FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you Ron, for that kind introduction and for the important role that you played in organizing this conference.

Let me also thank the American Tax Policy Institute, the American Bar Association, the American Institute of Certified Public Accountants, the National Association of Enrolled Agents, and the Tax Executives Institute, who, together with the IRS, are cosponsoring this conference. The practitioner community is a key partner for the IRS and is critical to the advancement of the modernization process.

It is a pleasure to be here today at this IRS Modernization Conference. The very fact that we all are gathered to discuss the progress that has been made in modernizing and reorganizing the IRS and the challenges that lie ahead is a testament to the remarkable job that Charles Rossotti and his management team are doing. Clearly, much work remains, but everyone at the IRS can take pride in the progress that has been made in just the last couple of years.

I am going to focus on that progress in my remarks today, as well as on the road ahead, but first I would like to set the context by reviewing some recent history. It can be instructive to reflect on the past as we contemplate change, and I think it is particularly useful to do so with respect to the IRS.

In 1996, there was a growing concern in Congress and a broad consensus generally that, despite best efforts, the modernization program at IRS was off track.

Confidence in the IRS was at a low, and it was clear that a sharp turn was needed to put in place lasting, fundamental reforms that would improve the way the IRS served taxpayers.

In response to these concerns, Treasury laid out a plan in the spring of 1997 to bring about change at the IRS. Our goals were to strengthen the institution's leadership; to increase managerial flexibility; to enhance oversight; to improve the IRS's budgeting process; and to work toward a fairer and simpler tax code.

Many voices contributed substantially to the growing momentum for IRS reform. The IRS Restructuring Commission, headed up by Senator Kerrey and Representative Portman, along with Senator Grassley, Representative Coyne, and a host of distinguished tax professionals, issued its report in June of 1997, calling for a number of fundamental reforms at the IRS.

Vice President Gore and a National Performance Review task force of IRS employees, including those on the front lines and members of the National Treasury Employees Union, issued a report to the President in the fall of 1997 that included 200 recommendations for improvements across the board at the IRS.

We should also acknowledge the leadership of Senators Roth, Moynihan, Stevens, Campbell, and Dorgan, and Representatives Kolbe and Hoyer, who have both led the call for reform at IRS and have supported budgets to build reform that is far-reaching and lasting.

The consensus for reform culminated with passage of the most comprehensive restructuring legislation of the IRS in nearly half a century. The 1998 IRS Restructuring and Reform Act called for a transformation in the way IRS operates and relates to its customers. The business of that transformation is, indeed, the focal point of this conference.

At Treasury and at IRS, we listened, we learned, and we prepared for change.

One of our first priorities was to find a Commissioner with the leadership skills and proven ability to implement a major overhaul of the IRS. We sought a candidate with experience running a major, service-oriented business.

As all of you know, we were fortunate enough to recruit Charles Rossotti for the job. With his 28 years of experience in the private sector and his record of success running a large publicly-held information-technology company, we found the perfect candidate to serve as Commissioner. Charles enthusiastically accepted the challenge. Let me say that we are fortunate to have Charles at the helm of the IRS at this critical point in the agency's history, and indeed America is fortunate to have Charles Rossotti as the Commissioner of the IRS.

With Charles' leadership, and the support of talented executives and nearly 100,000 dedicated men and women at the IRS, partnered with the National Treasury Employees Union, much has been accomplished.

Today's IRS, securely on the path of change and reform, is very different from the IRS of a few years ago. Look at just a few recent accomplishments:

• The IRS has established an award-winning web-site which offers information and forms 24 hours a day, 7 days a week. The Washington Post called it "amusing to read," "cool," and "written with a webby breeziness that belies its origin in one of the government's least humorous agencies." The site offers forms, publications, and answers to tax questions, and continues to draw record numbers of taxpayers to it every year. These statistics are truly remarkable: the web site (www.irs.gov) had over 1 billion hits last year and 87 million tax form, publication, and other tax document downloads. The IRS is expecting 1.6 billion hits in 2000
• The IRS is changing the way it does business to bring the agency into the 21st century. Electronic Filing - Telefile, E-file, and On-line Filing - accounted for over 29 million returns last year, a 19% increase over the prior year, including 2.5 million taxpayers who filed their returns on line via their home computer -- a 161% increase over the previous year. We're expecting almost 34 million electronic returns this year. $1.3 trillion in tax deposits in FY 1999 were made electronically under the Electronic Federal Tax Payment System (EFTPS)
• The IRS is implementing increased taxpayer protections and rights as part of the 1998 Restructuring and Reform Act, including more inclusive protections on certain penalty and interest provisions, making a difference in the lives of innocent spouses, and strengthening taxpayer rights in collection and audit situations.
• The IRS is opening its doors wider than ever before to serve taxpayers on their time- including 24 hour-a-day/7day-a-week telephone service, expanded walk-in service hours, translators for taxpayers who do not feel comfortable using English, and problem solving days to help taxpayers with particularly difficult issues find solutions.
• We've also figured out that what we count, counts. We are well into a process to develop measures that recognize that employee satisfaction, customer satisfaction, and productivity all work together
• Finally, we have begun the process of restructuring the organization itself into four new operating divisions -- Wage and Investment, Small Business/Self-Employed, Large and Mid-size Businesses, and Tax Exempt/Government Entities -- all with renewed commitments to hear more clearly the voice of the customer and to provide enhanced, specialized services. As you heard this morning, we now have on board a full complement of leaders in these new divisions poised to deliver on those commitments.

So, we have in fact charted a new course. At any time of major change, there are some who will look back and ask whether the change was necessary, whether it was for the better, whether anything important was sacrificed in the process.

