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IRS reform ... the morning after.

The Congressional Agenda

The National Society of Accountants was one of the original stakeholders involved with the National Commission on Restructuring the Internal Revenue Service, a bipartisan group which began its work in 1996. Before releasing its report dated June 25, 1997, the National Commission held field hearings in three key American cities and met privately with about 500 persons. These included numerous NSA members, other persons from the private sector and IRS regional offices. The scope of the Commission's work was monumental and the fact the group was able to reach agreement on a final report is nothing short of remarkable.

In the summer of 1998, the National Commission's goals are nearing fruition as represented by the House-Senate Conference Committee on H.R. 2676, the Internal Revenue Service Restructuring and Reform Act. The conferees are actively working to reconcile the differences between the House and Senate versions of H.R. 2676 and as such, are nearing agreement on a final IRS reform bill.

NSA members should be proud of the National Society's active work over the past two years with respect to IRS restructuring and reform legislation. With the IRS reform legislation nearing completion, NSA members may also be asking what policy issues are likely to rise up and possibly replace IRS reform over the coming months. One of the next major policy issues facing Congress is the matter of the growing federal budget surplus. The Office of Management and Budget recently released figures estimating the federal budget will reach a $39 billion surplus for fiscal year 1998, a $495 billion cumulative surplus by 2002, and about $1.5 trillion surplus over the next 10 years.

With these burgeoning surpluses comes a growing chorus from the Republican Congress for tax cuts. Representative Bill Archer (R-TX), House Ways and Means Committee Chairman, recently stated "If we don't return the surplus to the people, I fear the politicians in Washington will use the surplus to create new government programs and increase government spending."

Strong candidates for tax cuts in 1998 - as defined by the rhetoric bandied about during the current national political campaign - are the marriage penalty and a shortening in the capital gains holding period from 18 months to 12 months. Another strong candidate is a speedup in the phase-in period for reaching a full, 100% health insurance deduction for the self employed. Unfortunately, the betting odds of President Clinton signing tax cut legislation into law in 1998 might not be greater than one in two odds or a 50% probability. Also lurking on the horizon is a purported pledge by Clinton and Republican leaders for passage of a Social Security reform bill in 1999.

The IRS Agenda

While the agenda for Congress over the coming months may be tax cuts and Social Security reform, the agenda for the IRS is anything but certain. One critical question for the nation's tax collector will be the issue of membership on the IRS Oversight Board. The corner stone of any final IRS reform bill will be an Oversight Board composed of 6 to 8 persons from the private sector. There are rumors that a list of prospective Board members is actually circulating around IRS and the Treasury Department.

The House and Senate versions of H.R. 2676 reveal that IRS Board members are likely to have expertise in the areas of management of large service organizations, customer service, federal tax laws, information technology, organizational development, and the needs and concerns of small business.

Even though Congress does not intend for tax practitioners to have any significant role on the IRS Oversight Board, many tax professionals are likely not to prove interested in becoming members of the IRS Board. The final IRS reform legislation is likely to subject all Board members to special ethical conduct rules and conflict-of-interest rules, such as a prohibition against representing clients (while a Board member) before federal governmental agencies on tax-related matters. These ethics rules are also likely to prohibit Board members from representing clients for one full year after retiring or resigning from the Oversight Board. In return for agreeing to these ethics and conflict-of-interest rules, an IRS Oversight Board member is likely to receive $30,000 in compensation a year. On a practical level, such rules may result in IRS Oversight Board members coming from academia, other Boards, and large service oriented companies.

The Growing Tax Gap

During hearings in the spring of 1998, before the Senate Finance Committee, Commissioner Charles Rossotti revealed that the IRS estimates taxpayer noncompliance in the United States amounts to a $195 billion tax gap. Unfortunately, as suggested by a May 27, 1998 Tax Notes Daily article, this $195 billion figure is derived from data collected through "the now-suspended Taxpayer Compliance Measurement Program (TCMP)." And this 1998 estimate is merely a projection keyed off of a 1992 estimate. Ironically, this earlier 1992 estimate was derived from a review of TCMP data compiled in 1984, 1985, and 1988.

Unfortunately, when the IRS starts talking loudly about tax gap figures, the agency also begins to talk loudly about noncompliance by small businesses and self-employed individuals. Nevertheless, as long as there is a Republican Congress, it is not likely that the IRS will renew the quest for TCMP audits. At a recent symposium held by the National Tax Association, former IRS Commissioner Goldberg stated practitioners and government officials need to create a viable alternative to TCMP audits - what Republicans have labeled as the "audits from hell."
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Author:Goldstein, Benson S.
Publication:The National Public Accountant
Date:Aug 1, 1998
Words:912
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