Mr. Chairman and Committee members, my name is Lawrence G. Lilly. I have been a tax attorney for more than thirty years and I am currently in private practice in St. Augustine, Florida. Prior to opening my office in Florida, I worked for the IRS for 28 years in several different capacities. First, I was a Special Agent in the Intelligence Division (now known as the Criminal Investigation Division.) Then, I became a Criminal Tax attorney, an Assistant District Counsel in Miami, and I retired in 1990 from my final position as District Counsel for one of the larger districts, in San Jose, California.

A fair and efficient tax collection agency is recognized by everyone as being vital to the future of our country. Although no one likes to pay taxes, all reasonable people know that our taxes are the price we pay for our liberty! No one can properly voice a legitimate complaint about shouldering a fair share of paying for our system of government.

My purpose today is to present constructive criticism of the IRS for consideration by the Committee. It is my hope that, with your guidance, the credibility of the Service can be restored to the high level which prevailed at earlier times. It is vital to our system of taxation that the citizens who are paying the taxes have trust and confidence in the fairness of the system.

I was extremely proud to be an employee of the IRS for the major portion of my career. During the 1980's however, I began to note what I considered to be significant deterioration of the Service and its concern with serving the public. It appeared to me that the IRS had decided, consciously or unconsciously, to drop the Service aspect of their job and to focus exclusively on making upper management look good statistically. This, I fear, has led to undermining the culture of the organization, lowered the self-esteem of many employees, and caused the organization to become unfair and oppressive in its treatment of taxpayers.

Before proceeding, I should make it clear that I was not technically an employee of the IRS for most of my career. Organizationally, the attorneys who work with the IRS are not subordinate to the District Directors or even to the Commissioner of the IRS. IRS attorneys work within a parallel organization structure, which reports to the Chief Counsel of the IRS and the General Counsel of the Treasury Department.

In view of this distinctive organizational structure, I had the opportunity to see the IRS from a viewpoint that is quite different than that of most former employees. Whereas most former employees worked within a particular area, such as Examination, Collection, or Criminal Investigation, I, as a manager of attorneys, was involved with all of those functional areas. From this perspective, I had the opportunity to make detailed observations about the Service's operations and also had the time to develop what I hope are a few, solid recommendations for its improvement.

I believe there is too much focus set on achieving statistical goals set by upper management generally known as the Senior Executive Service (SES) goals. Goals are important and necessary in the management of the organization, but the goals, as currently drafted by management, too often focus on those things which are readily measurable numerically, such as the number of dollars collected or the number of cases closed. Generally, the goals do not place adequate focus on the quality of the work performed, or the acceptance of that work by the general public. The goals are not always sensitive to the perceptions of the average American taxpayer.

The organizational structure of the IRS is still too decentralized. Directives from the top are implemented, or not implemented, in the manner decided upon locally. Directives with which local employees or managers disagree take considerable time before they are implemented. As just a single example, some time ago Commissioner Peggy Richardson issued a public announcement indicating that the Service would thereafter be more liberal in its consideration of Offers in Compromises. Several months later, the district in which I reside had not implemented her directive and it was necessary for me to directly confront local officials and to chastise them for failing to implement the Commissioner's directive.

The regional offices of IRS, or at least the regional offices of the Chief Counsel, serve little or no purpose except to dilute the authority of the National Office and to delay the implementation of national directives. I recommend that consideration be given to eliminating all of these offices, or if they cannot be eliminated, they should all be physically located in Washington where they can become more responsive to national direction. At this time, each of the regions operates as a fiefdom, rather than as a necessary cog in the wheel of a national organization.

Selections for managerial positions are made based upon whether the employee has performed well in his or her current position, i.e. he or she was a "good" attorney, or a "good" agent. Little consideration is given to the "people skills" of the applicants or whether they are likely to be effective and skilled managers. This too frequently leads to situations where you loose a good employee and obtain a poor manager. Management skills of persons being considered for appointment to higher positions should receive greater scrutiny.

The IRS organization is too insular, with little infusion of new blood. Traditionally, the Service promotes from within. While it is good for management to be loyal to employees, this frequently leads to situations where people are elevated based upon their willingness to go along with the entrenched views. Innovation and imagination are frowned upon.

The Tax Section of the American Bar Association has too much influence over the selection process for the IRS Commissioner. Until recently it appeared that only those who were active in that selection had a realistic chance of being nominated for one of the topmost positions. Management skills rather than skills in other areas should be emphasized.

Employee satisfaction with the IRS has been on a downward spiral, due at least in part to the slavish attention to numerical goals. Employees are given mandates by management to take positions known to be incorrect in order to obtain preordained results. I know many people who have retired from the IRS, or left before retirement, but I do not know of a single person who regrets that they no longer work for the organization, I personally left the Service at least eight years prematurely because of the poor management practices that were in vogue at that time and which, I understand, continue to this day.

It is my considered opinion that some of the problems that I have addressed can be readily resolved.

(1) The four remaining regional offices should be completely eliminated or physically relocated to Washington. This will enable the Commissioner to more readily make any needed changes in the direction of the organization.

(2) IRS Management, or this Committee, can take action to insure that the SES goals in the future place greater focus on the quality of performance by IRS managers and employees. This should cause all IRS employees to become more cognizant of the sensitivity of their work and result in fair and equal treatment of all taxpayers

(3) Selection boards for all positions above the first line management level should include at least one representative skilled in management skills and, at the same time, be a step in opening the organization to an infusion of new blood.

I personally commend the many dedicated and responsible employees of the IRS for their valiant attempt to fairly administer the laws in an evenhanded manner. The culture of the IRS organization, however, has eroded to the point where the dedicated employees are leaving the agency as fast as possible. The management of the IRS must stop sacrificing the employees in order to make themselves look good.

Mr. Chairman, thank you for this opportunity to appear before you and this Committee. I greatly appreciate being able to offer what I hope are constructive and positive comments regarding the future role of the IRS.