Mr. Chairman and members of the subcommittee:
I am pleased to appear before you today to offer our comments on S. 2400, The taxpayers' procedural safeguard act. We would like also to make some general observations on this whole subject. We appreciate the opportunity to present our views on this important matter.

Throughout our statement we refer to S. 2400. However, on Friday afternoon, we received a revised draft of the bill. We have tried to amend our testimony to account for changes in Friday's draft. Unfortunately, time has not permitted the office of management and budget to advise us as to the relationship of the testimony to the program of the president. Similarly, the shortness of time has made it impossible to provide a comprehensive written statement on S. 2400. We intend provide the subcommittee with our written comments as soon as possible.

We appreciate as well your cooperation in arranging the ground rules for today's hearing. As you know, I am prevented by strict rules of confidentiality from disclosing taxpayer information. As I understand the rules which you have provided, any witness who testifies on specific tax information must provide a waiver of confidentiality S. that all of the facts can be made a matter of record, thus avoiding the possibility of bias in any examples.

With me today are Larry Westfall, the assistant commissioner (collection), and George O'Hanlon, the taxpayer ombudsman. We will all be available to answer any questions you may have at the conclusion of my testimony.

IRS Commitment to Taxpayer Safeguards

Mr. Chairman, no agency in government is more committed to nor more concerned with the issue of taxpayers' rights than IRS. The procedures and safeguards we have in place are designed in great detail to assure fair treatment of taxpayers. The success of our self-assessment system is based largely on taxpayer cooperation and a willingness to work with the IRS in resolving problems of tax delinquency.

Nothing the IRS does is more difficult than keeping the system operating in a "fair but firm" way. Of our millions of taxpayer contacts every year, the overwhelming number are completed without incident. Others are very personal, and a very few are confrontational in nature. These latter few are unfortunate and regrettable, and there may be a few - human nature being as it is - that may be inevitable. We endeavor to take every step possible to avoid this and to safeguard taxpayers' rights in all events.

We have been quick to support changes and improvements in these safeguards where real improvement can be achieved without doing violence to the system. For example, we supported changes in the tax equity and fiscal responsibility act (TEFRA) of 1982 which increased certain exemptions from levy, which required the timely release of liens, and which required notice before levy. We are just now gathering data on the effects these changes are having on our operations.

Additionally, as requested by the conference report on TEFRA, in July of 1983 we provided the finance committee with a "report on procedural safeguards within the internal revenue service assuring that taxpayers are notified of their rights".

Existing Taxpayer Safeguards

To illustrate the levels of taxpayer protection that currently exist, let me briefly review some of the safeguards now administered by the assistant commissioner (collection). I will focus on procedures relating to levies and seizures because these tools can have the most substantial impact on the delinquent taxpayer and are of the greatest interest to us today since they are dealt with so extensively in your bill.

"Levy" refers to attachment of a taxpayer's assets in the possession of third parties, such as bank accounts and wages. &Quot;seizure" refers to the attachment of a taxpayer's assets in his or her own possession, such as an automobile, business equipment, or building.

The service can levy or seize a delinquent taxpayer's property if assessed taxes are not paid within 10 days after notice and demand for payment. However, our procedures are designed to give the taxpayer every reasonable opportunity to settle the tax liability in a reasonable and amicable way before these more drastic enforcement actions are started. Under these procedures, our service center sends four notices to an individual taxpayer (three to businesses) over a 3 to 4 month period. These notices are sent to the taxpayer's last known address and in all cases the last notice is sent certified mail. Only after this extended correspondence and only in cases where we have had no other contact with the taxpayer, is the account sent to a district office. From these, further attempts are made to contact the taxpayer. Publications explaining the collection process and the taxpayer's rights in that process are automatically mailed to the taxpayer along with the second tax delinquency notice. Copies of our publications 586a, "the collection process (income tax accounts)", and 594, "the collection process (employment tax accounts)" are attached to this testimony. Mr. Chairman, we hear so often that taxpayers are not provided this kind of information, S. 2400. I request that they be made a part of the record. Thus, the details included in these publications will be there for all to see.

We inform the taxpayer by registered mail in the final notice that if payment is not received within 10 days or if the taxpayer does not contact an IRS office, enforced collection action -- levy or seizure -- may be taken. This notice also contains information about the taxpayer's rights. Some levy actions may be taken without further contact with taxpayers. However, procedures require us to attempt to notify the taxpayer in person that seizure will be the next action taken by IRS.

We have established more controls over the use of seizures than levies. Generally, we do not require written supervisory approval on the more than 1 million third-party levies that are processed annually. However, before any seizures are made we require written approval by at least a group manager. On a residence, the next higher level of management approval is required. Also, once seizure action is initiated, the cases are controlled and reviewed for procedural compliance by a special procedures staff within the collection division. Before our revenue officers can enter private premises, they must have either the written permission of the taxpayer or a writ of entry from a U.S. District court.

In addition to our employee making the seizure, another IRS employee or a law enforcement officer must be present when a seizure is made. This provides a witness to the propriety of the action. Further, the taxpayer is asked to be present when the seized property is inventoried.

