IRS investigations.

H.R.1501 would prevent such abuses but,

importantly, would also preserve taxpayer rights in summons

matters.

Accordingly, we support enactment of that bill.

With respect to the preparer penalty sections of the Tax Reform Act, we see a need for various actions on IRS' part to improve administration. We plan to specify those actions in a report later this year.

This concludes my prepared statement. I would be pleased to answer any questions.

Chairman RANGEL. Thank you, Mr. Anderson.

How far back did your evaluation of IRS go?

Mr. ANDERSON. We were provided independent access by the Tax Reform Act of 1976, sir, so our history, really, of doing audits at IRS starts in about 1977.

Chairman RANGEL. Then there is no need for me to go into their prior activity?

Mr. ANDERSON. I am afraid not, sir.

Chairman RANGEL. Because you referred to the civil rights activists, and of course, we have had some political problems with them, but that is good to know that you had that much.

Mr. Duncan.

Mr. DUNCAN. I have no questions.

Thank you.

Chairman RANGEL. We will have the record remain open for some questions. We have to have a vehicle for taxpayers who do have a legitimate complaint, where there is some need of oversight. I assume that one or all of you heard some of the testimony this morning. I think we have developed where the taxpayers are willing to waive some of their rights of privacy, and this Commissioner is willing to work with the Congress.

If you can think of a better way to do it, I hope you will feel free to make your suggestions for the record, but notwithstanding IRS's good record, there are still any number of taxpayers that believe that they have been abused, and some with good cause. The Commissioner admits that those things do occur, and we would like to be able to assist them in their awesome responsibility.

Thank you very much.

Mr. ANDERSON. Thank you, sir, our pleasure.

Chairman RANGEL. We have Mr. Thomas Bell of Citizen's Choice here, and representatives of the National Treasury Employees Union represented by Mr. Vincent Connery. Is Mr. Connery here, and Mr. Jerry Klepner, director of legislation?

STATEMENT OF THOMAS BELL, CITIZEN'S CHOICE, INC., ACCOMPANIED BY JOHN C. LYNCH, LEGISLATIVE COUNSEL, ON BEHALF OF THOMAS J. DONOHUE, PRESIDENT

Mr. BELL. We are pleased to be here before the committee today on behalf of Citizen's Choice, which is a 75,000-member taxpayers' organization with members representing most segments of society. We have been working with the committee on this issue of taxpayer safeguards for some time, and toward that end, in 1980 and 1981, did a study called the National Commission on Taxes and the IRS, where we went to 10 cities across the country, held field hearings, talked to several thousand individual taxpayers, and collected over 12,000 pages of testimony on just this subject, the abuse or potential abuse and the relationship between the Internal Revenue Service and the taxpayer. It should come as no surprise to you, Mr. Chairman and members of the committee, that the relationship between taxpayer and Government is not particularly good, and it gets worse on a daily basis.

We feel that the reason for that, in fact, we have had demonstrated to us that the reason for that is not specific abuse on the

part of the Internal Revenue Service, which to our knowledge and the information we were able to collect does a pretty good job. In fact, the IRS does an excellent job given the immensity of the task which confronts them. Any abuse, like the seizure that was being discussed earlier, were the exceptions and certainly not the rule. The problem is, instead, sir, that the system has become so complex and the rates have become so excessive, that the perception of unfairness on the part of middle and lower, and even to some lesser degree, the upper income taxpayers, has become so great that the system is collapsing under its own weight.

This has created an increasingly difficult adversial relationship between the taxpayer and the Service, and it just makes that job much more difficult to do. We discovered in our study that there is now a wholesale avoidance of taxes.

The underground economy, which is the subject of great debate now, is, of course, increasing on a year in-year out basis. People for the first time seem to believe that it is OK to cheat the Government out of their fair share of taxes if they can get away with that, because they feel the Government is in turn cheating them on the services that they provide. During the seventies, as inflation has forced the average taxpayer into higher and higher brackets, they feel like they are getting less and less for their money.

They don't understand the laws that exist. Every year, the Congress in an attempt to fix economic and social problems make the law more complex, and therefore, more impossible to understand, and the system just continues to amplify and aggrevate itself.

So, we respectfully recommend to the committee that rather than try to fix the Internal Revenue Service or the way in which they go about their business, that the citizens, in fact, would prefer that the system be changed, that the system be made simpler, easier to understand, basically fairer and that an alternative method of taxation be considered by this committee that they could understand and that they would feel comfortable with.

We have brought together a group called the National Forum on Tax Alternatives which includes two Internal Revenue Service Commissioners, Don Alexander and Jerry Kuatz, to try to come up with a system to recommend to the committee of just this nature, because we believe that until the complexity problem is solved, until the average citizen feels that they are getting a fair shake with regard to their taxes from the Federal Government, that you will never convince or you will never create a mechanism through which the tax collecting service can have any other type of relationship with the citizens than an adversary relationship.

Until steps are taken to massively simplify the present system you will never reinstill into the average taxpayer's heart this voluntary compliance system that was created and was unique in this country, and you will never convince them that they in fact have the rights that they believe they should have, and the people in this room obviously feel earlier today that they do not have under the system.

In summary, Mr. Chairman, and members of the committee, Mr. Duncan, we suggest two things: One is that the committee move quickly to examine a taxpayer's bill of rights unlike those that have already been recommended and introduced into the Congress,

but a much simpler and easier-to-understand rights bill which would include notice of seizure, court orders, a Miranda-type warning to any taxpayer in audit-type situation, so that they would know what their rights are, and a lessening of severity in the attitudes of individual agents as to whether you can or cannot tape interviews.

We recommend those things be done, Mr. Chairman, and also that the Ways and Means Committee and the Finance Committee of the House give serious consideration and hopefully hold hearings on a grossly and radically simplified alternative methods of taxation.

Thank you for having us.

[The prepared statement and additional submissions follow:]

STATEMENT OF THOMAS J. DONOHUE, PRESIDENT CITIZEN'S CHOICE, INC.

I am Thomas J. Donohue, President of Citizen's Choice, a national grassroots taxpayers' organization founded in 1976. Citizen's Choice has presently over 75,000 taxpaying members nationwide representing all sectors of our society.

I am pleased to have this opportunity to testify before the House Subcommittee on Oversight of the IRS on the topic of Taxpayers Safeguards. Citizen's Choice is uniquely qualified to present testimony on this subject having made a year and a half long investigation into the relationship between the taxpayer and the Internal Revenue Service. The findings and recommendations of this National Commission on Taxes and the IRS are not only the most up to date information available on the subject but also, quite frankly, lead to the conclusion that unless something is done immediately to improve the relationship between the taxpayer and the IRS and to massively simplify the present tax system, our system of voluntary tax compliance will collapse.

The Commission consisted of twenty-five prominent business, academic and professional leaders and solicited the views of over 3,000 taxpayers by holding public hearings in ten American cities. Additionally, opinions were taken via a toll free "tax line" and the submission of written testimony. Over 12,000 pages of testimony was

collected from the thousands of citizens who either attended the hearings or otherwise presented their opinions.