Madam Chair and Members of the Subcommittee:

In response to the Subcommittee's request, I am pleased to present the views of the Department of the Treasury on the important issue of taxpayer rights. This Administration supports many of the ideas in the legislation we will be discussing today. Treasury has been working with the Internal Revenue Service (IRS) to develop a package of administrative changes, including certain regulatory simplification to help taxpayers reduce the burden of tax compliance. We also have been meeting with Congressional staff to develop legislative initiatives that build on the original Taxpayer Bill of Rights.

Commissioner Richardson, in her testimony, will discuss some suggestions that have emerged from these dialogues. We remain strongly committed to reducing taxpayer burden and safeguarding taxpayer rights in dealing with the IRS.

Last year, the Treasury Department supported the passage of The Tax Simplification and Technical Corrections Act of 1993, H.R. 3419, which contained numerous provisions of the Taxpayer Bill of Rights 2, as originally contained in H.R. 11. Although H.R. 3419 passed the House on May 17, 1994, the legislation was never taken up in the Senate. In its Fiscal Year 1996 Budget, the Administration stated that it continues to support revenue-neutral initiatives designed to promote sensible and equitable administration of the internal revenue laws, including simplification and technical corrections. In addition, the Budget describes the Administration's support of such compliance and enforcement measures as reinstatement of authority to share information on cash transaction reports within the law enforcement community and to fund undercover operations. In the Budget, we also state that we support and want to work with Congress on proposals involving intermediate sanctions, the modernization and streamlining of IRS operations, and compliance with diesel dyeing requirements.

The Administration also has actively pursued administrative measures to ease taxpayer burdens. For instance, just this week, the IRS issued a notice relieving taxpayers who made charitable contributions of $250 or more from the statutory requirement that they obtain adequate written acknowledgments from the charities before they file their 1994 returns. The IRS provided this relief because of difficulties taxpayers are experiencing in obtaining these acknowledgments. As another example, in 1993 the IRS issued a notice providing relief for individuals who want an automatic four-month extension to file their tax returns, but who are unable to pay by the original due date the amount of tax estimated to be due. Although such taxpayers would still be liable for interest and late-payment penalties, they are relieved of the late-filing penalty that otherwise would apply.

In addition, the Administration has taken numerous administrative measures to make it easier for small businesses to deal with the tax system. The Administration routinely issues regulations designed to minimize or eliminate burdensome recordkeeping requirements on small businesses. For example, the Administration recently issued regulations reducing the reporting requirements necessary to claim an ordinary loss deduction on the sale of small business stock, simplifying return preparation for taxpayers subject to the alternative minimum tax, and simplifying the calculations for determining the amount of depreciation deductions for small businesses. The Administration has also issued guidance designed to assist small businesses in complying with complicated tax provisions -- for example, by issuing a revenue procedure that will greatly assist the rapidly growing number of small businesses that elect to operate as limited liability companies.

Today, you have asked for our views on three pieces of taxpayer rights legislation that have been introduced in the 104th Congress:

(1) H.R. 390, which was introduced by Representative Traficant and others on January 4, 1995;

(2) S. 258, which was introduced by Senator Pryor, Senator Grassley and others on January 23, 1995; and

(3) H.R. 661, which was introduced by Representative Thornton on January 24, 1995.

Because S. 258 and H.R. 661 are the same, I will refer to H.R. 661. You have also asked that we review Title V of H.R. 11, which was passed by both Houses of Congress in the Revenue Act of 1992, but vetoed by President Bush.

In preparing our testimony, we have reviewed the prior testimony in this area by Treasury officials. It is interesting to note that over a long period of time and regardless of the political affiliation of the Administration at the time, the testimonies of Treasury officials have been consistent. Treasury always has cautioned Congress that compliance with our tax laws depends upon the public's perception that the tax laws are fairly administered and that the IRS has the ability to catch and prosecute violators. Our tax system has as its foundation voluntary self-assessment and compliance. The IRS currently audits only approximately 1 percent of all returns. Since we depend upon voluntary compliance, Treasury approaches this subject today with caution.

There are three prerequisites to a successful voluntary tax system. First, the system must be perceived as being fair. Fairness requires that similarly situated taxpayers be treated similarly. The success of our system, therefore, hinges on each of us believing that if we pay our share of taxes, others will do the same.

Second, taxpayers must be treated with respect and dignity. The enforcement mechanism should not be more intrusive or burdensome than is necessary for sound tax administration.

