Internal Revenue Service's strategic plan and budget for fiscal year 2002.

March 20, 2001

On March 20, 2001, TEI President Betty M. Wilson testified at the first hearing held by the IRS Oversight Board. The Board, which was created as part of the IRS Restructuring and Reform Act of 1998, held the hearing in advance of its submission of a budget proposal to Congress.

Good afternoon. I am Betty Wilson, Vice President-Taxes of MGM MIRAGE in Las Vegas, Nevada. I appear before you today as the President of Tax Executives Institute, the preeminent association of corporate tax professionals in North America. I am accompanied by the Institute's Executive Director, Michael Murphy, who previously served as the Internal Revenue Service's Deputy Commissioner, and by our General Counsel and Director of Tax Affairs, Timothy McCormally. The Institute is pleased to participate in the IRS Oversight Board's first public meeting and to present our views on the Internal Revenue Service's strategic plan and budget for Fiscal Year 2002. After I complete my prepared statement, Mike, Timothy, and I will be pleased to respond to your questions.

Background

Tax Executives Institute was established in 1944 to serve the professional needs of in-house tax practitioners. Today, the Institute has 53 chapters in the United States, Canada, and Europe. Our 5,300 members are accountants, attorneys, and other business professionals who work for the largest 2,800 companies in the United States and Canada; they are responsible for conducting the tax affairs of their companies and ensuring their compliance with the tax laws. Hence, TEI represents the business community as a whole, and our members deal with the tax code in all its complexity, as well as with the Internal Revenue Service, on almost a daily basis. Most of the companies represented by our members are under continual audit by the IRS's Large and Mid-Size Business Division as part of the Coordinated Examination Program (CEP). TEI is pleased to have worked with the IRS Restructuring Commission, the Internal Revenue Service itself, and (since its formation) the LMSB Division to improve tax administration.(1) TEI is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. Our background and experience enable us to bring a unique and, we believe, balanced perspective to the question of the IRS's strategic plan and budget.

The Importance of Linking the Budget to the Strategic Plan

Mr. Chairman, TEI is committed to maintaining a tax system that works -- one that builds upon the principles of voluntary compliance and taxpayer service and is fully consistent with sound tax policy; one that taxpayers can comply with; and one in which the IRS can effectively perform its audit function without unduly burdening taxpayers. There are several keys to achieving this objective, and sufficient funding is indisputably one of them. It would be a mistake, however, to think that the answer to the challenges facing the tax system in this country lies simply in throwing money at the problem. To avoid false starts and missteps, full and stable funding must be preceded by the adoption of a sound framework for future action.

That is why TEI supports the IRS's strategic planning efforts and commends the IRS and Oversight Board for their efforts to tie the agency's budget to its strategic plan. The companies represented by TEI's membership know that to be successful, they must plan ahead and ensure that adequate resources are devoted to employee training, customer service, and other core functions. They know the IRS must do the same. Hence, as a group, they applauded Congress's decision in enacting the IRS Restructuring and Reform Act of 1998 to organize and manage the IRS more like a business. They also embrace the IRS's three strategic goals:

* Top-quality service to each taxpayer in every transaction.

* Top-quality service to all taxpayers through fair and uniform application of the law.

* Productivity through a quality work environment.

These goals are general enough to allow the agency to adapt to changing conditions but specific enough to focus its efforts, and we applaud the decision to link operational changes (as reflected in the budget) to the strategic goals.

What the three strategic goals underscore is the importance of striking the proper balance among taxpayer service, enforcement, modernization, and the agency's other activities. To our mind's eye, an effective and respected strategic plan will minimize unwarranted or disruptive shifts in direction and priorities (say, from enforcement to taxpayer service and back again as the winds of change shift) that have occurred in the past. Clearly, the agency must maintain the ability to respond to changing circumstances, but if the response is channeled through the strategic plan, there will likely be a better appreciation of the policy and operational implications of the shift. For example, in prior years a shift of resources to taxpayer service has of necessity produced a shift away from enforcement activities, with some commentators suggesting that the reallocation of budget dollars might have adversely affected the public's confidence in the fairness of the tax system. By subjecting future changes to the rigors of the strategic planning process, the IRS, Congress, and ultimately the public will be able to weigh better the competing considerations of such a shift of priorities and the resulting reallocation of resources.

