 6. Again, statistics are what drive the 
organization. The tail wags the dog, Senator.
    We are very well made aware of what our statistics 
individually, not as a group or as a region.
    We are told how many products are produced per FTE. We are 
also in our evaluation told how many cases you open, how many 
cases you close, and how many arrests you've made.
    And you cannot be fully successful unless you have made an 
arrest.
    As far as how does this impact the taxpayer, quantity is 
being sacrificed for quality.
    The Chairman. Let me ask you this question, can the 
problems that you have addressed in your testimony be resolved 
simply with a more modern or sophisticated computer system?
    Witness No. 1.
    Witness No. 1. I can't see how a computer system is going 
to help.
    The Chairman. Pull the microphone closer, please.
    Witness No. 1. I don't know how a new computer system is 
going to help teach IRS employees how to treat the taxpaying 
public.
    The Chairman. No. 2.
    Witness No. 2. The only way that can help would be if it 
was such a simple tax system where there would be no discretion 
or subjectivity.
    You would send the form in. It would be scanned in. The 
computer would compute the tax. And you would pay it.
    Once you interject a subjectivity and somebody reviewing, 
that computer is only as good as how somebody is going to 
interrupt the results.
    The Chairman. No. 3.
    Witness No. 3. With respect to browsing, a better computer 
system or reprogramming of the current system could help out if 
by the simple expedient of programming the equipment so that 
people could not pull up accounts, except those that were 
assigned to them.
    The other problems are going to have to be taken care of by 
more supervision, better supervision.
    I did not say more supervisors. We need more supervision.
    The Chairman. No. 4.
    Witness No. 4. I believe that the problem starts with 
management at the very top. I believe we need a complete 
overhaul of managers. We need a new way of selecting our 
managers.
    Right now, if you don't follow the program, if you're not a 
numbers person, it just really doesn't matter. They don't want 
you as a manager.
    So I think the problem starts with management.
    The Chairman. No. 5.
    Witness No. 5. The current computer system is very 
antiquated and behind the times, resulting in burdensome--a 
very burdensome process for the revenue officer to conduct 
their functions and their responsibilities and carry out their 
jobs.
    How--whether or not a new computer system would help us to 
deal more fairly with the taxpayers, no, that would not impact 
the taxpayers in that way whatsoever, other than it would free 
up a lot more time per officer or agent to individually help 
taxpayers when they are faced with a tax problem that requires 
a lot of time, to look into and correct.
    As it stands, right now, we are so pressed to turn numbers 
that when we deal with a complex issue, we tend to just move it 
aside and tell ourselves we will get to it later and never have 
the time.
    The Chairman. No. 6.
    Witness No. 6. The current computer system that's in place 
is so antiquated as almost to obviate its use.
    The only advantage to a new computer system would be to 
give the employee that's dealing with the taxpayer more updated 
information on the person he's dealing with. And that does 
cause problems currently.
    But as far as would that solve the problems, no, sir.
    The Chairman. I would like to ask Witness No. 1, have you 
ever witnessed situations where a revenue officer has played on 
the taxpayer's fear to collect revenues that were not owed? Is 
this common?
    Witness No. 1. I don't see as it common, but I've seen it 
done, yes.
    The Chairman. With any regularity or just very rarely?
    Witness No. 1. Not to collect taxes that are not owed.
    The Chairman. Why do you believe that revenue officers 
often feel most taxpayers are trying to cheat the government?
    And how does that attitude by the revenue officers 
translate to treatment of taxpayers?
    No. 1.
    Witness No. 1. It's taught in training when the revenue 
officers are first trained. And then, it's fostered by 
management throughout the system.
    The result is that this attitude treats--forces revenue 
officers to treat all taxpayers alike.
    They are not looking at a taxpayer's individual financial 
situation. It seems like every revenue officer I deal with 
thinks that every taxpayer is hiding a small fortune. And it's 
ridiculous.
    It doesn't take a brain surgeon to see when a taxpayer is 
in financial hardship.
    The Chairman. Witness No. 2, in your statement, you spoke 
about IRS management impeding internal investigations of 
employees.
    Have you ever personally experienced IRS superiors 
interfering or attempting to stop an internal investigation 
while you were investigating internal violations within the 
IRS?
    Witness No. 2. Yes, I have one of two ways. One way would 
be when Internal Security management goes to the district and 
asks the district, should we--here are the allegations. Here is 
what we have. Do you want us to continue looking into this?