Third, the tax system must operate efficiently in a manner that provides quality services to taxpayers at a reasonable cost. If we increase the governmental costs of tax collection, without commensurately increasing the benefits to taxpayers, the taxpayers' dollars will be wasted.

With these criteria in mind, we believe that certain important provisions of the proposed legislation will be useful and valuable. However, we have serious reservations about some of the other proposals in the proposed legislation. Although these proposals are well-intentioned, we believe that they could significantly undermine fairness, respect and efficiency, and ultimately erode voluntary compliance with our laws.

I. H.R. 390

I would like to focus initially on H.R. 390. This bill contains three sections. The first section, about which we have major concerns, would place the burden of proof on all issues in all tax cases in court on the government.

1. Burden of Proof

Current law. The general rule in civil proceedings is that the burden of proof is on the party that has control of the facts. By contrast, in criminal and certain penalty proceedings (such as civil fraud), the burden shifts to the government.

In the tax context, the general civil rule is articulated well by the Ninth Circuit case of Rockwell v. Commissioner, 512 F.2d 882 (9th Cir. 1975). In this case, the U.S. Court of Appeals for the Ninth Circuit held clearly that the burden of proof rests with the taxpayer both to produce evidence that rebuts the Commissioner's determination and to persuade the court of the correctness of the taxpayer's position. This, the court said, is proper and does not deny the taxpayer his right to due process of law. The court said if it were to decide the issue in the first instance, it would establish and uphold this rule:

"The taxpayer knows the facts . . . . He can . . . testify as to what his intent or purpose was. The Commissioner, on the other hand, must rely on circumstantial evidence, most of it coming from the taxpayer and the taxpayer's records . . . . It is not at all unfair, in such a case, to place on the taxpayer the burden of persuading the trier of fact. . . " Id. at p. 887.

Proposal. Section 1 of H.R. 390 would change this long- standing and well-established legal doctrine in the tax context. It would place the burden of proof on the government for all issues in all tax cases in court. Section 1 provides: "Notwithstanding any other provision of this title, in the case of any court proceeding, the burden of proof with respect to all issues shall be upon the Secretary."

Discussion. While this provision may appear to be relatively simple and innocuous on its face, we believe it will have enormous and far-reaching adverse effects on the tax system. In particular, we believe it will result in a significant reduction in the willingness of taxpayers to comply voluntarily with their tax obligations and would greatly encourage tax protesters.

It is difficult to grasp a change of this magnitude. However, in Fiscal Year 1994, the IRS examined (through regular examinations and information return program contacts) four million taxpayers. Most of these audits are conducted by correspondence. Under the new provision, a taxpayer receiving a letter could simply refuse to provide the requested information.

The IRS would then be forced to do a full face-to-face audit of the taxpayer. But even then, if the taxpayer refused to cooperate, the IRS would be forced to disprove the items shown on the return. This would often be impossible. It would require extensive investigation by the IRS, lengthy face-to-face interviews of persons other than the taxpayer, and often the need to summon information from third parties. As a result, the simplest audit would become a costly nightmare if the taxpayer refuses to cooperate. The taxpayer could wait for the IRS to come up with proof and, if the IRS abandons the effort, the taxpayer automatically "wins."

For example,

(1) if a taxpayer claims a child as a dependent and the IRS suspects the child does not exist, the IRS would be forced to interview neighbors;

(2) if a taxpayer claimed that he or she supplied more than half the support of a dependent, the IRS would be forced to prove that someone else provided more than half;

(3) if a taxpayer claimed that art given to charity was worth $1,000,000; the taxpayer could just wait, and the IRS would have the burden of proving it was worth less;

(4) if a taxpayer claimed a $200,000 mortgage interest deduction, the IRS would be forced to summon the bank to prove that the interest had been paid and that the principal amount of the mortgage exceeded the $1,000,000 limit;

(5) if a taxpayer claimed to be over age 65 and/or blind, the IRS would have to summon records to prove the contrary;

(6) if a taxpayer claimed lavish entertainment expenses, the IRS would have to attempt to disprove the expenses (or the business purpose of the event) by summoning waiters and credit card receipts; and

(7) if a taxpayer claimed that his gambling winnings were offset by gambling losses, the IRS would somehow have to prove that he did not have the losses.