If I may digress a minute, Mr. Chairman, I would like to point out one of the public perception problems that we have in the collection area. Many people have argued that the internal revenue service is too tough in its collection practices. But that viewpoint is not universal. In fact, the general accounting office (GAO), in a November 5, 1981, report entitled "what IRS can do to collect more delinquent taxes," found that the service has not always taken enough action to collect delinquent taxes. In reviewing collection actions taken against 1,500 taxpayers in four districts, GAO concluded that the service was in essence allowing taxpayers to delay or even avoid paying their taxes because, among other things, of our concern for taxpayers' rights.

My point in mentioning this dilemma is to show how the service is often in the middle on such issues. We are either too harsh or too soft, depending on who you listen to. We have bent over backwards in many cases to assist taxpayers in meeting their obligations. For example, in the past we frequently allowed first-time delinquents to arrange installment payment agreements. But, this kind of consideration was one of the unfavorable points noted by GAO in their report. We are forced to balance the need to try and collect some $23 billion in accounts receivable with the need to respect the rights of the individuals who are delinquent. Mr. Chairman, let me assure you that our entire collection division would be delighted to be able to close our 3+ million cases a year without any drastic action. Unfortunately, it is not that simple. It is far from an easy job, but I assure you we do our best.

The Problem Resolution Program and the Taxpayer Ombudsman

Through the problem resolution program and the creation of the ombudsman, the IRS has additional procedures to assist taxpayers in cases where the system malfunctions and to protect taxpayers' rights.

In 1977, the problem resolution program (PRP) was established nationwide to provide special attention to taxpayers' problems and complaints. Today, each of our 63 district offices and our 10 service centers has a problem resolution officer.

In 1979, the position of taxpayer ombudsman was established in the national office. It was, and still is, part of the office of the commissioner, and is filled by an executive from our senior executive service. This status provides the organizational and operational knowledge and authority necessary to fulfill the ombudsman's mission. One of the ombudsman's principal functions is oversight of the PRP program.

Our problem resolution program provides special attention for taxpayers' problems that are not properly or promptly resolved through normal IRS channels. PRP is intended to assure that individual taxpayers have somewhere to turn if the system fails; someone who will make sure a problem is not lost or overlooked. The complaints concern missing or late refunds, erroneous billings, unclear notices and letters, and examination and collection problems.

All the PRP cases we receive are given personalized attention. Each problem, when received by PRP, is documented on a special form, given a control number, and monitored until the issue is resolved. Every effort is made to resolve cases as expeditiously as possible, and over 75% are resolved within 30 days; many are resolved much faster. If the case cannot be resolved in five days, the taxpayer is contacted, advised of the status of the case. And provided the name and telephone number of the employee responsible for resolution of the problem.

Safeguarding IRS Employees

Mr. Chairman, I have spoken of taxpayers' rights and other witnesses will, I am sure, do the same. But let me take a few moments to talk about the rights of our employees.

In may of 1983, I testified before your subcommittee on administrative practice and procedure of the judiciary committee in support of Title XIII of S. 829, the comprehensive crime control act of 1983. In that testimony, I pointed out the various types of harassment, assaults, threats, and attacks that our employees encounter in the performance of their official duties. The data is staggering. Rather than repeat the testimony here, I have provided copies to your staff.

The types of harassment being experienced by our employees run the spectrum from late-night phone calls to physical intimidation and assaults. A brief review of some recent statistics and cases in these areas may be instructive.

During FY 1982, there were 513 instances where IRS employees were either physically assaulted or threatened with physical assault. This was an increase of 60 instances over the FY 1981 level. Over the past seven fiscal years, 3,647 cases of assaults and threats have been investigated by representatives of our internal security division. In our collection activity alone, there were 688 assault, threat, and harassment incidents during calendar year 1983, an increase of 63% over the prior year.

Recently, a taxpayer assaulted a Milwaukee IRS district employee by striking him in the face and threatening him with a shotgun. The employee took refuge in the home of a neighbor of the taxpayer. Agents of the Milwaukee district arrived and escorted the employee from the area. The taxpayer was sentenced to 2 years in prison (21 months suspended to service 3 months in jail), 2 years probation, and had to turn his weapons over to the county sheriff for 2 years.

In another case, a taxpayer was arrested by Montgomery County, Maryland, police officers for shoplifting. During questioning, the taxpayer related that he had been offered a contract to kill an IRS agent. The Montgomery County police contacted our internal security division. When questioned by division representatives, the taxpayer stated that he had been offered $5,000 and a weapon by another taxpayer to kill the agent in Washington, DC.

Later, the taxpayer made a monitored telephone call to the other taxpayer, who agreed to meet him that afternoon to provide a weapon. During the meeting, which was monitored by IRS inspectors, the taxpayer provided a .38 special smith and wesson, six rounds of ammunition, the IRS agent's name and address clipped from a telephone book, and the description and license number of his automobile. Immediately following the meeting, the other taxpayer was arrested. He was eventually sentenced to 25 years in prison.

