Special report:

IRS Restructuring Commission Calls for Independent Oversight Board; Treasury Strongly Disagrees

T he National Commission on Restructuring the Internal Revenue Service published a study calling for significant changes in the way the IRS is governed. The report, published on June 25, recommends that the overall responsibility for executive branch management of the IRS be placed in the hands of a new, independent board of directors.

However, the proposal, one of 50 recommendations in the report, would continue to give the Treasury Department full control of tax policy. The board, to be made up of five members from the private sector and two members from the executive branch, would direct the IRSs long-term strategy, appoint senior management and hold it accountable.

The president would appoint the board members, who would be confirmed by the Senate. Board members would review and approve business and operational plans, including plans for modernizing the computer system, outsourcing and training. They also would appoint the commissioner and review his or her IRS budget recommendations.

Treasury solution
The proposal to create the independent board already has been criticized by the Treasury Department, which a month earlier had announced its own proposal for an oversight panel made up of federal officials from several agencies. Deputy Secretary Lawrence H. Summers told members attending the American Institute of CPAs Spring Tax Division Conference in Washington, D.C., that the restructuring commission proposal was "dangerously flawed" because "it would remove the IRS from executive branch oversight." Summers said the Treasury Department was seeking an executive order to create the board. He also announced the establishment of an IRS advisory board, composed of 14 private-sector members, that would act as "public trustees" and issue an annual report on the state of the IRS.

Summers said that although he agreed the IRS needed to improve its customer service, efficiency and cost-effectiveness, the restructuring commissions proposing a board of private citizens to manage the IRS would "pose an unacceptable risk to the nations revenue stream." He said 95% of the governments revenue flows through the IRS. "We cannot afford to experiment with responsibility, nor place it under the jurisdiction of part-time managers," said Summers.

More stability
The restructuring groups report acknowledged the Treasury had taken a more active role in IRS oversight in the past year. Nonetheless, it said the IRS had received "little consistent oversight or guidance from the Treasury." According to the report, many of the IRSs current problems stemmed from a lack of continuity and stability in management. For example, it said that because the IRS had to react to pressures applied by seven different congressional committees that focused issue by issue it did not have a single consistent strategic direction. The commission said a new, independent board would institute a long-term strategic plan and ensure that both members of Congress and IRS staff would have sufficient information to make the best decisions on administration policy. The report also proposed that the IRS

Already on the Hill
House Ways and Means Committee Chairman Bill Archer (R-Texas) said he would consider legislation on the proposals as early as August and Senate Finance Committee Chairman William Roth (R-Del.) said he would consider the restructuring measures as early as September. Jeffrey Trinca, the commissions chief of staff, said he was confident the proposals for an independent oversight board had enough support in Congress to become part of the legislative restructuring package.

Tax News

Clinton Selects Manager for Top IRS Post

P resident Clinton appointed the chairman of an international information technology consulting firm to be the next Internal Revenue Service commissioner. If confirmed, Charles O. Rossotti, cofounder and chairman of American Management Systems, Inc. (AMS), in Fairfax, Virginia, would become the first IRS commissioner without a formal background in taxation.

Before the selection, members of Congress, including cochairman of the National Commission on Restructuring the IRS, Congressman Robert Portman (R-Ohio), had recommended that the new commissioner be a private-sector manager. Senate Finance Committee Chairman William V. Roth, Jr. (R-Del.), said he was pleased the president had chosen someone with such a background. "The IRS was in great need of a leader with significant management experience," said Roth.

Web Tax

Senator to Push Internet Bill

S enate Commerce Committee Chairman John McCain (R-Ariz.) promised swift action on a bill that would halt the imposition of new taxes on Internet services and products. The Internet Tax Freedom Act (S 442 and HR 1054) (see JofA, June97), which the Clinton administration supports, would direct businesses and consumer groups, state and local governments and the federal government to work together to develop policy recommendations for Congress on interstate taxation of electronic commerce. It also would direct the executive branch to seek an international agreement making the Internet a duty-free zone.

Some 20 jurisdictions, including the District of Columbia, impose one or more taxes on electronic commerce. Senate sponsor Ron Wyden (D-Ore.) said many of those jurisdictions include Internet access and services under existing tax regimes, such as telecommunications or sales and use taxes.

Rossotti has managed the consulting firm since 1970. AMS, with approximately 7,000 employees, had earnings of over $800 million in 1996; it specializes in consulting services for financial institutions, telecommunications companies, federal agencies, state and local governments and utilities companies. Previously, Rossotti had been principal deputy assistant secretary in the Defense Department Office of Systems Analysis. He has a bachelor of arts degree from Georgetown University and a masters degree in business administration from Harvard Business School.

