I am M. Bernard Aidinoff of New York, New York. I presently serve as Chairman of the Section of Taxation of the American Bar Association. Except as to certain specific matters which I will identify, I appear before you as an individual. I believe, however, that many of my fellow tax lawyers will be in agreement with the views that I express.

In announcing this hearing, Chairman Grassley mentioned the compliance provisions of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") which, in part, attempted to reduce the burden on honest taxpayers by encouraging compliance with our nation's internal revenue laws by all taxpayers. Recently, the Section of Taxation of the American Bar Association sponsored an invitational conference on income tax compliance, which was attended by approximately 130 invitees. Participants included not only tax lawyers and law professors, but economists, criminologists, sociologists, historians, accountants, present and former government officials, foreign tax officials, and state and local tax officials. The purpose of the conference was to discuss the extent, nature and causes of noncompliance with our federal tax laws and to analyze ways in which conventional and new techniques might be used to reduce noncompliance. In addition, the American Bar Association has established a Commission on Taxpayer Compliance to develop and supervise a long-range research project on the nature, categories and causes of noncompliance with our federal tax laws to be conducted by the American Bar Foundation. I therefore welcome the opportunity to discuss with your Subcommittee ways in which we can strengthen and support our tax system and reduce the burden on taxpayers of compliance with our tax laws.

I will address, in order, each of the areas of concern which were mentioned in the press release announcing this hearing.

1. How much progress has the Internal Revenue Service made in reducing the complexity of tax forms and their instructions?

It is important to remember that the complexity of the tax forms and instructions reflect the complexity of the law itself. Almost every year for the last fourteen years Congress has passed major tax legislation which has required the Internal Revenue Service to change its forms and instructions. Each year millions of American taxpayers have had to digest these changes in using new forms and instructions to prepare their tax returns. Unfortunately, the annual changes in the forms and instructions impress upon taxpayers the complexity and increasing uncertainty of our tax laws.

Given the complexity and almost constant change in our tax laws, the Internal Revenue Service has done a creditable job in making the tax forms and instructions understandable to most taxpayers.

Each year during recent years the Internal Revenue Service has held public hearings on its forms and instructions and has invited public comments and suggestions as to how the forms might be improved and simplified. In addition, the Internal Revenue Service periodically meets with interested, knowledgeable groups (including representatives of the Section of Taxation) to discuss proposed changes in specific forms to improve and simplify them.

An excellent example of this Internal Revenue Service effort to reduce the complexity of tax forms is the 1983 payment voucher form for estimated taxes, Form 1040-ES. Millions of American taxpayers who pay their income taxes in four quarterly installments formerly had to fill in several blanks, sign and date, and return to Internal Revenue Service their quarterly voucher forms. Beginning in 1983, a taxpayer has only to fill in the amount of the quarterly payment and file the quarterly voucher form with the Internal Revenue Service. We also applaud the Internal Revenue Service's experiment with new Form 1040EZ which, provides a more simplified tax reporting form for taxpayers having less complicated financial profiles.

Although the Internal Revenue Service can, and undoubtedly will, take additional steps to reduce the complexity of the tax forms and instructions, meaningful reduction in the complexity of the forms and instructions will be accomplished only when our internal revenue laws themselves are simplified. Until then, despite ongoing efforts by the Internal Revenue Service to simplify the forms and instructions, they undoubtedly will continue to reflect the complexity of our tax laws.

2. How well has the Paperwork Reduction Act served to stimulate reduced complexity in the Internal Revenue Service forms?

Information concerning the impact of the Federal Paperwork Reduction Act of 1981 on the tax forms has been so insubstantial that I am reluctant to express an opinion concerning that impact. My instinctive feeling is that there has been little impact other than an increase in paperwork to comply with this Act.

3. Should taxpayer assistance programs be maintained or modified?

There are at least two kinds of taxpayer assistance. The first is tax account assistance which informs the taxpayer of his or her "account" status such as the whereabouts of a refund check, the status of an audit, or a claim for refund. This is an area in which only the Service has the answers and which entails a reporting based on records that the Service keeps. The Service has recently concentrated its efforts in this area, and I assume that it is continuing to upgrade this aspect of taxpayer assistance.

