AUDITING THE IRS February 3, 1998 The NewsHour with Jim Lehrer Transcript

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Last year, the House of Representatives passed a bill that would greatly reform the IRS. Charles Rossotti, the new IRS chairman, discusses the proposed reforms and the future of the agency.

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A RealAudio version of this segment is available. NEWSHOUR LINKS: October 22, 1997 The Senate Finance Committee's investigation of the IRS. October 10, 1997 President Clinton proposes his own IRS reform plan. September 25, 1997 The Senate Finance Committee continues its hearings on the IRS. September 24, 1997 A discussion of how the IRS treats regular taxpayers. April 11, 1997 A panel discussion on the embattled IRS. Browse the NewsHour's coverage of federal agencies, the Congress and the White House OUTSIDE LINKS: International Revenue Service

PHIL PONCE: In last week's State of the Union speech, the President said Internal Revenue Service reforms were urgent business.

PRESIDENT CLINTON: Like every taxpayer, I am outraged by reports of abuses by the IRS. We need some changes there, new citizen advocacy panels, a stronger taxpayer advocate, phone lines open 24 hours a day, relief for innocent taxpayers. Last year by an overwhelming bipartisan margin the House of Representatives passed sweeping IRS reforms. This bill must not now languish in the Senate. Tonight I ask the Senate, follow the House, pass the bipartisan package as your first order of business. (Applause)

The IRS reform bill.

PHIL PONCE: The bill, passed by the House last November, would: create a new independent oversight board; shift some of the burden of proof from the taxpayer to the IRS in tax court; require the IRS to reimburse taxpayers for certain overpayments and legal fees; and offer divorced taxpayers more protection when ex-spouses fail to pay taxes. In the Republican response to the President, Senate Majority Leader Trent Lott called for the agency's immediate transformation.

SEN. TRENT LOTT, Majority Leader: The only way to limit government and expand individual freedom is to eliminate the IRS as we know it today. It is morally wrong for a free people to live in fear of any government agency. It is morally wrong for citizens in a democracy to be presumed guilty until proven innocent And that's the way it is at the IRS. We're going to stop the abuses the IRS has been inflicting on the American taxpayers. You've got our word on it.

PHIL PONCE: Yesterday, President Clinton requested $8.2 billion for the IRS in his proposed budget. That's $529 million more than last year. The IRS wants the additional funds to pay for improvements in customer service, management and a more modern information system.

PHIL PONCE: The man who will oversee any reform at the IRS is its new commissioner, Charles Rossotti. The former head of an information technology consulting firm, Mr. Rossotti is the first non-tax lawyer or accountant to run the IRS in decades. Commissioner, welcome. Sir, last week in an appearance before a Senate committee, the Senate Majority Leader said, "You run an agency that I don't like and that I wish did not exist." How do you react to that kind of a sentiment?

CHARLES ROSSOTTI, IRS Commissioner: Well, Phil, I think that the way we look at it is as long as the tax law is on the books that requires taxpayers to pay taxes, we have to have an agency that looks at its job, that's helping taxpayers solve the problems that they have in complying with that law. And that's what we're trying to do, we've been trying to shift the whole focus from one which we expect taxpayers to understand the way we do business to one that says, look, if you have to pay taxes, we want to figure out how we can help you do that the easiest way possible for you. And that'll be the case as long as there's tax laws on the books.

PHIL PONCE: But at this point, why do you think it is that there appear to be so many people who react with fear or hostility towards the IRS?

Mr. Rossotti: "...one of the most important shifts that we have to make... is in the whole psychology of the relationship we have, the taxpayers."

CHARLES ROSSOTTI: Well, I think that you're on to one of the most important shifts that we have to make, which is in the whole psychology of the relationship we have, the taxpayers. There really isn't any reason why we should be problem creators or adversaries for taxpayers. We really should be problem solvers. That's what we mean by customer service. I mean, basically, the way it works is, you know, Congress has passed laws that impose obligations on taxpayers. The real role of our tax agency ought to be able to--ought to be in a situation to think about the problems the taxpayers have in complying with those laws and helping them. I mean, the vast majority of taxpayers pay their taxes willingly and voluntarily. And we want to be in a position to help those taxpayers do that, and also to make sure the system's fair so that the few taxpayers who may not be willing to pay, you know, voluntarily don't impose an extra burden on the others.