One of Commissioner Rossotti's first steps as Commissioner was to develop a new mission statement for the IRS to signal the change in course. As is his style and with great wisdom, he turned to the IRS employees for ideas, and thousands poured in. The new mission statement grew out of that response. The IRS Mission Statement reads: "Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all."

This is a mission that speaks equally to applying the tax law and providing top quality service. As the modernization and reorganization at the IRS has proceeded, some have framed debates on IRS priorities around a trade-off between enforcement and customer service, and have pointed to this new mission statement as an example.

This is a false choice. We have heard similar false choices posed through the years. For example, it has been argued:

• That companies and governments face a tradeoff between how quickly they can grow and how effectively they can protect the environment.
• That manufacturers must choose between improving the efficiency of their production processes and improving the quality of the goods they turn out.
• That businesses must compromise between the level of customer service they can provide and the level of profitability they can attain.

The best businesses know, however, that these are false tradeoffs - that in each case it is possible, and indeed ultimately in their best interest, to achieve both objectives.

This is the approach the IRS is taking. To have effective tax administration, there must be both compliance and high-quality customer service. A tradeoff is neither necessary nor desirable.

Indeed, the changes taking place at the IRS, which Commissioner Rossotti described to you this morning, are aimed at improving both customer service and compliance. For example:

• Electronic filing will produce faster refunds, a reduction in errors, quicker identification of compliance problems, and reduced costs---all at the same time.
• We are rethinking of the way in which collection and enforcement occur, putting more resources on the front end in education and outreach to head off problems early and increase voluntary compliance by helping those who want to pay, pay.
• Having four divisions at the IRS, each focused on a different category of taxpayer, means both that employees will be better able to provide support to the customers they serve, and that they will be better prepared to detect and address any irregularities that appear on filers' returns.

While we are now confident that the IRS is on the right track, I think Commissioner Rossotti would be the first to tell you that much more work lies ahead.

In the coming months, IRS will be devoting significant time and resources to implementing the reorganization, to ensuring that all systems remain Y2K ready and operating properly, and to advancing the ongoing modernization effort. At the same time, as at the beginning of every year, the IRS will be heavily focused on ensuring the completion of another successful filing season.

We at Treasury are committed to continuing our close working relationship with the leadership team at the IRS - a relationship that is as strong as it has been in the past 50 years.

That commitment means continuing to ensure that the IRS has adequate resources to confront the challenges it faces. I am pleased to report that we expect the President's budget for fiscal year 2001 to allow the IRS to continue to make the investments in its people and in technology that are critical to the modernization process. Most importantly, our budget proposal will allow the IRS to end the shrinkage of its workforce that has in recent years only added to its challenges as it makes this difficult transition.

Resources will also allow the IRS to continue to take advantage of modern technology to build the kind of IRS America deserves. Critics of the IRS have noted that it had the best 1960's technology money could buy. We can no longer afford to wait for 30 years for major technology enhancements. Technology is moving too fast and America's expectations are too high.

These investments will translate into opportunities to process returns quicker, issue refunds faster, and deliver error-free service at less cost over time. Taking advantage of new technology will allow IRS to increase the availability of electronic filing and promote growth in the area of electronic payments and other innovations that are the future of better tax administration, and the benchmarks of better government.

Specifically, to further encourage the use of electronic filing, I am today announcing that the President's budget will include a new refundable tax credit proposal for individual taxpayers who file their returns electronically. This $10, refundable credit will provide an incentive for filing on-line and reward individual taxpayers who transact their business with the IRS in a way that helps improve the accuracy and efficiency of IRS processing. Taxpayers using Telefile, filing returns using their telephone, will receive a $5 refundable credit under this proposal.

This year will also see another major addition to the reform effort at the IRS, with the first meeting of the IRS Oversight Board. As many of you know, the board will bring in seasoned professionals from private industry, academia, and labor--working with Commissioner Rossotti and myself--to serve in a role similar to a Board of Directors for a private corporation. Though finalizing a slate of qualified and willing candidates has, to the frustration of many - including me personally - taken longer than we ever imagined, Commissioner Rossotti and I look forward to the benefits of their strategic and managerial guidance.

As significant as the changes going on within the IRS are, one simple truth remains constant, reflected in the words of Oliver Wendell Holmes, and engraved on the front of the IRS building:

"Taxes are the price we pay for a civilized society."

Americans depend on the IRS to collect the revenues used to educate our children, to protect our nation's borders, to ensure the safety of the food we eat, and to provide countless other services that each of us relies upon day in, day out.

I believe that IRS now has the right leadership, the right mission, the right organizational structure to stay the course, and to deliver to the American people the kind of tax agency America deserves.

The practitioner community that is so well represented in this audience today will play a critical role in making the IRS the most effective institution it can be. It is you, after all, who work closest with the IRS on behalf of your clients and are therefore most intimately familiar with the challenges it faces and the places where we can and must do better. I hope that all of you will continue to be active partners in the coming months and years as we continue to follow through on this fundamentally new course for the Internal Revenue Service.

Finally, let me conclude by acknowledging the hard work and dedication of the men and women of the Internal Revenue Service. They perform critical work on behalf of our country, collecting 95% of the nation's tax revenue, frequently under very difficult, sometimes dangerous conditions. We all owe them a debt of gratitude for the work that they do -- and for their efforts, which allowed this agency to begin making the sharp turn it needed to make three years ago. Commissioner Rossotti has turned to them from day one for the guidance and support he needed to get this done--and they have been there. To them I pledge, on behalf of the Treasury Department and this Administration, that we will be there for them. We will continue to seek the resources necessary to provide them with the tools that they need to do their jobs, and we will continue to support Commissioner Rossotti and his team as they lead IRS into the next century.

Thank you.