The second kind of assistance involves technical return preparation aid. It is important that the Service be given the necessary resources to continue this service.

Technical return preparation assistance is often the inducement that gets a low-income taxpayer "into the system." This assistance may be provided by volunteer groups or the Service. Without assistance, many taxpayers will simply not file. Since a good portion of these taxpayers are entitled to refunds (for example, from over-withholding) there is probably no immediate revenue loss, but the belief is formed in those people's minds that they do not have to file and continues during periods in which tax is due.

The preparation of a tax return is not a joyful occasion and is for many an intimidating experience. The fact that the answers to questions may be found in various Service publications or instructions is irrelevant. For those taxpayers (e) who are unable or unwilling to seek paid professional help and who cannot or will not understand the applicable tax law, the availability of a person with whom to sit down and go over the information for the return is a psychological necessity. The Service should provide a reasonable opportunity for taxpayers to receive this assistance and to perceive that the system operates in a fair manner. A recording at the end of a long telephone holding period that explains generalities of tax law is not adequate help or assurance.

The availability of face-to-face technical return preparation assistance by Service employees to taxpayers is an important aid in maintaining the integrity of the voluntary self-assessment tax system. Volunteer groups can and do help provide technical assistance and perhaps some day will provide a major portion of the needed aid. However, the availability of person-to-person Service assistance is needed today.

4. Does the Internal Revenue Service provide timely and accurate advice to taxpayers? Can the ruling and regulations process be improved?

In addition to the taxpayer assistance programs discussed above, the Internal Revenue Service provides advice to taxpayers in a number of ways including correspondence with taxpayers answering general questions concerning our tax laws; informal or letter rulings to specific taxpayers, which are based upon certain facts and which can be relied upon by such taxpayers in meeting their tax obligations; formal revenue rulings which are published by the Internal Revenue Service and the Treasury Department and which interpret the statutory provisions enacted by Congress for the general guidance of all taxpayers. Generally, the Internal Revenue Service has provided timely advice to taxpayers under all of these programs. However, because of the increasing complexity of our tax laws, these programs of the Internal Revenue Service are experiencing increasing strains, particularly in view of the budgetary and resource restrictions in recent years.

For example, because of personnel reductions, the Internal Revenue Service during the last several years has curtailed its letter rulings program by increasing the number of areas in which it will not rule. Each year during the last three years, the number of revenue rulings published by the Internal Revenue Service has declined from 367 in 1980 to 311 in 1981 to 228 in 1982. Each year during the last three years the number of final regulations (or Treasury Decisions) published by the Internal Revenue Service and the Treasury Department has declined from 77 in 1980 to 64 in 1981 to 55 in 1982. In addition, because of the uncertainty created by the continual changes in our tax laws and the reluctance of the Internal Revenue Service to issue letter rulings before regulations can be published, it is taking longer for taxpayers to receive definitive interpretations and rulings with respect to our tax laws. Finally, because of the frequency of changes in our tax laws, regulations have become substantially and increasingly backlogged during the last fifteen years. As the result of these problems, taxpayers and practitioners have had either to forego transactions involving tax uncertainties or proceed with the transactions without the benefit of Internal Revenue Service guidance.

It is important that Congress increase appropriations to provide the personnel and resources necessary to support and increase the Internal Revenue Service rulings and regulations programs. In addition, the Service should continue to adopt innovative approaches to improve its letter ruling, revenue ruling, and regulations programs. For example, I understand that the Internal Revenue Service is studying a change in its letter rulings program to decrease the length of time which it presently takes to receive and issue a ruling to a taxpayer. The change being studied apparently involves the use of a procedure similar to the "no-action letter" procedure presently being used by the Securities and Exchange Commission in which taxpayers and their representatives would describe a proposed transaction and the anticipated tax consequences, and the Internal Revenue Service would merely indicate whether it agrees or disagrees with the intended tax results. Such innovative changes should be encouraged.

