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The political agenda for 1998: budget surpluses and tax reform.

The political agenda for Congress in 1998 is budget surpluses and tax reform. While 1997 will stand out as a year in which Congress and the Clinton Administration focused their attention on budget deficits, the new year is likely to bring a lively debate over the issue of budget surpluses. This scenario will be due in large part to a positive economic climate for the nation during the new year, a situation which is expected to result in positive revenue-in-flows for the U.S. Treasury.

House Budget Committee Chairman John Kasich (ROH) has publicly stated that he would like to see these budget surpluses used to pay for tax cuts and debt repayment. However, Senate Budget Committee members have generally adopted a more wait and see attitude toward these budget surpluses.

While Congress will continue to deliberate on the IRS restructuring legislation in 1998, the restructuring legislation may politically take a back seat next year to the Republican leadership strategy of pushing for a radical revision of the Internal Revenue Code. According to some commentators, the public may be gaining interest in tax reform at the same time when these same pundits are suggesting that Americans are losing interest in the tax cut message. House Majority Leader Dick Armey (R-TX) is the leading Republican proponent of a flat tax. On the other hand, Representative W.J. Tauzin (R-LA) is the leading sponsor of a national retail sales tax.

Republican Party does not have a unified perspective on the best form of tax reform. Instead of pushing a particular tax reform plan, many Republicans have introduced bills to "sunset" the Internal Revenue Code for the year 2000 or 2001. In fact, the National Federation of Independent Business has launched a petition drive to obtain one million signatures calling for abolishing the Internal Revenue Code.

NSA members should not seriously expect Congress to enact any tax reform plans in 1998. The real issue driving the tax reform debate in 1998 is the Republicans' strategy to maintain control of Congress. While enactment of a tax reform measure in 1998 is unlikely, it is conceivable that Congress could pass another tax cut bill.

The IRS Restructuring Legislation

As the National Public Accountant goes to press, the House of Representatives is expected to pass H.R. 2292, the Internal Revenue Service Restructuring and Reform Act of 1997. The legislation makes a number of positive improvements in the governance of the IRS, the electronic filing program, customer service, and taxpayer rights. There is talk that the Senate will act on the IRS restructuring legislation by April 15, 1998.

In the area of taxpayer rights, NSA has recommended that Congress include provisions in the final restructuring legislation to ensure that the IRS collections division becomes more customer service oriented. H.R. 2292 provides for the IRS to develop and publish schedules of national and local expense allowances to ensure taxpayers entering into an Offer in Compromise can provide for basic living expenses. In testimony before the House Ways and Means Committee, NSA stated that while the association believes this provision (of H.R. 2292) attempts to address a real problem underlying the IRS collection process, the Society is concerned the provision (as currently drafted) does not give practical relief to taxpayers.

NSA considers the current expense standards for Offers in Compromise and Installment Agreements to be inconsistent with the real cost of living for families. In specific, the current expense standards do not adequately address issues such as family size, housing and utility allowances, and the cost of car ownership. NSA is concerned that Revenue Officers are using the expense standards as strict rules rather than for general guidance. For these reasons, NSA told the Ways and Means Committee that IRS collection personnel should be given a clearer directive with respect to a taxpayer's expenses in an Offer in Compromise situation. The National Society recommends that the final restructuring legislation include a study of the various systemic and recurring problems associated with Offers in Compromise.

IRS Estimates Time to Complete 1040

The IRS is predicting it will take taxpayers about one hour less to prepare a 1997 Form 1040 as compared to a 1996 return. However, due to the complexity of the new capital gains provisions of the Taxpayer Relief Act of 1997, the Service is also predicting that Schedule D, Capital Gains and Losses, will take an additional hour to complete.

The most significant changes to the Form 1040 is the inclusion of new lines for medical savings accounts and the adoption credit. If a taxpayer reports a medical savings account or an adoption credit on the Form 1040, he must also fill out Form 8853, Medical Savings Accounts and Long-Term Care Services, and Form 8839, Qualified Adoption Expenses.

Rossotti to Become Next IRS Commissioner

At press time, the Senate is expected to confirm President Clinton's appointment of Charles O. Rossotti as the next IRS Commissioner. Prior to his nomination, Rossotti was a cofounder and Chairman of American Management Systems, Inc. of Fairfax, VA. Unlike prior appointments, Rossotti does not have a tax law background.

Rossotti is expected to oversee the IRS during a period of change and restructuring. He is expected to oversee the agency's implementation of the IRS restructuring legislation at the time the bill passes Congress over the coming months.

Rossotti's confirmation as Commissioner comes on the heels of the IRS' recent hiring of Robert Barr, previously Vice President of Government Programs for Intuit, Inc. Barr has been hired by the agency as Assistant Commissioner, Electronic Tax Administration. Barr is in charge of the electronic filing and payment programs, and system support programs.
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Author:Goldstein, Benson
Publication:The National Public Accountant
Date:Dec 1, 1997
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