Modernization Update: New IRS Up and Running

A year ago the JofA gave readers a look at the blueprint for the new IRS (see “IRS Begins Its Metamorphosis,” JofA , Mar.99, page 23). It has taken some time, but finally the service is putting into place the structure that will characterize the IRS of the 21st century.

Commissioner Charles O. Rossotti outlined the agency’s reorganization at The New IRS Stands Up, a conference on IRS modernization presented by the service and cosponsored by the AICPA, the ABA Section of Taxation, the American Tax Policy Institute, the National Association of Enrolled Agents and the Tax Executives Institute.

“Although modernizing the IRS is not Mission Impossible, neither is it Fantasy Island, ” said Commissioner Rossotti of the ups and downs of the colossal undertaking. “The purpose of the reorganization is to improve the entire way the IRS works.”

Michael E. Mares, the immediate past chairman of the AICPA tax executive committee, said, “This reorganization is like trying to change a jet engine on a plane as it is flying over the ocean.” The IRS has managed to keep the plane in the air while making enormous changes. The modernized organizational structure combined with new technology will give the IRS the ability to deliver faster and better customer service in the future, Mares said.

The IRS’s new structure is designed to efficiently meet the distinct needs of specific groups of taxpayers. The service has moved away from its traditional geographical orientation and adopted the customer focus and quality models used in industry today. Four operating divisions are replacing the regional-office structure. The new organization will improve customer service to taxpayers, reduce inconsistencies in practices and policies and increase management accountability within the IRS.

Though the IRS will continue to refine its new structure over the next several years, it is already well into the implementation of this modern configuration.

Last December, the Tax Exempt and Government Entities Division (TE/GE) became the first of the four divisions to begin operating. (See “IRS Establishes New Business Unit,” JofA , Feb.00, page 20.) This division will provide service to employee plans (of which there are more than a million, both private and public, representing $4.1 trillion in assets), exempt organizations (more than 1.5 million organizations with $1.3 trillion in assets) and government entities (86,000 federal, state and local entities and 559 federally recognized Indian tribes).

Division Commissioner Evelyn Petschek leads this unit. She had served as IRS assistant commissioner of employee plans and exempt organizations from 1996 until she assumed this position.

The Large and Mid-Size Business Division (LMSB), which is directed by Larry R. Langdon, will begin operation this month. A veteran of industry, Langdon was vice-president for tax, licensing and customs at Hewlett-Packard Co. before joining the IRS to run the large business unit.

LMSB serves corporations, S corporations and partnerships with more than $5 million in assets. It has five industry units: financial services and health care (headquartered in Manhattan); retailers, food and pharmaceuticals (Chicago); natural resources (Houston); communications, technology, and media (the San Francisco Bay area); and manufacturing, construction and transportation (central New Jersey).

The TE/GE and LMSB operating divisions are both headquartered in Washington, D.C. The remaining operating divisions, Small Business and Self-Employed (SB/SE) and Wage and Investment (W&I), which will have their national headquarters in New Carrollton, Maryland, and Atlanta, respectively, are scheduled to begin operation in the fourth quarter of this year.

Joseph Kehoe, who worked as a consultant with Pricewaterhouse-Coopers for 26 years, will be commissioner of the SB/SE division. The 40 million taxpayers in this group pay $915 billion in taxes. Approximately 39,000 IRS employees will staff the division. It will serve 7 million small businesses (companies and partnerships with assets of $5 million or less) and 33 million self-employed taxpayers. It will also serve estate and gift tax filers, fiduciary return filers and individuals who file international tax returns.

The fourth and largest operating division is the Wage and Investment Division. W&I will serve the 90 million tax filers who pay about $380 billion annually in taxes. The division will be divided into three main operating units—communications, assistance, research and education, customer account services and compliance. It will emphasize taxpayer education.

John M. Dalrymple will oversee the 21,000 W&I employees. Prior to his appointment, he served as chief operations officer of the IRS. He joined the service in 1975 as a revenue officer.

Rossotti said that the success of the agency’s new reorganization hinged on whether the IRS would be able to use its limited resources productively and provide its employees with the necessary tools and training to do a quality job.

“The new organization is not the real change that will occur at the IRS. It merely enables the IRS to change,” Rossotti said. “It is the new leadership teams and the thousands of employees who will make the difference. Over time, they—not the structure—will produce the real change in service, compliance and productivity in the IRS.”

The IRS’s new focus on the needs of specific taxpayer groups and better service is a result of the landmark IRS Restructuring and Reform Act of 1998.