To assist the Internal Revenue Service in identifying potential issues on which it would be helpful for the Service to publish revenue rulings, the Section of Taxation recently prepared and provided to the Internal Revenue Service approximately 100 topics or issues with respect to which the Service might issue revenue rulings for the guidance of taxpayers and practitioners. The Internal Revenue Service has responded enthusiastically and has published revenue rulings on many of the requested issues, and the Section of Taxation has adopted an ongoing project to provide the Internal Revenue Service periodically with additional topics or issues on which revenue rulings might be published.

5. Does the current regulations backlog create problems for taxpayers? If so, how is that backlog to be reduced?

As previously indicated, until regulations are provided by the Service, letter rulings cannot be obtained.

Because of the speed with which legislation is written by Congress, there is an increasing tendency to leave difficult problems of interpretation to the Service and the Treasury Department. The result is often delay and confusion until the Service and the Treasury Department can provide meaningful guidance by issuing regulations and rulings.

There would be less concern about the regulations backlog if there were a greater opportunity and more time for technical review of statutory language and comment prior to the enactment of tax legislation. The timetable for tax legislation has been unduly compressed. Time should be allowed in the legislative process for review and input from interested, knowledgeable and constructive individuals and organizations to the tax-writing committees and staffs before legislation is enacted. For example, the members and staffs of the Congressional tax-writing committees and the Treasury Department have requested and been receptive to technical analyses and suggestions from the Section of Taxation in their consideration and drafting of tax legislation. Nevertheless, because of the press of legislative timetables, thorough analysis and review of proposed legislation is often not possible, and additional technical correction legislation has been required for virtually every major tax act during the last decade.

It is also important that appropriations to provide personnel and resources to support Internal Revenue Service activity be continued and enhanced. Approximately one year ago, my predecessor as Chairman of the Section of Taxation, in testimony before the Subcommittee on Treasury, Postal Service and General Government Appropriations of the Appropriations Committee of the House of Representatives testified in favor of increased appropriations for Internal Revenue Service compliance and taxpayer assistance programs. I wish to reemphasize my continued support for adequate funding of these Internal Revenue Service programs.

6. Should the Internal Revenue Service explore amnesty arrangements with non filers like those adopted by various states to bring such non taxpayers into the tax system?

The question of whether the Internal Revenue Service should offer amnesty for those who have willfully failed to file federal income tax returns has a long and troubled history. Until January 10, 1952, the Internal Revenue Service had a general policy that if a taxpayer, before an investigation was begun, voluntarily disclosed to the Internal Revenue Service that he had willfully failed to file a return, the Internal Revenue Service would not recommend criminal prosecution. This policy was formally terminated in 1952. Since that time, neither the Internal Revenue Service nor the Department of Justice has had a formal amnesty policy. However, it is generally believed by most practitioners, based on substantial experience with the Internal Revenue Service, that the pre-1952 policy remains in effect today.

More important, however, is the need for Congressional and administrative attention to determine more about the causes of increasing willful noncompliance with our federal tax laws. Would an amnesty program with respect to the nonreporting of dividend and interest income and self employment income in past years promote compliance in the future? We do not know the answers. Additional investigation of the reasons for noncompliance is necessary. I urge the Congress and the Internal Revenue Service to devote additional resources and attention to this most important subject.

7. Are the taxpayer safeguard amendments of TEFRA adequate? If not, how may they be improved?

The taxpayer safeguard provisions contained in Sections 347-350 of TEFRA provide important protections to taxpayers with respect to the exercise by the Internal Revenue Service of its power to impose liens and levies upon a taxpayer's property for the collection of taxes. Because these provisions are generally effective for liens and levies after 1982, we have had so little experience with them that I believe that any comments concerning their adequacy and need for their improvement would be premature.

Thank you for permitting me to testify today. I will be happy to answer any questions that the Subcommittee may have.