PHIL PONCE: In the fast few months your agency has really gotten beat up. Do you think that fear and hostility--apparent fear and hostility has been justified?

CHARLES ROSSOTTI: Well, I think that the--some of the problems that were shown in some of the Senate hearings were certainly serious problems and even one--or even a few cases of mistreatment of taxpayers is not acceptable. So we've taken some very tangible steps in even the short run to try to make sure that those kinds of situations don't reoccur. I mean, for example, we've raised the level of management review internally on things like seizures and other kinds of enforcement actions that cause the most difficulty for taxpayers. We've had the problem solving days, open houses, if you call them that, throughout the country, which have been very successful in helping taxpayers that have had longstanding problems solve those numbers. And we've taken all those long-term steps but I do think that longer-term we have to really establish the goal of having taxpayers view us as advocates for them as an agency that's there to help them comply with the law, rather than adversaries.

PHIL PONCE: And speaking of law, the House has passed its version of IRS reform, the Senate's going to be taking it up. What do you think needs to be changed or fixed?

CHARLES ROSSOTTI: Well, I think as far as the legislation that passed the House, the President has called for it to be--pass the Senate as quickly as possible and we certainly support that. It will enable us to make some additional long-term reforms that are necessary.

PHIL PONCE: Like what?

Mr. Rossotti: "There are 100 million taxpayers in this country that have relatively simple requirements--file a return once a year...and all they need really is some help in filing that return...."

CHARLES ROSSOTTI: Well, for example, one of the things that we have proposed is a concept where we would transform the entire structure of the IRS into one which is focused on helping specific groups of taxpayers. I mean, there are 100 million taxpayers in this country that have relatively simple requirements--file a return once a year--and basically get a refund, and all they need really is some help in filing that return, getting their refund as quick as possible. That's contrasted with, for example, a lot of small businesses which have much more complex requirements and which we need more help on a quarterly basis or even a more frequent basis. So in the longer-term with the help of this legislation we want to really turn even more fundamental changes that would focus the entire agency around helping specific groups of taxpayers.

PHIL PONCE: So you're interested in changing the agency so that it's clustered around units geared to specific kinds of taxpayers and the advantage of that in terms of people's regard for the agency would be what?

CHARLES ROSSOTTI: Basically that just carrying this one step forward and the whole idea of changing the agency from one which creates problems for taxpayers to one which understands specific taxpayers' problems and helps to solve those problems. And what are the problems that a small business person has or a self-employed person has--there are more complicated than somebody who's just an employed person. If we can dedicate some people that are totally responsible for helping each of those groups, we're going to do a better job. It's just like a bank. I mean, banks have moved themselves to be more customer-focused. They've got a specific group that works with, you know, consumers that are buying cars and buying--doing mortgages, and they've got a different group that works with large multinational companies. They don't try and mix those up more than one--in one place.

PHIL PONCE: Aside from those structural kinds of changes that you're contemplating, how about changes in the culture within the IRS, or a change in attitude, what are you looking for there?

CHARLES ROSSOTTI: Well, I mean, I think these are all together. I mean, the structure, the different kinds of business practices, like helping people file electronically and file refunds more quickly, these are all designed for the same thing, which is to turn the agency inside out. Instead of some--an organization that says, you know, here's the way we do business, you know, you send in your forms and figure us out, we want to turn it completely around and say we're going to try to figure out what your problems are, your specific problems as a taxpayer, and help you solve those problems. That's the whole cultural change that we're undergoing in the IRS today.

PHIL PONCE: I mean the kinds of things you're just talking about sound like the kinds of things that a lot of private businesses are doing to make themselves more customer friendly and yet your job is not completely to be friendly to people, you're also in enforcement; you're also kind of a cop.

The complexities of the IRS.

CHARLES ROSSOTTI: Yes. Well, you know, it's interesting, you're exactly right that is the kind of things that the companies do, and one of the interesting things about it is every company that I worked with in my previous business had to collect money from their customers, you know, I mean, after they made a sale, they had to collect money, whether they had a credit card receipt or other means. And in the old days they would, you know, take very heavy-handed tactics to try to collect money from people. Now there's a little bit more of a tendency to try to get in there and figure out if there's a problem, how can we work with that customer to collect that money in a way that will keep them as a valued customer, in most cases. Of course, there are always going to be those small percentage usually who simply won't abide by the rules and won't pay, and we make sure that we've got the enforcement powers to deal with them because that's the only way it's fair to the rest. But just as most private businesses have figured out better ways to collect money from their customers, we can do the same thing. We're not going to let those small, small percentage of taxpayers who won't comply drive our whole way of dealing with the vast majority of people who do comply.