The results in the business arena would be equally bizarre. If a foreign-owned U.S. company reported no profits, and the IRS claimed there should be intercompany pricing adjustments that would result in profits, the IRS would have the burden of proving that the U.S. company had overpaid its foreign affiliate, rather than (as today) the U.S. company having to prove that it did not overpay. If a taxpayer claimed exemption from the "passive loss" rules for real estate because he or she worked more than 500 hours in the activity during the year, the taxpayer need show nothing, and the IRS would have to somehow disprove that claim.

The change in the burden of proof also would have significant implications in the tax shelter context. Many tax shelter cases turn on whether the taxpayer can establish that the transaction or investment was entered into with the intent to make a profit or instead was solely to manufacture tax deductions. We believe it is reasonable for the taxpayer to have the burden of proving its own business motives. To do otherwise would open the door to shelters ranging from complicated corporate financial transactions to wealthy taxpayers who buy ranches as vacation homes and then deduct the cost of what in reality is the cost of their vacation.

The bill would also be an obvious boon to tax protesters, who would claim all sorts of deductions to zero out their income. The IRS would spend endless hours having to disprove each item on the return. Protesters would no doubt become extremely creative in claiming deductions that would cause maximum difficulty on the part of the IRS to disprove.

There also would be a significant impact on the IRS Appeals Office, which is required to take into account the hazards of litigation in settling cases. With the burden of proof on the government, the IRS would be placed in the "no win" position of either having to settle more cases for reduced amounts or to proceed to court. This choice may have little to do with the merits of the case and everything to do with the IRS's ability to obtain the necessary records.

Section 1 of H.R. 390 also would compromise taxpayer privacy and cause audits to become much more time-consuming and burdensome. The Service would be forced to conduct more intensive and intrusive investigations of the taxpayer and, if the taxpayer did not cooperate, third parties such as banks and credit card companies would be required to provide information to the IRS. These document requests would be viewed as imposing new burdens on these third parties.

The system also would operate less efficiently and would be less able to deliver quality services at a reasonable cost. The provision either would require increased funding for the IRS or a reduction in audit activity. Consider the task of disproving the existence of a child. If I claim that I have a baby, how are you going to disprove that? The fact that my neighbors never saw one or the grandparents never heard about one does not Drove that the child does not exist. Even the lack of a birth certificate does not prove it.

The IRS would have to spend more time developing and litigating cases, even though it would have less chance of winning them. Audit resources would be spread even more thinly, and the audit rate would decline further. More summonses would be issued and more efforts would have to be exerted attempting to obtain district court enforcement of them. Because the statute of limitation on assessments would remain unchanged, this dilution in audit resources would effectively immunize more and more deficiencies from assessments. The ultimate result would be that IRS audits would only be cost-effective if very large amounts of money were at stake, inviting taxpayers to disregard the rules and fostering disrespect for the system.

In evaluating section 1 of H.R. 390, we ask you to consider whether it really is in the long-term interest of the average taxpayer to force the Internal Revenue Service to administer and enforce the tax laws with this impediment? Because of the negative impact on fairness, privacy and efficiency, the answer to this question is clearly no.

Although Treasury has not formally estimated the cost of this proposal, it is almost certain to be very large. The trust of law-abiding citizens who do comply with the tax laws would be eroded.

Moreover, this provision is likely to result in significant increases in reporting and recordkeeping burdens on the public because the IRS will be forced to obtain more information concerning taxpayers from third parties to carry the burden of proof. Not only will this be extremely costly, but it directly conflicts with our goal of reducing reporting and recordkeeping burdens wherever possible.

In sum, this proposal could severely weaken, if not destroy, our voluntary compliance system as we know it today.

I would also like to comment briefly on the remaining two provisions in H.R. 390.

2. Secretary of the Treasury Required to Specify, on Request, Regulations Implementing Specific Taxes

Current law. Under current law, the IRS provides taxpayers with an explanation of the bases for its proposed adjustments in its statutory notices and provides detailed citations to authorities in support of its position in field audits.

Proposal. Section 2 of H.R. 390 would obligate the Secretary to provide each person who was made liable for a tax, upon written request, with a written identification of the type of tax and regulations relating to the adjustment. This written identification would have to be provided within 14 days of the request.

Discussion. We agree taxpayers should be made aware of the basis for an adjustment. In fact, this information is routinely provided by the IRS and already is available on request of the taxpayer. However, we question whether forcing a response in all cases within 14 days, regardless of the posture of the case, that could consume significant resources, would result in a commensurate benefit to taxpayers.