The Importance of a Balanced Strategic Plan

The IRS's strategic plan reflects the short- and long-term actions necessary to accomplish the agency's operational goals and advance its modernization objectives. TEI supports the increased attention paid to "front-end" activities promised by the strategic plan. Enhancing taxpayer education and providing taxpayers and IRS personnel with clearer, quicker guidance will make it easier for taxpayers to comply with the laws and reduce taxpayer burden. The Institute also supports the agency's efforts (primarily through the Taxpayer Advocate) to identify excessively complex tax provisions and to recommend simplifying changes.(2) We also applaud the proposed renewed focus on enforcement activities, especially in respect of underreporting, nonfiling, and abusive trusts and pass-through entities, as well as other areas that may have been slighted in the past. And we applaud the IRS's commitment to strengthening its ability to deal effectively with the global economy. In respect of the agency's compliance activities, we note that TEI's perspective is unique because the bulk of our members work for companies that are under continual audit by the IRS. Thus, whereas the IRS's crisper focus on enforcement may result in the agency's auditing more taxpayers in some sectors, it promises primarily to result in more effective and efficient examinations in respect of TEI's constituency. In other words, since the companies represented by TEI members will likely be audited in any event, we have no qualms about endorsing a better trained, better focused workforce that is equipped with innovative ways of resolving issues.

In sum, TEI's concerns are not unlike those of the other witnesses who have appeared before you today. We support the IRS's strategic thrusts, but our members are concerned about the agency's ability to recruit, train, and retain qualified personnel. TEI is also concerned about the acquisition, installation, and effective utilization of state-of-the-art technology. Whether the promise of the strategic plan can be realized depends in large measure on the IRS securing sufficient funds to do its job.

The Importance of Sufficient Funding

TEI has consistently supported adequate funding for the Internal Revenue Service. If Commissioner Rossotti and the other leaders of the IRS are to rebuild the agency's credibility and effectiveness, the agency must be assured that the programs needed to implement its mission will be fully and consistently funded. The IRS is at a critical juncture in its restructuring efforts. To succeed in reinventing itself as a modern, taxpayer-focused agency, the agency must have adequate funding for its service initiatives.

More specifically, TEI believes that the IRS's modernization efforts and staffing plans must be fully supported in order to ensure a proper balance of the IRS's taxpayer service, enforcement, modernization, and other activities. We believe the Oversight Board has done an excellent job of explaining why the agency's budget must be at once stable and sufficient. Although TEI has not undertaken a review of the proposed budget's myriad details, we do support the principles underlying the Staffing Tax Administration for Balance and Equity (STABLE) initiative (whereby the IRS will add a total of 4,000 staff), as well as the proposed "replenishment" of the Information Technology Assessment Account. Finally, we support providing additional funds for training and travel, thereby supporting the organizational changes that undergird the restructured agency.

Conclusion

Tax Executives Institute commends the IRS Oversight Board for holding this public hearing and generally for its efforts to deliver on the promises of the IRS Restructuring and Reform Act of 1998. Assessing the Internal Revenue Service's progress since enactment of that milestone legislation, TEI is impressed with the agency's efforts to remake itself. We sense a renewed energy and commitment in the agency's leadership corps and remain hopeful that the promise of restructuring will be realized. To be sure, TEI has concerns about certain aspects of the IRS's day-to-day operations, but the strategic plan confirms that the agency is focusing on the right issues. Much progress has been made, and much remains to be done. TEI looks forward to working with the Oversight Board and the IRS itself to improve tax administration.

Important CPE/CLE Accreditation Information

Boards of Accountancy. Tax Executives Institute is registered with the National Association of State Boards of Accountancy (NASBA) (Sponsor No. 103086, Exp. 1/01/01 -- renewal pending.)

TEI is also registered with the following boards of accountancy:

Illinois (#158-000651, Exp. 12/31/2001), New Jersey (#160, Exp. 12/31/ 2002), New York (000265, 9/1/99-8/31/02), Ohio (P0087), Pennsylvania (PX613L), Texas (#3512).