PHIL PONCE: And the percentage of people who do comply is fairly high in this country, relative to other countries.

CHARLES ROSSOTTI: Extremely high. It's extremely high. I mean, overall, the overall compliance rate is generally set at 87 percent, but actually in a lot of groups it's even higher than that. And so the majority of people in this country do willingly comply, and we want to treat them right.

PHIL PONCE: Are you concerned that some of the reforms could conceivably, what, go too far and make your job either tougher or else create some unanticipated problems for taxpayers?

CHARLES ROSSOTTI: Well, there are some provisions in the bill that we want to make sure don't have what we call unanticipated consequences that end up making the IRS more intrusive, and we're going to work with the Senate Committee. There's a provision there that is called the burden of proof provision that shifts in some cases the burdens--this gets to be a highly technical point. We do agree that there should be some improvements in this area, but we don't want to have a case where taxpayers mistakenly think that they don't have to keep records, for example.

PHIL PONCE: Because right now, what, the burden of proof is on the taxpayer to establish income and some of the legislation suggests that maybe it would be incumbent on the IRS to establish that, and what would that mean in terms of--in terms of the IRS's potential--intrusiveness or aggressiveness?

CHARLES ROSSOTTI: Yes. And I think that the bill as it's written really is limited to certain kinds of court cases and I think the danger is that people could assume that, for example, they didn't have to keep records, and that's not really the intent of the bill, so we need to work with the committees to make sure that those kind of things don't happen. But, in general, we very much favor this bill, and we think the provisions in it will make us do a better job helping taxpayers.

PHIL PONCE: Do you feel at much of a disadvantage because you're not a tax lawyer or an accountant?

CHARLES ROSSOTTI: Well, Phil, you know, I was before the House Ways & Means Committee today, and every once in a while you do get that little twinge that says, here I am, not a tax expert, and I'm up before these people that are making tax laws, but, you know, when you really got into it, what they were interested in were the same kind of questions that you were asking, you know, how can we really make this agency do what we really want it to do, which is to--help the vast majority of taxpayers who are willing to comply--how can we make it easier for them to do that--those are the kind of questions we were getting. How can we make the taxpayer advocate more effective? How can we provide better assistance in people that are filing returns? Those are the kind of questions we're asking. Those are not really tax law questions; those are basically business and management kinds of questions. So every once in a while I do get that little concern, but I think really most of the problems are pretty familiar with me as I've dealt with them in business.

PHIL PONCE: You were in business. You were the head of a successful company. Why did you take this job, especially at this time when the IRS is getting so much heat?

Mr. Rossotti: "...as I became aware that possibly there was an opportunity for me to contribute to making this better for people...I decided to take the plunge and do it.."

CHARLES ROSSOTTI: Well, that was a question I thought about for quite a while but in the end, I considered that this agency probably affects more people in this country than any other government agency, and as I became aware that possibly there was an opportunity for me to contribute to making this better for people, I finally concluded that was a worthwhile thing for me to spend the next few years of my life, so I decided to take the plunge and do it. So here I am.

PHIL PONCE: So, do you have any doubt that within the not-too-distant future the IRS will be a largely transformed agency?

CHARLES ROSSOTTI: Well, I agree it will be a transformed agency--when you say the not-too-distant future--I think that one I might modify a little bit. I think we're making progress, step by step, we're doing a lot of things right now, right in this filing season, and making the phones easier to get through to, longer hours, those kinds of things, but really all these things are going to take time to completely fix. I mean, one of the problems we have is our computer system which are unfortunately really quite antiquated and which are a real constraint on the ability of our employees who want to do a good job to really get the right information, so they can answer a taxpayer's question--you know, those kind of things take time and money to fix. So I think we'll make progress step by step but I think it's going to take, you know--we're going to be at this for quite a few years till we finally get to the point that we really want to get to, which is we provide service that's every bit as good as what people get in their private sector experiences.

PHIL PONCE: Commissioner, thank you very much.

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