Mr. Chairman, Americans do not have confidence in the IRS, and for good reason.

The National Commission on Restructuring the Internal Revenue Service, which I co-chaired, was given unprecedented access to the inner workings of the IRS and its employees. After 12 days of public hearings, hundreds of hours of testimony from taxpayers and tax experts, and over 300 private interviews with front-line employees, the Commission found an agency that could not answer its phones, had no clear management strategy, and lacked technological sophistication.

In short, we found an agency that was not serving the best interests of the American taxpayer.

This agency -- which ranks below the CIA in popularity with the American people -- is responsible for collecting 95% of the nation's revenue. However, it is given little if any oversight from the Treasury Department and has murky lines of leadership and accountability. And although law enforcement measures are used to bring in only 3% of what is collected, the IRS's culture and atmosphere are such that all taxpayers are treated as if they were guilty of something, no matter the reason for contact.

Our commission found, for the most part, that IRS employees were hardworking public servants. But with baffling management and oversight procedures and flawed computer systems, these employees are operating under stifling working conditions and are paralyzed by a monstrous tax code that has grown from a quarter inch thick when the IRS was created, to over a foot tall today.

Mr. Chairman, it is important to point out that the growth of size and complexity is the product of both Republicans and Democrats and both Congress and Administrations past and present. We have written and passed the laws that create the code.

For example, the alternative minimum tax (AMT), which was created to prevent affluent taxpayers from using tax shelters and deductions to avoid paying income tax, may raise the tax burden on middle-class single parents and families earning $50,000 to $75,000 under the new tax bill. No doubt, all involved had the best of intentions -- to allow family and education tax credits to hardworking middle American taxpayers. Unfortunately, neither Congress or the Administration bothered to explore the effects this credit would have on the tax code and taxpayers. Thus, the result is a mess for the American Taxpayer and the IRS.

Complexity is made worse by inconsistent management and oversight. The Commission did not find a distinct pattern of corruption with IRS employees or operations. We did find a culture and atmosphere which is ripe for the kind of harassment and inappropriate audits and seizures this Committee will hear about.

We found that performance measures do not encourage employees to treat taxpayers fairly and respectfully. Furthermore, the computer system makes it nearly impossible for front line employees to assist taxpayers with their problems. If a taxpayer receives an erroneous notice from IRS and calls them for help and clarification, the IRS employee must access up to nine databases to get the taxpayer the needed information. An interaction with IRS is often like a wrestling match with a faceless, nameless computer, rather than an interaction with a helpful representative, aiming to serve the taxpayer.

Senator Grassley and I are proposing legislation -- S. 1096, the IRS Restructuring and Reform Act of 1997 -- that will comprehensively restructure and reform the IRS from customer service to oversight and management.

Our goals are simple. We believe a citizen in Omaha, Nebraska, or Lincoln, Hastings, Kearney, Scottsbluff or any other city in America should get a helpful voice, not a busy signal, when they call the IRS for help. We believe it should be easy to file a tax return. And we believe the culture at the IRS should reflect a believe that the IRS works for the people, not the other way around.

The abuses we will hear about this week are symptoms of a larger problem: The IRS is insulated from the citizens it is supposed to serve. For that reason, we propose making the IRS independent from Treasury to become more accountable to the people. We propose the forming of a citizen oversight board that would work with the Treasury Secretary and the Administration to ease the administrative and oversight burden placed on a Treasury Department already responsible for 11 other major operations, including the Secret Service and customs, not to mention our nation's economic policy.

Critics of the oversight board have been misleading the public about the make-up of the board and have given false impressions of the content of the legislation.

The oversight board is not designed to run the IRS, that is the job of the Commissioner. Rather, it would assure public accountability and assist the Treasury Secretary on oversight, management and budgeting issues. The IRS and Treasury have operated for too long in the shadows, unaccountable to the people. This public oversight board would ensure that knowledgeable citizens continually monitor the agency.

A major -- and false -- criticism of the board is that it would turn the IRS over to a board of corporate CEO's. That is simply untrue.

Our legislation clearly states: "the Composition of the [oversight] board shall be nine members of whom seven shall 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 shall be considered special government employees. One shall be the Secretary of the Treasury, one shall be a representative of an organization that represents a substantial number of IRS employees who is appointed by the President."

Our legislation, as you can see, does not specify or mention "CEOs." The President would make the appointments and the Senate must confirm -- plain and simple. I suggest that perhaps Treasury's concerns that our recommended board would be filled with corporate self-interested CEOs is more of a statement of whom Treasury thinks our President will appoint, than on our legislation.

This would be an oversight board made up of taxpaying citizens, who aside from representation in Congress, have been denied a say in the tax collecting process for far too long.

Treasury, on the other hand, recommends the appointment of an advisory board that would consist of 20 government officials and another board that would have no influence or power. And while our legislation attempts to give citizens a say in IRS oversight, the Administration feels that more government input -- not citizen input -- is the way to reform the IRS.

It is important to note that our legislation, based on recommendations supported by a bipartisan majority of the Commissioners on the IRS Commission, has the support of a broad base of groups from the National Taxpayers Union to the IRS employees union -- the National Treasury Employee Union (NTEU). They support it for the simple reason that more of the same will not take the IRS where it needs to go -- into the 21st Century.

Roughly 85% of Americans pay their taxes without IRS intervention, Mr. Chairman. Yet the IRS treats most taxpayers who come in contact with it as if 85% of Americans DO NOT pay their taxes unless the IRS intervenes.

Americans don't have to like paying taxes, but it is not too much that the simplest of questions -- what we owe, why we owe it, and how we should pay -- get answered. Unfortunately for the past 50 years, nobody's been able to give those simple answers. Our legislation goes a long way toward doing just that, and I hope that after these hearings this Committee will begin proceedings on S. 1096, the IRS Restructuring and Reform Act of 1997.

We can criticize the IRS all we want, Mr. Chairman, but Congress played a role in the agency's demise. So if we don't like what is going on at the IRS, we need to change the laws governing the IRS. These hearings are a good first step towards making IRS more accountable. But, we need structures in place which ensure IRS is accountable in the years to come.

Our tax collector does not have to be our friend, but it should not be our enemy either. More Americans pay taxes than vote, and perhaps that is why so few Americans have faith that our system of government works for them.

I believe reforming the IRS -- improving phone service, payment options, filing procedures, management and oversight -- will not only enhance compliance and customer service, but go a long way toward restoring faith that we truly are a government "of, by and for the people."

* Please contact Mike Marinello at Senator Kerrey's office, 202-224-6551, with any questions regarding this testimony.

United States Senate
Washington, DC 20510-2704