White House, in Shift, Endorses IRS Reform Bill

In an abrupt reversal that clears the way for the first major overhaul of the Internal Revenue Service in decades, the Clinton administration Tuesday dropped its opposition to legislation to restructure the agency.

The White House turnabout came after congressional support for reforming the IRS--roundly criticized of late for abuse of taxpayers and mismanagement--suddenly snowballed into a seemingly unstoppable bipartisan force.

The legislation to revamp the agency was formally unveiled early in the day by Rep. Bill Archer (R-Texas), chairman of the House Ways and Means Committee. A key provision that had been at the core of the dispute over the bill would establish an independent oversight board--dominated by private sector representatives--to monitor the agency’s budget and operations.

Key Democrats, including House Minority Leader Richard A. Gephardt (D-Mo.), immediately queued up to pledge their support for the bill, which also would bolster taxpayer rights in dealing with the IRS and shift the burden of proof from the taxpayer to the IRS in cases that go to civil tax court.

After weeks of vehemently opposing creation of the oversight board, Treasury Secretary Robert E. Rubin late Tuesday said that the administration would support the bill because of changes that meet White House concerns. In particular, Rubin welcomed elimination of a proposal to transfer the power to hire and fire the IRS commissioner from the president to the oversight board.

The administration’s shift was viewed by many as a measure of how dramatically the momentum for IRS reform has built in recent weeks. That momentum had threatened to leave the White House on the wrong side of a popular issue--and opposite from Gephardt, who is seen as Vice President Al Gore’s principal rival for the Democratic presidential nomination in the year 2000.

“The tide really has turned, so from [the administration’s] point of view it makes sense to get ahead of the curve,” said Rep. Robert T. Matsui (D-Sacramento). “The herd mentality has set in.”

Republicans welcomed the administration’s support, even as they derided it as an example of political opportunism.

“This is classic Clinton,” said Ari Fleischer, a Ways and Means Committee spokesman. “He recognized [that] his position was going to be overriden, so instead of standing for his position he simply changed it.”

The politics surrounding the issue began to shift earlier this fall when a series of hearings by the Senate Finance Committee broadcast emotional personal accounts of taxpayer harassment and mistreatment by the IRS.

Archer’s bill, drafted in the wake of the hearings, is expected to be approved by the Ways and Means Committee today and to move along a legislative path well greased by public anger toward the IRS. GOP leaders want the House to act on the bill before Congress adjourns for the year, probably in early November.

The Senate may not act until next year, although proponents are hoping that decisive House action could step up pressure for a quick vote on the matter.

Archer’s legislation is based on the bipartisan recommendations of a yearlong IRS review commission, co-chaired by Rep. Rob Portman (R-Ohio) and Sen. Bob Kerrey (D-Neb.).

In keeping with the panel’s recommendations, the bill would strengthen the taxpayer’s hand in disputes with the agency, for example, by establishing a new right to sue the IRS for damages caused by negligence and making it easier to recover legal fees in disputes arising from IRS errors. The bill also calls for steps to increase the use of electronic filing and to otherwise update the agency’s operations.

The controversial oversight board proposed by the bill would consist of 11 members--eight private citizens appointed by the president, as well as the Treasury secretary, the IRS commissioner and an IRS labor union representative. The panel would have the power to review and approve the IRS budget, reorganization proposals and the agency’s long-range strategic planning.

The board’s supporters said that it is necessary to bring much-needed expertise to an agency that has been hobbled by mismanagement, such as a recent decision to spend $4 billion on updated computers that instead hobbled the IRS with obsolete technology that makes it difficult to deal with taxpayer problems.

“This would be a unique approach to a uniquely troubled agency,” Portman said.

Rubin had raised concerns about the potential for conflicts of interest in tax issues among the board’s private sector members. He said Tuesday that those concerns were eased when Archer agreed to drop the earlier proposal giving the board power to hire or fire the IRS commissioner.

Also, he said, he has been reassured that the legislation would not authorize the board to have a role in the agency’s law enforcement activities.

Previously, the administration had objected to Archer’s proposal to shift the burden of proof from taxpayers to the IRS in disputes that go to civil tax court. Currently, an IRS ruling against a taxpayer stands unless the taxpayer can prove it is wrong. The bill would shift the burden of proof to the IRS, so long as the taxpayer cooperates and provides the information requested.

“In America, a citizen is presumed innocent until proven guilty,” said Archer. “In the IRS, its the other way around.”

Critics warned that the proposed change could make the IRS even more intrusive, with increased demands for information to prove its case. Others worried that it would make it easier for tax cheaters to get off. Rubin said that he hopes the provision will be modified as the bill proceeds through Congress but that objections to it are not serious enough for the administration to withhold its endorsement.

“We support the bill in its current form but we also believe there are changes that can be made and should be made and we will work toward making those changes,” Rubin said.

The power of the political tides pushing the IRS legislation became especially clear Tuesday when, just an hour after Archer unveiled his legislation, it was endorsed by Gephardt. “Over the past several weeks, the American people have learned of abuses at the IRS that are unacceptable,” Gephardt said. “Now is the time to act to restore confidence and integrity to the IRS.”

Republicans also have tried to channel public anger at the IRS into support for plans to rewrite the entire tax code. Two House GOP leaders last week toured the nation to debate competing proposals to replace the existing income tax with a flat tax or a national sales tax. But legislation to rewrite the tax code is not likely to be enacted any time soon.

Times researcher D’Jamila Salem-Fitzgerald and staff writer Elizabeth Shogren contributed to this story.