January 28, 1998
Statement of Charles 0. Rossotti,
Commissioner of Internal Revenue,
Before the Senate Finance Committee
Mr. Chairman and Distinguished Members of the Committee:
When I appeared before this Committee in October, I had already
confirmed for myself two things: that the IRS must do a far better
job of serving taxpayers, and that achieving a goal of consistent
first rate service would require a major shift in the IRS's focus. I
committed to you that I would improve the work of an agency that
directly affects so many people and do so to the best of my ability.
Since my appearance here in October, I have read thousands of
pages of studies and reports, met with over 500 IRS employees,
reviewed the ongoing audits conducted by the IRS Chief Inspector,
visited offices all across the country, spoken with taxpayers at
Problem Solving Days and met with all of the practitioner and
professional groups who will testify before you tomorrow. I have
learned a great deal from the work of this Committee and from the
work of the Committee on Ways and Means. Drawing upon these sources,
the report and recommendations of the National Commission on
Restructuring the IRS, and my own 28 years of experience as a
manager, I have reached a clear and inescapable conclusion: the IRS
must shift its focus away from its own internal operations and think
about its job from the taxpayers' point of view.
I am pleased to be here today to outline for you how I plan to
do what I said I would do back in October, how the legislation you
are considering will help in this endeavor, and how concrete
measures will be taken to address the kinds of problems you, Mr.
Chairman, brought to light in your hearings in September.
But, before I outline my concept of a new IRS, let me discuss
two important issues of concern to this committee. First, the
hearings you held in September prompted the IRS to take stock of
itself in a number of key areas, and I'd like to take this
opportunity to review the actions the agency has taken since.
Second, I'd like to make a few points with regard to the
restructuring legislation that has passed the House and that will
soon be marked up in the Senate.
Actions Since Finance Committee Hearings
Mr. Chairman, your September hearings were a call to action and
have caused the IRS to begin a period of self-examination on a
number of fronts. We have initiated internal audits on the use of
statistics in Examination and Collection and begun reviewing the
conduct of managers and employees so that we can detect and correct
abuses. In addition to these specific actions, I want to take a
moment to review some of the other major commitments we have made to
improve our treatment of taxpayers. I would also like to assure you
that we will continue to fulfill our current commitments and for the
longer term strive to prevent these situations from occurring in the
Both before and after the hearings last September, the IRS
worked closely with the Finance Committee staff and the Treasury
Department to identify the problems that must be resolved in order
to end abuses, protect taxpayers' rights, and make the IRS more
The IRS and the Treasury Department have jointly developed
action plans to address each of the problem areas which have
surfaced over the last few months. The issues that could be resolved
quickly have been. Others will take more time. There are
approximately 100 detailed actions being taken by the IRS to honor
commitments made during and after the September hearings, and just
last week we delivered our second progress report to the Committee.
There are three general categories of actions that I highlighted in
my report to you and also would like to address today:
- Resolution of problem cases;
- Enforcement statistics and employee misconduct; and
- Employee education.
Resolution of Problem Cases
IRS staff, both at the National Office and in the field, have
been working on several efforts related to resolving problem cases.
Some of these efforts are direct consequences of the Senate
hearings, whereas others are more proactive steps to identify and
solve taxpayer concerns before they become intractable problems,
We have completed a comprehensive review of the cases involving
the four taxpayers which testified at September's hearings. Our
findings and the reports prepared by the responsible field office
executives were sent to you last week.
In addition to addressing the cases for these four taxpayers,
the IRS has established new procedures to monitor complaints
received as a result of the hearings. The Chief Inspector is also
tracking any complaints generated by the hearings. The Taxpayer
Advocate has been working closely with field executives to review
correspondence received by the IRS in the first quarter of this
fiscal year (October 1, 1998 through December 31, 1998). In this
review, field offices analyzed roughly 25,000 pieces of
correspondence and provided a summary of those results to your staff
last week. We are currently undergoing a similar review for the
second quarter. Through these types of extensive reviews, we will be
are able to better understand the types of correspondence we are
receiving and more readily identify potential systemic and
individual problems early on.
