IRS puts the finishing touches on reorganization plans.

The planning phase for the modernization of the IRS is moving into high gear. The agency is putting the finishing touches on a blueprint that will transform both its structure and its focus.

The plan features four operating divisions with a small central office in Washington. The operating divisions will be similar to strategic business units in a corporation and will be divided by type of taxpayer rather than by region.

In addition to these operational units, the IRS is creating a network of business units to meet the specialized needs of industry segments.

The planned functional structure is a major divergence from the current geographical organization of the agency.

It will be a massive undertaking, said Charles R. Baugh, IRS district director for Manhattan and an AICPA member. The 33 district and 10 regional IRS offices will be dismantled, and in their place will be the four operating units.

According to Jerry Songy, IRS executive director of modernization, the proposed structure is more in line with the revised mission of the agency, which emphasizes service to taxpayers. (See On a New Mission , JofA, Dec.98.)

There are two questions underlying this reorganization, Songy said: How do all these changes affect the service to our ultimate customerthe taxpayer? And how can the IRS do a better job?

Baugh also commented on the changing culture at the IRS. The focus of the IRS has switched from law enforcement and compliance to service, he said. The IRSs new mission statement and the agencys reorganization reflect the service-oriented change in focus.

The new structure will segment taxpayers into four groups: wage and investment income taxpayers, small business and self-employed taxpayers, large and midsize business taxpayers and tax-exempt entities.

Wage and Investment Income. This is the largest group (approximately 90 million taxpayers) and represents individual taxpayers who file 1040 returns. The headquarters for this new operating division will be located in Atlanta.

Small Business and Self Employed. This group consists of taxpayers that file 1040 returns with schedules C, E, F or 2106 and partnerships, S Corporations or 1120 corporations with less than $5 million in assets. The segment represents approximately 39 million taxpayers. The headquarters for this group will be located in Washington, D.C.

Large and Midsize Businesses. This group consists of 170,000 companies with over $5 million in assets. The headquarters will be located in central New Jersey.

Tax Exempt. Employee plans and exempt organizations are included in this group. The segment also includes federal, state and local entities; tax-exempt bonds; and Indian tribal governments. In total, 1.6 million taxpayers will be included. The headquarters will be located in Washington, D.C.

The design teams were scheduled to submit the blueprints for each of these divisions by the end of February, Songy said.

With that phase completed, the IRS will turn its attention to developing an integrated blueprint that will address crosscutting issues between the operating and industry units. Responsibility for the collection and administration of estate and excise taxes is such an issue. Another issue that could affect taxpayers in more than one of the operational groups is the collection of international taxes.

By April 15, the IRS plans to unveil its integrated reorganization blueprint. If all goes as planned, it will implement the reorganization over the next two years, one operating division at a time. Full implementation is scheduled for 2001.

Ultimately, what does the future hold for the IRS? Will the agencys critics, who call for the abolition of the Internal Revenue Code, prevail?

The future of the IRS is assured because it takes $1.7 trillion to run the government and that money wont just fall from the sky, Baugh said in explanation of why there will always be an IRS in some form. You cant collect $1.7 trillion without an effective organization.