Rossotti would succeed Margaret Milner Richardson, who left the IRS in May, and Michael P. Dolan, acting commissioner.

Tax News

IRS Extends Electronic Payments Deadline

The Internal Revenue Service announced that businesses have until January 1, 1998, to meet the requirements for making federal payroll tax deposits electronically before facing penalties. Businesses with more than $50,000 of federal employment tax deposits in 1995 had been required to use the Electronic Federal Tax Payment System (EFTPS) by July 1.

Acting IRS Commissioner Michael P. Dolan said the IRS realized that many businesses needed more time to learn about making electronic payments. "We decided to take yet another step to help them make the switch comfortably and confidently," said Dolan.

Although the 10% penalty for not depositing electronically has been waived until January 1, 1998, paper deposits must still be made on time to avoid late deposit penalties.

Common misconceptions
The IRS also issued answers to many of the common questions businesses had about EFTPS. According to the release, EFTPS does not

  • Change the tax due date. Businesses must notify the bank or the Treasury Departments financial agent a day before the payment due date, but the funds do not transfer until the due date.
  • Give the IRS access to the businesss bank account. The business controls when and how much money is transferred.
  • Require special electronic equipment. A business need only make a telephone call (on a rotary dial phone) to file electronically. If it wishes to use its computers to transfer funds, the IRS will supply the software.

For more information on EFTPS or to get an enrollment form, call EFTPS customer service at 800-555-4477 or 800-945-8400.

Tax News

New Rules for Changing Methods

The Internal Revenue Service issued new procedures for taxpayers requesting a change in accounting method. Margaret Milner Richardson, then IRS commissioner, said the new procedures would help increase voluntary compliance by making tax laws easier to follow. "These new rules greatly simplify the process," said Richardson.

Taxpayers generally request a change in accounting method for items reported as income or taken as a deduction. For example, individuals who own rental property and have used an incorrect method to depreciate it or sole proprietors who use an accrual basis to account for inventory need to file Form 3115, Application for Change in Accounting Method .

The new rules—revenue procedure 97-27—reduce or eliminate many of the complexities involved with filing form 3115. For example, there no longer are different classification categories, and a single adjustment period for both positive and negative adjustments replaces the various adjustment period requirements in the old rules. Perhaps the most notable change is that taxpayers may now file form 3115 any time during the year. "Before this, taxpayers had to file their requests within the first 180 days of the year," said Loretta Peto of Peachin & Peto in Tucson, Arizona. "The new procedures really help taxpayers who do not discover until late in the year they must file a change."

The changes became effective on May 15. Revenue procedure 97-27 is available from the IRS by calling 202-622-4040.

Tax Files
    Most Recent Stats of the Past
    The Internal Revenue Service released its 1994 Corporation Source Book , which includes aggregate statistics on assets, liabilities, receipts, deductions, tax and tax credits presented by industry groups. Printed copies can be purchased for $175, and floppy disk and magnetic tape copies are available for $1,500. A list of industry classifications and tape specifications is available without charge by calling the IRS at 202-874-0410.

    Bank Wants Personal Treatment
    The American Bankers Association (ABA) urged the Organization for Economic Cooperation and Development (OECD) to adopt international tax policies that accept taxpayers own valuations of transactions. The ABA was commenting on the OECDs discussion draft on the global trading of innovative instruments. The ABA said that, without such analysis, "each tax authority would be free to apply its own version of economic reality, which could lead to disagreements and double taxation."

    Congressional Revenue Smell Test?
    Senate small business committee chairman Christopher Bond (R-Mo.) and Senator Richard Shelby (R-Ala.) introduced legislation that would give Congress the ability to review any regulatory action that increases revenue. Although the Bond-Shelby proposal is not aimed specifically at the IRS, it is a response to a controversial IRS proposed regulation (REG-209824-96) that would have the effect of imposing self-employment taxes on the investment income of taxpayers disqualified as limited partners in limited liability companies.

Where to find January’s flipbook issue

Starting this month, all Association magazines — the Journal of Accountancy, The Tax Adviser, and FM magazine (coming in February) — are completely digital. Read more about the change and get tips on how to access the new flipbook digital issues.


Get your clients ready for tax season

Upon its enactment in March, the American Rescue Plan Act (ARPA) introduced many new tax changes, some of which retroactively affected 2020 returns. Making the right moves now can help you mitigate any surprises heading into 2022.