Problem Solving Days
On September 25, 1997, Deputy Commissioner Mike Dolan announced
that each IRS district would begin holding monthly Problem Solving
Days to provide taxpayers an opportunity to meet with Service
personnel to resolve special tax problems they might be
encountering. On Saturday, November 15, 1997, we held our first
Problem Solving Day. Since then, we have held many more Problem
Solving Days throughout the country. I was pleased to spend time
with you, Mr. Chairman, in Wilmington, Delaware, and with you, Sen.
Grassley, in Des Moines. As of January 16, 1998, more than 16,200
people have been assisted during Problem Solving Day events
throughout the country.
We are pleased with the initial success of Problem Solving Days.
According to the customer satisfaction survey distributed at the
November Problem Solving Day, taxpayers were extraordinarily pleased
with the quality of service they received. With a 55 percent
response rate, customers gave the day an average rating of 6.46 on a
scale of I to 7, with 7 being "completely satisfied." Approximately
75 percent of respondents gave the IRS the top rating of 7 for
"overall service." The highest overall rating of 6.66 was for
In our second round of Problem Solving Day events, held in
December, the IRS received even higher ratings for "overall
service". For "overall service", the IRS received an average rating
of 6.54 as compared to the November rating of 6.46. Again, our
highest overall rating was for "employee courtesy"; however, the
rating improved (from 6.66 to 6.81).
During the two Saturdays prior to April 15, 1998, IRS will hold
"Problem Prevention Days." Local offices will assist taxpayers in
preparing returns and in voluntarily complying with tax laws.
Problem Resolution Program
The IRS is increasing the National Office Problem Resolution
staff by one-third and is conducting a workload review to determine
how many additional resources are needed in field offices.
Additionally, the IRS has begun a national search, using a well
known executive search firm, for a new Taxpayer Advocate with
experience representing and advocating for individuals and small
business taxpayers. I also plan to expand the position to include
significantly increased opportunities for educating the public about
the Taxpayer Advocate program and the remedies it offers.
Improve Written Communications With Taxpayers
During fiscal year 1997, the IRS issued roughly 10 million
letters and 111 million notices to taxpayers. Letters are issued
by a specific employee to provide detailed information regarding a
taxpayer's account. Notices are standardized forms which are
categorized by issue and sent to taxpayers which require that type
of notification. To improve the taxpayer's ability to respond to
letters we have issued a reminder alert to field offices to
emphasize that all letters must be signed by the appropriate contact
We also have been working to redesign our notices, and plan to
procure the services of an outside contractor, in an effort to
increase their clarity. These improvements should help taxpayers
understand more clearly why they have received a notice and how they
need to respond to that notice without the need for further
explanation. Many of our generated notices already include names.
Although we continue to evaluate the viability of adding names
to more notices, we have reservations. For example, the IRS has
invested considerable resources to emulate private sector best
practices by enhancing customer access to toll-free telephone
services. To improve access, we have implemented systems that enable
us to route incoming calls to the next available assistor located in
any of our call sites across the nation. We are concerned that a
taxpayer, calling the employee identified on a notice, may have to
stay on hold for longer than if he or she had been transferred to
the first available employee. We are continuing to explore ways to
make employees more accountable for solving problems while ensuring
that taxpayers get the most efficient service we can deliver.
Provide Better Telephone Service
On January 2, 1998, the IRS expanded telephone service over one
third - from 5 days a week, 12 hours a day to 6 days a week, 16
hours a day. In addition to increasing our hours of operation, the
IRS has several key initiatives designed to improve the Level of
Access to our telephone service to 70% during the 1998 filing
Enforcement Statistics and Employee Misconduct
Last September's Finance Committee hearings raised a number of
questions about how the IRS uses enforcement statistics. Since the
hearings, senior IRS executives have made a determined effort to
communicate to the entire organization that enforcement statistics
are not to be used in evaluating employees. We have stopped ranking
the 33 district offices and 10 service centers on revenue and
enforcement results and stopped issuing these kinds of performance
goals to regions, districts, and service centers. Because of
concerns that including penalties in our examination assessments
created incentives for our employees to propose unwarranted taxpayer
penalties, we have also decided to exclude all penalty data from the
statistics used for examination assessments.
