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In this regard, the IRS faces its own challenges in making sure its systems, training, and other employee tools are current and reflect the most recent legislation. In addition, because the time between when a return is filed and when it is audited may be one to two years, taxpayers and IRS employees must not only understand the current rules, but remember the old rules in order to deal with audit issues.
The enactment of provisions with retroactive or short effective lead times also increases complexity. Both taxpayers and the IRS frequently must act quickly to accommodate these changes. For the IRS, especially problematic are changes that come late in the calendar year when the forms and publications for the next filing season are ready to go or have gone to the printers. Short timeframes frequently do not allow the IRS to consult with taxpayers and other stakeholders in developing new forms. This can result in the forms being more difficult for taxpayers to understand or complete than they would be under normal circumstances.
Time limitations also may affect our ability to make the computer systems changes necessary to support statutory change. The Taxpayer Relief Act of 1997 and RRA 98 are good examples of statutes with many tax-related changes and short effective date lead times.
Mr. Chairman, while we have made some short-term improvements in paperwork and burden reduction for taxpayers, they barely scratch the surface of what we need to do for America's taxpayers, especially our small business taxpayers. Taxpayers need and deserve service that is tailored to their circumstances and is managed by people who understand their problems and work every day to reduce their tax administration burden. I believe that this is where and how we can make the most significant and meaningful gains in burden reduction.
Following Title I of the IRS Restructuring and Reform Act of 1998, the IRS is creating an organizational structure with operating units serving taxpayers with similar needs. We have created four Operating Divisions that will be fully responsible for all of the tax administration needs of specific, corresponding taxpayer segments. They are: the Wage and Investment Division; the Small Business/Self-Employed Division; Large & Mid-Size Business Division; and the Tax Exempt & Government Entities Division.
The Commissioner and Deputy Commissioners for all four divisions have been selected and sworn into office. The new divisions will become fully operational in stages, with Tax Exempt and Government Entities already operational since December. The Large and Mid-size Business Division became operational last month, and will be followed by the Wage and Investment and Small Business/Self-Employed Divisions in the fall of 2000.
Let me focus on the Small Business and Self-Employed Division, which is of most interest to the Subcommittee. The group of taxpayers served by this division
includes about 45 million filers who have four to 60 transactions with the IRS per year and represent nearly 44 percent of the total cash collected by the IRS.
The modernization concept gives us the greatest opportunity in decades to make the biggest improvements in the way we serve small businesses and reduce their overall tax administration burden.
I want to stress that this change is not just moving around the organizational boxes. It is designed to put in place a structure with a management team at its core that lives and breathes small business issues every day. And that team has the authority and responsibility to improve the way the whole tax system works for small business and selfemployed taxpayers, including reducing paperwork and administrative burden.
This operating division will have three major components. The first is taxpayer education and assistance. It will work on the kind of programs to help small businesses understand their tax responsibilities without imposing undue burden. We have built into all of the business divisions the principle of working with taxpayers before they file their returns. We want taxpayers to get it right the first time. It is faster, more efficient, better for everyone and an accepted best business practice to prevent a problem rather than solve it.
The second component is a dedicated processing, customer service and accounting organization for small businesses and self-employed taxpayers. The third component will be post-filing operations. However, it will be dedicated not only to performing the traditional exam and collection work, but will strive to improve voluntary compliance which is our main goal. Should we have to intervene through the collection or exam process, we want to identify and act on these problems as quickly as possible.
Also key to reducing burden is moving taxpayers away from paper and updating our business practices and technology to better serve them. This is a massive project requiring an almost complete replacement of IRS' information technology systems. However, we have no choice. The systems we are using today are built on a 30-year-old, fundamentally deficient foundation that cannot provide accurate up-to-date information about taxpayer accounts, nor sustain modern business practices. Moreover, implementing new technology based on revamped business practices is critical to carrying out RRA 98's mandates and for providing meaningful taxpayer burden reduction across the board.
As I recently testified before the House Appropriations Committee, to succeed in this enormous and vital program, we must have adequate budget resources in FY 2001 to address critical operational needs and to invest in new technology to support best business practices. If Congress can provide continued and assured support for IRS modernization, such as that contained in our budget request, we will be able to produce the visible, tangible and meaningful changes in service, compliance and burden reduction that America's taxpayers expect and deserve. Thank you.
Mr. MCINTOSH. Thank you, Mr. Rossotti. As I said, your entire remarks will be put into the record.
Let me now recognize Mr. John Spotila, who is Administrator of the Office of Information and Regulatory Affairs. Welcome.
STATEMENT OF JOHN T. SPOTILA, ADMINISTRATOR, OFFICE
OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET
Mr. SPOTILA. Good morning, Mr. Chairman and Mr. Kucinich. You may not realize I'm also from Cleveland. I remember you well there and my family does as well and sends greetings. Thank you for inviting me here to discuss how the Federal Government can improve the quality of the information it collects, while reducing associated burden on the public. At OMB we understand the importance of helping agencies balance these objectives. Our fiscal year 2000 information collection budget, the ICB, highlights a number of these agency efforts. Although it shows there has been progress, clearly much more needs to be done.
