BILL TO OVERHAUL IRS SAILS THROUGH SENATE.

Byline: Richard W. Stevenson The New York Times

With horror stories from taxpayers and complaints about the tax code's ever-increasing complexity echoing through the chamber, the Senate voted 97-0 on Thursday for legislation to overhaul the Internal Revenue Service.

The display of bipartisanship - remarkable in the increasingly bitter atmosphere pervading Washington - reflected a widespread perception that the tax-collection agency needs to be reined in, as well as the likelihood that a vote against the bill would be politically unpopular.

A narrower version of the legislation passed the House overwhelmingly late last year. President Clinton, who at first opposed the House bill but then reversed himself, objects to some provisions in the Senate version, which he claimed could undermine legitimate tax-collection efforts or cost too much money over the long run.

The administration will press for changes when the House and Senate meet to reconcile their bills, a White House spokesman said Thursday. But Clinton has made it clear that he wants to sign legislation that would bring about the most sweeping changes in decades to an agency whose very function has long made it one of the most reviled in government and a tempting political punching bag.

``We will continue to work with the Congress on a bipartisan basis on a final bill that advances our shared goals, that avoids unintended benefits for noncompliant taxpayers and that is consistent with our commitment to fiscal discipline,'' Clinton said Thursday night.

The Senate version would create an independent board to oversee the IRS, establish an independent taxpayer advocate, move responsibility for investigations of internal IRS wrongdoing to the Treasury Department and, in a host of small ways, give taxpayers more rights and powers during disputes.

The bill also calls for modest steps toward restraining the proclivity of Congress to make the agency's job harder by tinkering constantly with the tax code. Congress would be required to analyze new tax provisions affecting individuals and small businesses for complexity and ask the tax agency to report each year on which elements of the tax code are giving taxpayers the most problems.

Sen. William Roth Jr., R-Del., who is chairman of the Finance Committee, said the highly publicized hearings his committee held in September and last week showed that some IRS employees ``can get away with trampling the rights of honest Americans.''

Alluding to testimony during the hearings about taxpayers who had been hounded by revenue agents, small businesses that had been raided commando-style during criminal tax investigations and other insensitivity and incompetence, Roth said the country was confronting a culture within the IRS in which ``the taxpayer is often perceived as the enemy rather than the customer.''

The bill passed Thursday ``will go a long way toward correcting the problems,'' Roth said.

Democrats said they had problems with some elements of the bill, but they lined up to praise it.

``I have no doubt taxpayers will see improved service,'' said Sen. Bob Kerrey, D-Neb., who was co-chairman of a bipartisan commission last year that recommended many of the changes included in the bill. ``The bill accomplishes everything I had hoped to accomplish.''

The measure was also particularly popular with conservative Republicans, who saw it as a first step toward throwing out the entire progressive income tax system and replacing it with a single-rate flat tax or a national sales tax.

IRS BILL AT A GLANCE

Here are major provisions of the Senate proposal to restructure the Internal Revenue Service:

Penalties. Requires the IRS to suspend penalties and interest if the agency fails to contact a taxpayer within one year. Eliminates the failure-to-pay penalty for taxpayers who agree to pay back taxes through installments. Cost over 10 years: $5.8 billion.

Innocent spouses. Gives new rights to taxpayers, typically divorced women, who face collection actions because of mistakes caused without their knowledge by their spouses. Ten-year cost: $5.2 billion.

Burden of proof. Requires the IRS, not the taxpayer, to prove the case once a tax dispute gets into court. Taxpayers must maintain required records and cooperate with reasonable requests for information from the IRS. Ten-year cost: $2.4 billion

Reorganization. Gives the IRS commissioner authority to eliminate national and regional offices and install a new agency structure aligned to the needs of individual taxpayers, small businesses and others. No revenue effect.

Appeals. Creates an independent appeals process for taxpayers. No revenue effect.

Legal bills. Expands taxpayers' ability to sue for civil damages in unauthorized collection activities. Cost: $125 million over 10 years.

Confidentiality. Extends the attorney-client privilege in noncriminal cases to certified public accountants or anyone else licensed to practice before the IRS. Minimal revenue effect.

Board of directors. Creates a nine-member board with private-sector representatives to oversee the IRS, police managers and develop long-range plans. The treasury secretary and an employee representative would have permanent seats on this board.

Personnel. Gives the IRS commissioner flexibility to hire 40 new executives at higher salaries of $175,400 and makes it easier to fire IRS workers for major offenses.

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BOX: IRS BILL AT A GLANCE (see text)