3. Increase in Limit on Recovers of Civil Damages for Unauthorized Collection Actions: Exclusion of Such Damages From Income

Current law. Under current law, if an officer or employee of the IRS recklessly or intentionally disregards a provision of the Internal Revenue Code or Treasury regulations, the affected taxpayer may sue the United States for the lesser of (i) $100,000 and (ii) direct economic damages plus costs.

Proposal. The bill would increase the damage cap to $1 million and exclude the damages from the taxpayer's income.

Discussion. We believe that the current statutory provision strikes a reasonable balance between safeguarding the interests of taxpayers and the IRS. We are concerned that increasing the damage cap to $1 million could significantly encourage lawsuits by tax protesters. Excluding damages from income also results in mismeasurement of a taxpayer's economic income and is an indirect way of raising the cap.

II. TAXPAYER BILL OF RIGHTS 2

The Treasury and the IRS worked closely with Members of Congress and their staffs in developing the 1988 Taxpayer Bill of Rights legislation, and we are continuing to meet with Congressional staffs to develop new ideas that will build upon the advances that already have been made. Commissioner Richardson, who will testify after me, will set forth some of the ideas that the IRS and Treasury are developing.

As a general policy matter, the Administration has and will support legislative and regulatory proposals for procedural changes that are well-defined and that improve the tax system, subject of course to budget neutrality requirements that must be satisfied.

We also caution against attempting to codify existing IRS practices and procedures. This may hamper the ability of the IRS to revise those rules to respond to changed circumstances and encourage a small segment of the taxpayer community to engage in unproductive litigation that consumes scarce IRS resources. The costs of the delays and litigation expenses generally must be borne ultimately by all taxpayers.

The remainder of my testimony comments on specific provisions of the "Taxpayer Bill of Rights Two" (TBOR 2) bills.

The two versions of TBOR 2 that are the focus of this hearing (H.R. 661 and H.R. 11) are very similar in most respects. We support many of the provisions in their current form or with minor modifications that we have been discussing with Congressional staffs. At the current time, we understand that there are roughly 40 sections in each of the current bills and we have major disagreements with only a small number of these provisions. We are supportive, for example, of proposals in each of these bills to:

(1) extend the interest-free period for payment of tax after notice and demand;

(2) disclose collection activities against spouses who filed a joint return;

(3) permit joint returns after separate returns without immediate full payment of tax;

(4) include phone numbers on payee statements;

(5) apply the failure-to-pay penalty evenly to regular and substitute returns; and

(6) make reasonable efforts to notify taxpayers that have made payments the IRS cannot associate with any tax liability.

Commissioner Richardson will testify in more detail on some new ideas that have been suggested. I would like to focus the balance of my testimony on our points of disagreement with the bills.

Taxpayer Advocate. 101 of H.R. 661 and S. 258 (same in pertinent Dart as § 5001 of H.R. 11). Establishment of Position of Taxpayer Advocate within the IRS

Both H.R. 661 and H.R. 11 contain two sections that affect the office of the Taxpayer Ombudsman. I generally will defer on these provisions to Lee Monks, the current Ombudsman. However, there are two issues on which I would like to comment.

Current law. Under current law, the Administration's tax legislative initiatives are not presented to Congress until they are cleared by all pertinent executive offices and agencies, including the Office of Tax Policy, the Internal Revenue Service, and the Office of Management and Budget. The Ombudsman is appointed by the Commissioner.

Proposal. Section 101 of H.R. 661 and section 5001 of H.R. 11 require the Ombudsman (who would be renamed the Taxpayer Advocate) to submit an annual report to the tax-writing committees on the activities of his office. Each such report would have to contain recommendations for legislative solutions to problems encountered by taxpayers. These reports would not be permitted to be reviewed by officials of Treasury, IRS, or the Office of Management and Budget, including the Commissioner and the Assistant Secretary for Tax Policy, prior to being submitted to Congress.

Section 5001 of H.R. 11, unlike section 101 of H.R. 661, requires the Taxpayer Advocate to be appointed by the President and confirmed by the Senate.

