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Overhauling the IRS

The Internal Revenue Service reform bill that just cleared Congress stirred little dissent on final passage. President Clinton has his pen poised.

After months of hearings exposing some of the tax agency's excesses, a bill to rewrite the rules a bit more in the taxpayer's favor was a political shoo-in. But there's more to this exercise than bipartisan good feelings.

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The IRS was in need of an administrative overhaul. The horror stories of harassment and unreasonable seizures of taxpayer property have flowed for the past year, at Congress's bidding. But such practices have been endemic for decades. They are symptomatic of a bureaucracy that fostered competition among its regional branches to see which could amass the best tax-collection record, and which was averse to self-criticism and correction.

The IRS bill addresses some, if not all, of these problems. The agency will have to more promptly inform taxpayers of disputed returns (within 18 months for now; 12 months after 2004) or forgo interest payments and other penalties. For taxpayers who maintain good records and cooperate with the government, the burden of proof in any dispute shifts from them to the IRS. Taxpayers will not be held liable for tax errors made without their knowledge by former spouses.

All these, and other changes in procedure, are positive. They should help soften the IRS's image as heartless federal enforcer. The service should get a dose of service orientation. And management innovations such as a nine-person oversight board, which will set long-range goals and review performance, should ensure that change really happens.

What shouldn't change is the efficiency with which Americans pay their taxes. The rate of payment here is the envy of other countries. It springs from a combination of taxpayer honesty and IRS thoroughness.

Equity is always an issue. The reform legislation, predictably, will bring some changes, albeit relatively small, in who pays what. Certain investors and homeowners will get a break from adjusted capital gains rates.

We continue to feel that the system will work even better when Congress finally figures out how to alter the federal tax code without making it more complex. The new bill attempts to address that problem, too, instructing Congress to analyze the complexity of any future tax-code changes.

The stock answer to the complexity issue, particularly among Republicans in the House, is to proclaim the imminent end of the whole current income-tax structure. But this, as we've said before, raises a horde of questions concerning fairness and adequacy. We're content to see Congress move systematically to improve the system we have.

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