On December 2, 1997, the IRS announced an interim policy
requiring higher level management approval before an employee can
seize tangible property. This higher level of approval is a prudent
step to ensure that, while we complete our analysis of the use of
these enforcement authorities, collection enforcement tools such as
seizures are only used in appropriate cases.
Internal Audit Reports
Subsequent to the Committee's September hearings, in which
allegations of violations of taxpayers' rights surfaced, the
Inspection Service and the General Accounting Office (GAO) were
asked to investigate the IRS's use of enforcement tools and
statistical indicators. To date, two Internal Audit reports have
been issued. The first audit report focused on the Arkansas/Oklahoma
district and concluded that the district permitted, and in some
cases encouraged, inappropriate use of enforcement statistics and
tools. The second report reviewed the use of enforcement statistics
in the Collection function at the national and regional levels, and
in 12 districts. On January 13 this report was issued and concluded
that the IRS created an environment driven by statistical
accomplishments that placed taxpayer rights and a fair employee
evaluation system at risk. In response to both audit reports, the
IRS has taken the following steps:
- On December 16, 1997, the Deputy Commissioner initiated a
review of the lien and levy procedures currently being followed
by field offices. This review will result in recommendations
for improving current processes with a particular emphasis on
ensuring that these collection tools are utilized in a way that
correctly balances the individual rights of taxpayers with the
organization's responsibility to collect the correct amount of
- On December 22,1997, Deputy Commissioner Dolan recalled
Document 9429, Managing Statistics Within the Collection
Function . Collection personnel were directed to rely on the
overall guidance contained in Document 7300, Managing
Statistics (1992). New guidance revisions are scheduled to be
available by March 30, 1998.
- At the request of the IRS, GAO is currently conducting an
overall review of the quarterly certification process.
- The IRS will expand its longstanding policy prohibition on
the use of enforcement statistics to bar their use in
evaluating front-line managers of enforcement officers and
apply the TBOR Certification process to all enforcement
activities, not just collection.
- The procedures that govern the clearance of documents
containing reference to interpretation of Service policy will
be strengthened so that any legal concerns raised by Chief
Counsel will be adequately addressed.
- Additionally, I announced on January 13, a panel will be
created to objectively determine disciplinary actions to be
taken in cases arising from the Chief Inspector's
Finally, during the September hearings, a commitment was made
to engage the IRS in discussions about the organization's obligation
to provide high-quality customer service to taxpayers. IRS
management has conducted several video conferences with employees to
discuss lessons learned from the hearings; conducted meetings with
all IRS executives and field office division chiefs; issued several
formal statements to employees announcing corrective actions being
taken; and this week we will be conducting focus group interview
sessions with over 2,000 employees to solicit employees' concerns
regarding barriers to proper treatment of taxpayers and to offer
suggestions for improving taxpayer treatment.
The IRS is working on other initiatives to formally educate
employees. One of these initiatives is titled "Working with
Taxpayers" and is designed to help employees throughout the
organization understand how to treat taxpayers fairly and
courteously. Another critical aspect of providing the proper level
of customer service is accurate technical knowledge. There have been
several significant changes to the tax code over the last year, the
most significant being the Taxpayer Relief Act of 1997 (TRA 97). The
IRS is currently providing training to Customer Service personnel on
TRA 97 issues that impact the 1998 filing season.
