I am Thomas J. Donohue, President of Citizen's Choice, a national grassroots taxpayers' organization founded in 1976. Citizen's Choice has presently over 75,000 taxpaying members nationwide, representing all sectors of our society.

I am pleased to have this opportunity to testify before this committee on the relationship between the taxpayer and the Internal Revenue Service. Citizen's Choice is well qualified to present testimony on this subject having made a year and a half long investigation into this relationship through the National Commission on Taxes and the I.R.S. One of the major conclusions of this study which was completed in 1981 was that the relationship between the taxpayer and the Internal Revenue Service was becoming increasingly adversarial. This situation was aggravated by an overwhelmingly complex tax system which is both frustratingly difficult to administer and beyond the competence of many taxpayers to comply with. The Commission concluded that unless something was done to improve the taxpayer/I.R.S. relationship and to radically simplify the system that our system of voluntary tax compliance would eventually collapse of its own weight.

We are happy to report that since the issuance of the Commission's final report, positive steps have been taken to improve the relationship between the taxpayer and the I.R.S. In particular, last September the Congress enacted a number of taxpayer rights long advocated by Citizen's Choice. This legislation, which was incorporated in the 1982 Tax Bill, brought taxpayers within the purview of the "Equal Access to Justice Act" by allowing the award of court costs and attorneys fees in certain circumstances; required that the I.R.S. provide notice to a taxpayer by certified mail prior to the seizure of property; considerably increased the dollar value of property and wages exempt from seizure and of significance to the largest number of our citizens, provided that the I.R.S. make every effort to fully and fairly inform the taxpayer of his rights prior to the conduct of an audit.

The tax simplification effort is also gaining speed. Three "National Forum on Tax Alternatives" have been sponsored by Citizen's Choice and have promoted an active dialogue on the very complicated question of simplifying the American tax system. In this regard, we urge the members of the Finance Committee to actively consider the question of tax simplification through additional congressional hearings during the 98th Congress provided that any simplification results in an actual tax decrease. It is our opinion that simplifying the tax system is the single most important step in solving the compliance problem. While we may be successful in promoting the debate, only Congress is capable of bringing about the necessary changes.

We recognize, however, that any major simplification of the tax code will not occur overnight. Nevertheless, we believe that there are smaller steps that can be taken to improve the taxpayer/I.R.S. relationship. The reforms enacted last year will pay dividends in an improved voluntary system of compliance. The relationship could be further improved if Congress and the I.R.S. adopt these additional recommendations of the Commission:

1. Congress should be responsive to I.R.S. budget requests that reflect its need for increased levels of agent training and experience thus enabling the I.R.S. to impose higher threshold requirements, to intensify existing training programs and to make existing pay scales competitive. The Internal Revenue Service should not have to operate under a continuing resolution, especially since every dollar budgeted results in four to five dollars additional revenue.

2. Both the Congress and the Internal Revenue Service should seek a relaxation of substantiation requirements in many areas to ease the burden and expense of voluminous record keeping and in situations where there is no reason to suspect fraud. Detailed substantiation requirements punish the innocent without apprehending the guilty.

3. Congress should increase the number of "safe harbor" tax provisions in the areas where precise figures are difficult to substantiate. Such provisions, because of their inherent certainty and patent fairness, are immensely popular with the taxpaying public, especially since the establishment of the "safe harbors" is an excellent, easily understood opportunity for public participation and compromise.

In addition to these recommendations, Citizen's Choice urges Congress to improve on two of the reforms enacted last year and to seriously consider solutions to the problem of non-filers.

In the former area, Congress should strengthen the attorney's fees provision by allowing an award to a taxpayer litigant unless the position of the I.R.S. was substantially justified. This would place the burden of proof on the I.R.S., which is more likely to have the facts at hand to justify the litigation than the taxpayer, who under current law must prove the I.R.S. position unreasonable.

The requirement that the I.R.S. must send a notice of seizure by certified mail was an improvement. However, it fell short of the independent third party review that a court order prior to seizure would provide. We believe that any additional expense incurred by the I.R.S. by such a requirement could be handled through increased budgetary allocations. We also are convinced that this reform would do more to improve the image of the I.R.S. than all potential and existing reforms combined. An improved image will result in improved compliance.

We encourage the consideration of amnesty for those citizens who have never filed a tax return. The research of the National Chamber Foundation, an affiliate of the U.S. Chamber, indicates that there exists a high incident of non-filers in the Hispanic business community. It is first a lack of knowledge that causes the failure to file and then the fear of penalty that prevents subsequent filings. This is one reason which accounts for the slow growth of this segment of American business. We are equally certain that other businesses and individuals are similarly situated. A one time only forgiveness of legitimate non-filers, not individuals or businesses who have quit the system, would generate billions of dollars in additional revenue.

Citizen's Choice would like to commend the efforts of the I.R.S. to simplify forms and clarify accompanying literature. In particular, we understand that the 1982 "EZ Form" has been an overwhelming success in the number of taxpayers using this form over the 1040A. The Service should also be commended for the continuance of various taxpayers assistance and education programs despite having to operate under a continuing budget resolution. Citizen's Choice has found these programs to be important elements in an improved taxpayer/I.R.S. relationship.

One final point need be mentioned. There remains widespread ignorance on the part of taxpayers concerning the scope of their rights during an I.R.S. audit and the limitations placed on the powers of the examining agent. This suggests that current I.R.S. procedures for informing taxpayers of their rights may not be adequate. Last year, in response to this problem, Congress requested the I.R.S. to prepare an understandable list of the rights and responsibilities of a taxpayer and the auditing agent during the course of an audit. We understand that this process is ongoing and offer our assistance in whatever way it may be of help.

In addition, I offer to this committee and to any of its members in particular, our assistance in any way you might find it helpful towards reaching our common goal of an improved relationship between the taxpayer and the Internal Revenue Service. We look forward to working with you to this end.

Thomas J. Donohue
President
Citizen's Choice, Inc.
1615 H Street N.W.
Washington, D. C. 20062
(202) 463-5540
SD-215 of the Dirksen Senate Office Building