Continuing Legal Education. The Institute is registered in the following states as a sponsor of continuing legal education programs:

California - Approved provider status from September 1, 1999 to August 31, 2002. New York - Approved provider status from September 1, 1999 to August 31, 2002. Kentucky - 2000 50th Midyear Conference - 21 credit hours; 2000 55th Annual Conference - 15.50 credit hours; 1999 54th Annual Conference - 16.25 credit hours. Minnesota - 2000 50th Midyear Conference - 23 credit hours; 2000 55th Annual Conference - 13 credit hours; 1999 54th Annual Conference - 23 credit hours. Ohio - 2000 50th Midyear Conference - 21 credit hours; 2000 IRS Audits and Appeals Seminar - 13.25 credit hours; 2000 State & Local Tax Seminar - 10.5 credit hours; 2000 Federal Tax Course Level I - 30.75 credit hours; 2000 State & Local Tax Course - 26.25 credit hours; 2000 Strategic Tax Management Seminar - 12.75 credit hours; 2000 55th Annual Conference - 14.5 credit hours; 2000 Mergers & Acquisitions Seminar - 12.75 credit hours; 2000 International Tax Course - 28 credit hours; 1999 54th Annual Conference - 20 credit hours; 1998 International Tax Course - Level I - 29 credit hours; 1998 Managing Your Company's Worldwide Effective Tax Rate - 9.25 credit hours; 1.998 A Practical Update on Consolidated Tax Return Issues - 11 credit hours. Oklahoma - 2000 50th Midyear Conference - 25 credit hours; 2000 55th Annual Conference - 22 credit hours; 1999 54th Annual Conference - 25 credit hours. Pennsylvania - 2000 50th Midyear Conference - 18.5 credit hours; 2000 55th Annual Conference - 14 credit hours; 1999 54th Annual Conference - 16 credit hours. Wisconsin - 2000 50th Midyear Conference - 22 credit hours; 2000 55th Annual Conference - 20 credit hours; 2000 State & Local Tax Course- 35 credit hours; 1999 54th Annual Conference - 21.5 credit hours. Alabama - 2000 50th Midyear Conference - 21 credit hours; 2000 55th Annual Conference - 19.3 credit hours; 1999 54th Annual Conference - 20 credit hours; 1998 IRS Audits & Appeals: Strategies for Success - 13 credit hours.

Note: TEI provides a continuing professional education form for each registrant at its conferences, courses, and seminars, which should be completed at the conclusion of the program and returned to the TEI Registration Desk for verification and signature. A copy of the form is retained and filed at TEI-Washington.

Tax Executives Institute and TEI Education Fund accord to participants of any race, color, creed, sex, or national ethnic origin all the rights, privileges, programs, and activities generally accorded or made available to participants at their programs, courses, and other activities.

Please note: TEI and TEI Education Fund programs are presented for the benefit of TEI members and others who work in corporate tax departments; private practitioners may not register for the programs.

(1) TEI is proud of its record of working with the IRS to help make its restructuring efforts a success. Our members and staff have participated in numerous projects with the IRS, have met with myriad modernization design teams to promote or comment on suggested improvements, and have fully embraced the concept of working together as a full partner in tax administration. We are pleased that three of our former Presidents (Paul Cherecwich, Lester Ezrati, and Charles Shewbridge) are active on the current IRS Advisory Council, and that two more (Larry Langdon and Linda Burke) have been recruited to join LMSB (respectively, as Commissioner and Division Counsel). In addition, three former members have been named Senior Industry Advisors to the LMSB Industry Directors, thereby helping the agency meet its objective of drawing more business executives into its ranks.

(2) Like several other organizations that are testifying at today's hearing, Tax Executives Institute has devoted considerable attention and resources to simplifying the Internal Revenue Code, and we are pleased to have joined the American Institute of Certified Public Accountant's Tax Division and the American Bar Association's Tax Section in recommending numerous steps to reduce the tax law's complexity, which in our view compromises the IRS's ability to fulfill its mission. In our most recent submission to Secretary of the Treasury O'Neill, the three organizations put it this way: "American taxpayers have lost not only the ability to understand and comply with the law without expending considerable resources, but also respect for a tax system that increasingly makes them victims of its unintended consequences and outdated or ill-conceived policies. This cannot help but reduce compliance, increase the cost and complexity of administering the tax system, and undermine the public's general confidence in government. Simplification is not merely an ideal to be sought but never achieved; in our view, it is an economic, political, and even moral imperative." The IRS and the Oversight Board, too, should continue to make the case for simplification.