    And the district management says, no, let's let it drop. 
And we're told--I'm told to let it drop.
    The other way is when my management would go to district 
management to notify them of an ongoing case.
    And before I know it, the employee being investigated knows 
about the investigation.
    And they take various steps. If it's an ongoing violation 
they're doing, they stop if they have any smarts or they are 
able to cover up what they've done at times.
    So the answer is, yes. And it's not only against employees. 
We've been--it's happened where we've have criminal allegations 
against managers and union officials.
    The Chairman. Witness No. 3, you talked about tax data 
being assessed on jurors.
    Are you personally aware of jurors or government witnesses 
being compromised by IRS employees using threats of possible 
audits?
    Witness No. 3. No. I'm not personally aware of that. The 
only thing I saw was the access. I don't know what it was used 
for or if it was used at all, except to satisfy maybe the 
curiosity about a juror or a witness.
    The Chairman. Does that occur often or----
    Witness No. 3. I've seen it several times.
    The Chairman. Several times where a--would you spell it 
out, what happened?
    Witness No. 3. The criminal agents would come to our 
Collection Division and ask the people to access accounts. They 
really don't give reasons most of the time. They just give the 
taxpayer's Social Security number and name.
    And some employees will pull it up for them. These people 
don't have direct access to the computers with one exception.
    I knew of one who did. And probably, that person was more 
vocal about what she was doing and who she was looking up. She 
was a special agent herself.
    The Chairman. Witness No. 4, are you aware of IRS revenue 
officers using false identification when dealing with the 
taxpayer?
    Witness No. 4. No, sir, I'm not.
    The Chairman. No. 5, are you?
    Witness No. 5. When dealing with the taxpayer, no, sir.
    The Chairman. Witness No. 5, you mentioned a list of code 
and ethics violations that are too long to further elaborate at 
this time. That was your testimony.
    Witness No. 5. Yes, sir.
    The Chairman. Could you cite some examples of such without 
identifying the specific taxpayers?
    Witness No. 5. Yes, sir. I'm sure all of you are aware of 
the Taxpayer Bill of Rights 2. Under this bill of rights, the 
taxpayer is required to receive notice of default on an 
installment if he has entered into payment agreement with the 
Internal Revenue Service and then fails to meet the terms of 
his agreement.
    Once the agreement defaults, we are required by law to send 
him a notice of the default prior to taking enforcement action.
    However, in our district, we were instructed by our 
division chief that he was going to waive this mandate.
    We were to ask taxpayers upfront at the signing of the 
payment agreement to sign a waiver, waiving their right to this 
notice in the event that their installment agreement defaulted.
    As a result, we could then take immediate enforcement 
action without notice to them.
    This was often unfair to a taxpayer who subsequently failed 
to get his payment correctly applied or had a subsequent 
assessment that had been pending and was meant to be included 
in the payment agreement.
    It would create a default of the installment agreement. And 
then, we would go out and enforce without justification.
    The Chairman. Finally, I would like to ask you, Witness No. 
6, we have heard from another witness that the IRS will target 
what it determines to be a vulnerable taxpayer.
    You've stated that the Criminal Investigation Division of 
the IRS will pursue taxpayer cases that are pursued to be easy 
hits in order to bolster its numbers.
    Are the smaller cases generally considered easy because the 
taxpayers are less able to defend themselves?
    Witness No. 6. Senators, they have less resources at their 
disposal as far as attorneys or accountants. And they are 
intimidated by the IRS.
    And for this reason, those cases are opened and closed 
quicker. And they are able to bring days open average way down.
    Agents told them that if a case is going to take a year or 
more, they don't even want them to pursue them.
    The Chairman. My final question is, do you feel--Witness 
No. 6, do you feel that by granting greater independence to the 
Inspection Division and that by having it report only to the 
Commissioner, you could perform your job of investigating 
questionable employee conduct to a fuller and fairer degree 
than you can under the present arrangement?
    Witness No. 6. Well, the present arrangement is supposedly 
that we report only to the Commissioner.
    But unfortunately, because of inbreeding and coziness with 
local management, that is not the reality.
    Possibly, by removing the function from under the 
Commissioner and either move it to the Inspector General or the 
Under Secretary of the Treasury for Enforcement which are more 
law enforcement oriented, we could possibly reverse that 
coziness.
    The Chairman. Senator Moynihan.
    Senator Moynihan. Thank you, Mr. Chairman. And I want to 
thank our witnesses individually and collectiv