We need information so that government can better serve the people. Better information can help us make better decisions about how well the Government is working, whether new services are needed, and whether existing programs are still necessary.
Indeed, providing information to citizens can be an important service in its own right. Investors need quick and easy access to SEC filings. Communities want to know if they have exposure to pollutants. Taxpayers expect the IRS to respond quickly to their questions. Often giving information to the public can eliminate the need for an expensive regulatory approach. Agencies like the Food and Drug Administration with nutrition labels, the SEC with corporate financial disclosures and the EPA with community right to know efforts rely on the disclosure of information to protect the public's health, safety, and welfare, without the need for further regulation.
Most of the information needs of the Federal Government flow from statutes passed by Congress. Some reflect agency decisions on what information they need to implement programs. New statutes can lead to new information requirements. The Taxpayer Relief Act of 1997 and the Tax and Trade Relief Extension Act of 1998, for example, made numerous changes to the Internal Revenue Code. These and other acts required new reporting requirements that increased the paperwork burden for taxpayers by some 150 million hours in fiscal year 1999. Similarly, the Balanced Budget Act of 1997 created the Medicare+Choice program at HHS with a new burden of almost 1.3 million hours in 1997 to determine eligibility.
While information plays a critical role in good government, the collection of that information imposes a cost on the public. It takes time to supply information. The Paperwork Reduction Act of 1995 emphasizes that, subject to statutory constraints, agencies must strike a balance, collecting the right information while not requiring what is unnecessary or unavailable. We agree that agencies should only collect necessary information and should always look for simpler, easier, and faster ways for citizens to provide that essential information.
As we describe in the ICB, agencies have been trying to improve the quality of Federal information collection while reducing burden. We are seeing progress. EPA intends a rulemaking in fiscal year 2000 that will reduce reporting requirements under the Resource Conservation and Recovery Act (RCRA). It plans to lengthen periods between facility self-inspections, streamline paperwork and reduce the data collected. As proposed, the burden reduction could be 3.3 million hours, which, when added to previous reductions, would be a 40 percent reduction from the program's 1995 base lining.
The Federal Motor Carrier Safety Administration at DOT plans to complete a zero-based review of its motor carrier regulations this year. It expects to eliminate many regulatory requirements and information collections, streamlining most of the rest and leading to a 90 percent reduction in burden hours.
DOT and the Department of Labor both require truck drivers to record their driving time. DOT has required that drivers keep logs while DOL has required them to use time records. DOT now has decided to rely on DOL's time records. When its rulemaking action is finalized, it expects to eliminate more than 28 million hours of paperwork.
Raising reporting thresholds can also reduce burden hours. Under EPA regulations, businesses disclose information about chemicals on their premises to alert community members of any potential risks. These chemicals include gasoline and diesel fuel. Since we know that normal amounts of gasoline will be present at retail gas stations, EPA increased the threshold level for gasoline and diesel fuel for reporting, effectively exempting retail gas stations from reporting at all. This saved about 588,000 burden hours.
Agencies increasingly use electronic technology to streamline reporting and recordkeeping. Converting to a new electronic filing system that reduces by over two-thirds the time needed to file a shipper's export declaration cut burden by about 160,000 hours in 1999 and should reduce burden by another 47,000 hours this year.
Although agencies are working to minimize collection burdens, there is more to do. Their successes can be overcome by new information collections that are required by new statutory and program responsibilities. While information technology offers great potential for streamlining paperwork, we do not yet
take full advantage of that potential. We need to broaden the public dialog on how to make further progress.
In this regard, OMB this month is launching a special initiative, with Federal agencies engaging small business owners and other interested parties in a cooperative effort to examine these problems and develop constructive solutions. This initiative will emphasize public input and participation. We are inviting hundreds of small business owners, academic experts, industry and public interest groups, representatives and other interested parties to participate in this endeavor.
They will join senior representatives from SBA and the participating agencies, IRS, EPA, OSHA, HCFA, DOT, the Department of Education and the Department of Agriculture, in a public forum on April 27th. After initial presentations that morning the agencies will hold roundtable sessions with our private sector participants. We invite you and all members of the committee to attend if you would like, Mr. Chairman.
We will continue this work in the following months. Additional roundtables will take place as we search for new insight and new ideas. The roundtables will focus on best information collection practices and new ways of collecting information, particularly as agencies reengineer business processes to transact business and deliver services electronically. We would like the discussions to produce recommendations on how to improve the quality and reduce the burden of specific collections while also offering lessons that the agencies can apply more broadly.
We are particularly pleased to have the full cooperation of the IRS in this endeavor. It has agreed to hold three of these full day roundtables. This is an important undertaking. We intend to proceed in a focused way and will look to develop recommendations by midsummer of this year. We welcome the committee's participation and support for the initiative and certainly will make available to you the results of our efforts. We appreciate this opportunity to work with you on these issues. We know that our efforts are important to the American people.