My point in reminding you of this is to show that safeguards are a two-way street - they are needed for both citizens and government employees alike. During this past year alone, we've had an employee shot and killed, and another young father of 2 shot at close range 3 times, and only through modern surgery is he alive. A third was taken hostage in his own office. Those who bill themselves as "protectors of citizens' rights" must also show equal respect for the rights and the safety of our employees.

Review of S. 2400

As I noted earlier, Mr. Chairman, we will provide a detailed analysis of the proposed legislation. As soon as possible. In this summary, I will discuss some of the principal concerns we have with the bill.

The Collection Process

S. 2400 would make extensive changes in the current collection process. In particular, the bill would dramatically increase the amount of wages and property exempt from levy. For example, the amount of an individual's take-home pay that would be exempt would rise from $75 to $200 per week. The amount of personal property exempt would jump more than 1300% from $1500 to $20,000. Importantly, these increases follow substantial increases enacted only two years ago in TEFRA. On top of these amounts, a delinquent taxpayer could also be exempt to the extent of a home, car, and business property. Levies on these assets could only be made in the event of jeopardy or the personal approval of a district director.

These changes would very seriously impair the collection process. Under the new rules, the majority of taxpayers would simply be exempt from collection activity for any unpaid taxes. If the congress believes that these persons should be exempt from taxes, such a decision should be made directly through the tax law rather than indirectly through a limitation on collection activity.

Further, the broad expansion of exempt property would invite abuse of the system. It is simply unacceptable to allow the tax protestor to funnel his or her assets into a Rolls-Royce or palatial residence and thereby evade tax liability.

Installment Payment of Tax

S. 2400 would create a new section 6159 to provide authority to enter into an agreement to pay delinquent amounts in installments. The service would be required to offer such an agreement to any taxpayer with a liability less than $20,000 who is not delinquent on any other installment agreement. The making of such an agreement would automatically release a levy.

As I mentioned earlier, it is the service's policy to enter into installment agreements when such agreements are necessary to the collection of tax. However, the mandatory extension of an installment agreement would very dramatically offset current receipts. Of the 1.6 million delinquent accounts, about 98% are for amounts less than $20,000. In effect, a delinquent taxpayer could obtain a loan from the government, without any collateral, at the section 6621 rate, currently 11%. Many taxpayers could well decide that the current payment of taxes is no longer expected under the law. The compliance and revenue loss effects would be very substantial.

Advice of the IRS

On the issue of advice provided by the IRS, the bill would abate any deficiency, interest, and penalty resulting from erroneous written advice from the IRS. Further, the bill would require the service to preface any oral advice with a warning that it is not binding on the government.

Despite the well-intentioned thrust of these ideas, the result would negatively affect the basic taxpayer services that the IRS works to provide. If all written advice were to be binding, written communications to taxpayers would be severely curtailed. All written advice would have to be put through at least the level of review now applicable to private letter rulings, which often takes several months to complete; furthermore, this estimate does not take into account the increased demand on the service's resources that would be involved.

On the question of oral advice, if we are required to state that such advice is not binding, the whole telephone service system could collapse. Taxpayers would, of course, demand written advice, and this result would only compound the drain on our resources.

We are constantly working to upgrade the quality of both written and oral communications to taxpayer. These efforts are succeeding in getting vital information to citizens on a courteous, responsive, and timely basis. S. 2400 would endanger this whole process.

Taxpayer Interviews

The bill also provides rules for taxpayer interviews. For example, the interview must be conducted at a reasonable time and place convenient to the taxpayer. In addition, so-called "miranda" warnings similar to those given to criminal suspects would be required prior to any interview.

First, a time and place reasonable and convenient to the taxpayer may be unreasonable and inconvenient to the government. It is unacceptable to send our employees into what can be a potentially dangerous situation at a time and place chosen by possible tax protestors. This arrangement would provide tax protestors with a whole new arsenal of weapons for harassment and delay. Given the difficulties we already work under in some cases, this would effectively frustrate our collection practices.

Second, the miranda-style warnings are inconsistent with most taxpayer interviews. For the most part, these interviews are fact-finding civil proceedings. An admonishment based on criminal investigations is inappropriate and unnecessarily frightening to the taxpayer. I can well imagine the reaction of taxpayers when each time we need information, our staff member is required to recite these warnings.

Conclusion

Mr. Chairman, I cannot emphasize too strongly my concern about this bill. It would seriously impair the service's enforcement capabilities -- to the point of ending much of our collection activity. Again, without the perception that our tax laws are fairly and firmly enforced, the whole self-assessment ethic is endangered.

As tax administrators, we are accustomed to the fact that tax collection is perhaps the least favorite function of government -- a situation that has prevailed since biblical times. However, we believe that tax collection is also one of the most important functions of government. Revenues must be raised somehow, otherwise all other functions of government would eventually come to a halt.

In the final analysis, what we have attempted to say here today is that there is the need for balance: weighing the need to safeguard taxpayers' rights against those same taxpayers' responsibilities to their government. When these two forces are in a rough equilibrium, tax administration is sound. When one of these forces is out of balance with the other, both tax administration and society are endangered. In its present form, S. 2400 Tips the scales far past the point of equilibrium.

My associates and I would be pleased to answer any questions you may have, Mr. Chairman.