Discussion. We believe that the Ombudsman (or Taxpayer Advocate) should be independent and free to discuss his views, and we are pleased that the current bill does not contain a mandate that he be chosen by the President and confirmed by the Senate. But we draw the line at submitting legislative proposals in the absence of review by other offices. We believe that the Administration should speak with one voice on tax legislative proposals, taking into account the priorities of the Administration, the views of the Secretary of the Treasury, the concerns of many agencies and the technical, revenue estimating and policy input of the Office of Tax Policy and administrative input of the IRS. In short, we believe this provision undercuts the right of the Executive branch to present to Congress a balanced fiscal and economic agenda and the role of the Secretary of the Treasury as the spokesman of the Administration's fiscal matters.

Installment Agreements. 202 of H.R. 661 and S. 258 (not in H.R. 11). Running of Failure-to-Pay Penalty Suspended during Period Installment Agreement is in Effect

Current law. Under current law, taxpayers generally must pay interest and a failure-to-pay penalty on taxes that are not paid on time. The failure-to-pay penalty applies during the period of time an installment agreement is in effect.

Proposal.The proposal would suspend the failure-to-pay penalty during the period of time an installment agreement is in effect, as long as the agreement was requested before the due date of the return.

Discussion. This proposal would have a serious negative impact on revenues and collections. Taxpayers who otherwise could pay taxes on time would be encouraged to pay in installments. Consider the interest arbitrage between the rate of interest on payments to the Federal government and the rate of interest for credit card borrowings. The government rate is only about half the credit card rate. Obviously, anyone with credit card balances should pay that first before paying tax. Also, if the rate of interest owed the government is less than the return taxpayers could earn by investing the delayed payments, taxpayers would have an incentive to borrow from the government by not paying tax on time. The consequences of the proposal would be exacerbated when combined with the proposal (section 201 of H.R. 661 and S. 258) permitting installment agreements as a matter of right.

Interest. 301 of H.R. 661 and S. 258 (modification of § 5201 of H.R. 11). Expansion of Authority to Abate Interest

Current law. Under current law, the IRS has the authority to abate interest assessed with respect to a tax deficiency or payment that is attributable to the error by, or delay of, an IRS employee performing a "ministerial" act.

Proposal. In the case of taxpayers with net worth and size exceeding certain thresholds (generally, $2 million for individuals and $7 million or 500 employees for businesses), the IRS would be authorized to refund or abate interest attributable to "unreasonable" IRS errors or delays, regardless of whether the error was attributable to a "ministerial" act. In the case of taxpayers with a net worth and size below the thresholds, the IRS would be obligated to abate the interest until the demand for payment was made. The counterpart to this proposal in H.R. 11 omits the net worth distinction and does not mandate abatement for any taxpayers.

Discussion. This broadening of the authority to abate interest in both H.R. 661 and H.R. 11 would encourage taxpayers to seek relief from interest assessments as a matter of course, imposing significant administrative and controversy-related costs on the IRS. These costs ultimately would be borne by all taxpayers. In addition the vagueness of the standard for abatement would lead to uneven application of the law.

Moreover, even during delays in the resolution of an issue, taxpayers have the use of government money. Since interest (unlike a penalty) is compensation for the use of money, the provision would represent an economic windfall to taxpayers in many cases.

The net worth distinction in H.R. 661 lacks a solid policy foundation as it is unrelated to the purpose of an interest charge, which is to account for the time value of money. When coupled with the mandatory abatement for "small" taxpayers, the proposal also would have a negative impact on tax revenues. We also believe that the net worth distinction would add significant administrative complexity.

Information Returns. 603 of H.R. 661 and S. 258 (modification of § 5503 of H.R. 11). Requirement to Conduct Reasonable Investigations of Information Returns

Current law. Deficiencies determined by the IRS generally are afforded a presumption of correctness.

Proposal. Section 603 of H.R. 661 would place the burden of proof on the IRS in all reasonable disputes concerning the accuracy of income reported on an information return filed by a third party, unless the IRS had conducted a reasonable investigation of the accuracy of the return. The proposal is more expansive than its counterpart in H.R. 11. Section 5503 of H.R. 11 is limited to disputes over information returns in court proceedings, does not apply unless the taxpayers cooperate, and requires the IRS to present "reasonable and probative information" concerning the deficiency, rather than to shoulder the burden of proof.

Discussion. We believe the H.R. 11 proposal strikes an acceptable balance between taxpayer and government burdens. The IRS already has updated its procedures to incorporate the substance of that proposal.

