Madam Chairman and Members of the Subcommittee on Oversight:
My name is Sheldon S. Cohen. I am a partner in the law firm of
Morgan, Lewis & Bockius in the D.C. office. I am delighted to appear
before your Subcommittee today to give you my personal views on a
possible expansion of the Taxpayer Bill of Rights.
The Congress has visited this area -- of protecting the rights
of taxpayers from real or perceived ills -- since the original
Taxpayer Bill of Rights became law in 1988. Several members of this
House and of the Senate have from time-to-time suggested changes to
further expand the rights of individual taxpayers during audit or
collection activities. H.R. 11 was included in the Revenue Act of
1992 but was vetoed by President Bush and thus never became law.
I would like to discuss a few of the provisions of H.R. 11
which I believe should be modified and one new idea which has been
raised recently which would require the government to bear the
burden of proof in all tax situations.
I would remind the Committee that I served in the Internal
Revenue Service on several different occasions. During the period
1952-1956, I served as a legislative draftsperson during the
drafting of the 1954 Code and Regulations. In the period January
1964 through January 1969, I served as Chief Counsel for one year
and Commissioner of the Internal Revenue Service for four years. I
have also served as a Trustee of the National Academy of Public
Administration and have served as a panel member of several studies
for the administrative aspects of the Internal Revenue Service. I
also served as Co-Chair of a study of the collection and privacy
portions of the Internal Revenue Code for the Administrative
Conference of the U.S. (The changes recommended by that group,
co-chaired by Justice Scala, were adopted by the Congress in 1976.)
The object of the Taxpayer Bill of Rights is salutary. Every
taxpayer, in dealing with his government, should be treated fairly
and courteously. There is no excuse for overbearing or harsh
behavior on the part of any government official in dealing with any
taxpayer. Most IRS employees do their jobs fairly. When I was
Commissioner, I emphasized this -- that the good taxpayers deserve
it and those that try to game the system will be confounded by fair
Nevertheless, as you can understand, the job of tax collection
is tough and trying. There are many occasions where either or both
the taxpayer and the IRS employee's nerves will be frayed, and they
will annoy each other. Because an IRS employee occasionally annoys a
taxpayer is no reason to give that taxpayer rights any better than
any other taxpayer. To treat one taxpayer in a beneficial manner
more favorably than another is to prefer one taxpayer over the
other. This is unfair and creates hardship for other taxpayers.
Thus, I do not favor the waiving of interest as provided in
H.R. 11 for "any assessment of a deficiency attributable in whole or
in part to any error or delay by an officer or employee of the
IRS..." may be abated. It is hard for me to see why a taxpayer
should pay no interest even if the IRS unreasonably delays
performing a managerial or ministerial act. The taxpayer had use of
the money and could have had it in an interest-bearing account.
Thus, I would use a fair interest rate. If you charge no interest,
you benefit one taxpayer over the other.
I am troubled by the creation of a new Presidential appointee
to serve as Taxpayer Advocate. Since the 1952 Reorganization of the
IRS there has only been one Presidential appointee in the IRS, the
Commissioner of the Internal Revenue ( The Chief Counsel is
technically an Assistant General Counsel of Treasury assigned as
Chief Counsel of IRS.). Prior to 1952 there were numerous
Presidential appointees and each was appointed with the
recommendation of the usual political sources. This lead to problems
in the and lead to the so-called "Blue Ribbon" System we have now.
If the Congress wishes to have a Taxpayer Advocate, this can be
done, but there would appear to be no necessity to set up a position
of such high rank which might become enmeshed in politics. I have
enough confidence in this Committee's action over the years to
believe it can properly monitor the role of the Taxpayer Advocate.
The Congress has from time-to-time criticized the IRS for its
failure to collect all the taxes due. At other times the Congress
has criticized the IRS for acting too harshly in collecting the
taxes which are due. You must remember we are talking about taxes
which are due or overdue and what is really necessary is determining
whether the taxpayer has the capacity to pay more quickly or more
slowly. Reasonable people may well disagree on these points.