For many of the reasons discussed in our comments on section 1 of H.R. 390, we have very serious misgivings about the version of this proposal in H.R. 661. By shifting the burden of proof on income reported on information returns to the IRS, the H.R. 661 proposal could eviscerate the IRS's matching program by eliminating the presumption of correctness if the IRS failed to physically examine the return or otherwise conduct a "reasonable investigation" of the return's accuracy. Taxpayers, without presenting any supporting evidence, could force the IRS to investigate the accuracy of information returns before issuing notices of deficiency.

Any statutory change that prevents the IRS from asserting deficiencies on the basis of information returns could have devastating effects on the tax compliance system and profoundly increase the resource needs of the IRS. Computerized matching of information returns has had a significant positive impact on taxpayer compliance. This change would represent a significant step backwards.

Administrative Costs. 804 of H.R. 661 and S. 258 (not in H.R. 11). Authority for Court to Award Reasonable Administrative Costs

Current law. Under current law, a "prevailing party" in an administrative or judicial proceeding is entitled to reasonable litigation and administrative costs, including attorneys' fees. Positions of the IRS taken prior to issuance of an IRS Appeals decision or notice of deficiency are not taken into account.

Proposal. Although the drafting of the proposal is not entirely clear, its intent appears to be to permit taxpayers to recover costs in connection with IRS positions asserted prior to an IRS Appeals decision or notice of deficiency.

Discussion. Cost recoveries should be allowed only after the United States has adopted a litigating position. The position of the United States during the early stages of an investigation cannot be judged against the "substantial justification" standard used to determine if one is a prevailing party, because examining agents pursue fact-finding investigations that do not consider the hazards of litigation.

Relief from Retroactive Regulations. 903 of H.R. 661 and S. 258 (modification of § 5803 of H.R. 11). Relief from Retroactive Application of Treasury Regulations

Current law. A taxpayer may rely on Treasury regulations and revenue rulings that accord with the taxpayer's particular facts. In addition, penalties are abated for taxpayers who rely on other written guidance of the IRS. The Secretary may exercise its discretion to issue tax regulations prospectively or retroactively.

Proposal. With a few exceptions, section 903 of H.R. 661 and the corollary provision in H.R. 11, would prohibit final regulations from applying to a taxable period ending before the earlier of (1) the date related proposed regulations were filed with the Federal Register; or (2) a Notice was issued substantially describing the expected content of the regulations. Under both sections, regulations could apply to an earlier period (1) to prevent abuse of a statute, (2) to cure procedural defects in previously issued regulations, or (3) pursuant to an election by the taxpayer. The H.R. 11 version provides an additional very important exception. Under H.R. 11, regulations issued within 12 months of the date of enactment of a statute may relate back to that date. Both H.R. 661 and H.R. 11 would apply retroactively to invalidate regulations that already have been issued.

Discussion. Section 7805(b) of the Internal Revenue Code, in existence basically since 1921, confers broad authority on Treasury to authorize prospective effective dates for rulings, regulations and other types of guidance. It presumes that regulations can always be applied retroactively. However, in practice, Treasury rarely has applied guidance retroactively unless the taxpayers have wanted retroactive treatment. Most reviews, some of them rather extensive, by academics, bar associations and practitioners, have concluded that Treasury has acted responsibly and reasonably. We are not aware of comments suggesting a pattern of misuse or other emergency justifying the type of fundamental change contemplated by the proposal.

The ban would encourage aggressive return positions for transactions that occur in the "window" between the date of change in the statute and the date of issuance of regulations interpreting that change. Taxpayers would routinely litigate the new nonproductive question of whether a retroactive regulation was justified, because their transaction "abused" the statute. In addition, the exception for retroactive regulations to curb abuse of a statute would not cover regulations addressing judicial decisions or substantive defects in prior regulations. The absence of an exception in H.R. 661 for regulations issued within twelve months of the related statutory provision would inhibit the ability of Treasury to implement the operation of new legislation according to Congressional intent. Taxpayers would constantly "race" the Treasury to complete their questionable transactions before regulations could be issued.

Finally, the retroactive effective date of the proposal is, at best, counterproductive. By applying to regulations filed on or after January 5, 1993, the proposal in H.R. 661 would undercut legitimate taxpayer reliance on regulations issued on or after that date and before H.R. 661 was enacted.

This concludes my prepared remarks. I will remain to answer any questions that you have after the Commissioner's and the Ombudsman's statements. Thank you.