Reasonable notice by the government as to the change of an
installment agreement may be required but not too much. Please
remember the situation is very fluid and delay may cause failure to
collect. That burdens the taxpayers who comply.
In regard to the provision regarding possible personal
liability by an IRS employee, the House has earlier proposed such a
provision. The Senate did not. The Bill as passed had no such
provision. I would hope that you would go along with the Senate
version again. Otherwise, you will inhibit IRS employees from acting
on their best judgment on the threat of possible personal liability.
The liability may not be real, but it will inhibit reasonable action
out of fear. This will not be constructive for the administration of
the tax laws. Likewise, it will not benefit the taxpayer as the law
already gives him/her a right of reimbursement against the
In regard to retroactive regulations, taxpayers like them when
they are favorable but violently disagree with them when they may be
tighter than they want. The interpretive regulation is different
from the legislative regulation. Assume the Congress passes a new
provision and the Treasury issues a notice of rule making a year
later -- then waits a year to complete the final regulation. The
interpretive regulations merely interpret the law; it should be
effective from the date of enactment assuming the courts find it to
be a reasonable interpretation. In most instances where the
regulation takes a sharp departure from a prior position of the IRS,
the regulations are prospective only. Likewise, most legislative
regulations are prospective.
There are problems when a notice has been issued and the
regulation. are finalized years later. In such cases, then taxpayers
often complain that they are harmed by the retroactivity of the
regulation. How about the majority of taxpayers who go along with
the Treasury's proposed position -- Are they harmed if you had a
rule of no retroactivity. I think the compliant taxpayer would be
hurt. He has followed the rule the Treasury suggested as right, but
the person who pushes the edges gets the benefit of delay. I would
not go for such a rule. Regulation can be fair even when applied
retroactively. I don't think you can write a statute which gets it
exactly right. There is too much judgment involved.
The area of the erroneous 1099, K-1 or the like is troubling.
It would be good to work out a system to test these; however, it
seems difficult to me to allow any taxpayer to contest the
correctness of a 1099 by bringing in other taxpayers. Some system of
allowing a taxpayer to prove to the IRS that the information return
is in error should be allowed. I am not sure this is a prevalent
problem. Certainly, the filing of a fraudulent 1099, K-1 or the like
is now subject to penalty under the criminal sector of the law. I'm
not sure you need more.
Another item should be raised. Some people have suggested it is
inappropriate to have the taxpayer bear the-burden of proof in a tax
case. They assert that the government shall bear the burden of proof
in all tax matters. This suggestion, while sounding-nice, is quite
illogical. In our self-assessment system, the taxpayer has the
records and makes a self-assessment; that is, he asserts his
position on his return. If the government disagrees with that
position, it asserts a deficiency which the taxpayer can litigate in
the courts. Historically, the first right to litigate was by way of
refund. That is the taxpayer was required to pay the tax and sue for
a refund. The taxpayer, being the moving party, therefore bore the
burden of proof. Next with the introduction of The Board of Tax
Appeal and later the Tax Court, the taxpayer was allowed to litigate
before paying, but the burden of proof stayed with the taxpayer.
Thus since the inception of the first income tax in 1862 (proposed
by President Lincoln), the burden has been on the taxpayer.
Now I can tell you as a litigating lawyer in private practice,
I would love it if the government always had the burden of proof.
But that is not fair nor is it practical. If you enact such a rule,
it will dramatically effect the efficiency of the system and will
result in lower collections. Think of a system where the taxpayer
has all the records and the government has to prove the case. If the
government has access to the records, it will demand them all (more
than it really needs) just to protect itself. That would be costly
and ineffective on both taxpayers and the government. On the other
hand, perhaps this rule would deny to the government the records
altogether. Then the-tax system would be a shambles.
Although I have a personal interest in making it tough for the
government (after all, I represent taxpayers now), I do not believe
a change in the burden of proof would help the system in terms of
fairness or effectiveness.
I have not discussed all the provisions of H.R. 11 If you would
like my views on any specific provisions I have not covered, I would
be pleased to address them.