Mr. Chairman, this hearing marks the start of the Finance
Committee's deliberations to draft its own version of IRS
restructuring legislation. As Secretary Rubin stated earlier, we
support the Internal Revenue Service Restructuring and Reform Act of
1997, as passed by the House of Representatives, and are committed
to working with the Congress, along with the Department of Treasury,
to implement it. As currently drafted, the Act provides for, among
other things, additional taxpayer rights, more effective oversight
of the IRS and greater continuity of leadership at the agency. This
Act can be the impetus for bringing additional change to the IRS -
change that will help to accomplish the shift in focus that I have
mentioned. I would like to take this opportunity to comment on some
of the key provisions.
The House-passed bill includes a number of taxpayer rights
provisions that we support including:
- relief for innocent spouses, the expansion of our authority to
issue "taxpayer assistance orders",
- providing taxpayers with additional information on a variety of
matters, including a taxpayer's rights in interviews with the IRS,
- equitable tolling of the statute of limitations for refund
claims of disabled taxpayers,
- and matching grants for the development, expansion or
continuation of certain low-income taxpayer clinics.
We also support the provision which would allow taxpayers to sue
the government for up to $100,000 in civil damages caused by IRS
employees who disregard provisions of the Internal Revenue Code or
Treasury regulations in connection with collection Federal tax with
respect to taxpayers, but believe the standard should be "gross
The House-passed bill also contains two provisions that cause us
concern. As currently drafted, the section on burden of proof could
have the unintended consequence of providing taxpayers with an
incentive not to keep records that support their tax return
positions and could make audits more intrusive. We are also
concerned that the provision extending a privilege to accountants
could give rise to disputes and interfere with our efforts to
resolve issues quickly and correctly. These are highly technical
issues that we would like to have our staff work with the Committee
staff to resolve.
The expansion of alternative methods of filing is of vital
importance to America's tax system and the House-passed bill
establishes a long-range goal for electronic filing. While IRS's
electronic filing programs have been successful to a degree, the
public's use and acceptance of electronic alternatives to paper has
not grown as rapidly as once hoped. For these reasons, the
encouragement provided under the House-passed bill is important. As
the Committee knows, current law already authorizes paperless
filing, but the policy statement in this bill could be the catalyst
for its successful expansion.
The legislation also provides us with needed authority to pursue
such developments as the ability to accept taxpayers' signatures in
a digital or other electronic format. During 1998, the IRS will be
formulating a broader strategy for electronic service delivery
through partnerships with private industry. Priorities for 1999
include implementing paperless filing, accepting electronic
payments, and continuing to increase taxpayers' and practitioners'
understanding of the benefits of electronic filing.
As Secretary Rubin indicated to the Committee, the bill contains
new governance arrangements that will ensure critical input from the
private sector, provide for outside oversight, and maintain
authority and accountability with respect to the IRS within the
existing structure of the federal government. We support the
provisions in the final bill that retain executive branch
accountability under the Constitution, as well as the Secretary's
authority to administer and enforce the internal revenue law. We
also support granting the Oversight Board the authority to consult
on strategic plans and review operational functions.
I should also note that I believe it is critical that we are
able to attract the right people to fulfill the Board's important
role. To avoid a prohibitive time commitment that an attractive
candidate might not be able to fulfill, or, conversely, not allow
for enough time to make a substantial contribution, I encourage a
change to the legislation that would allow the Chairman of the
Oversight Board maximum authority concerning the functioning of the
board on matters such as the frequency of meetings and the
possibility of appointing subcommittees. In addition, I support the
technical changes to the conflict of interest provisions applicable
to the Board. The current provisions are unclear and may
inadvertently discourage service on the Board. We understand that
the Office of Government Ethics is willing to work with Committee
staff to ensure that these provisions are clear and fair.
Mr. Chairman, critical to achieving the goals that I will lay
out for you today is my ability to recruit and retain a top notch
leadership and technical team, and to re-tool the existing workforce
for the new challenges that await them. Therefore, we will be
seeking your support for several additional flexibilities,
particularly in the areas of compensation and workforce
restructuring. Also, so that our employees may make the best choices
for their futures, we seek reauthorization of the buyout authority
that expired in December. Flexibility to reposition the current IRS
workforce will be critical to implementing a new organization that
is designed around the needs of the taxpayers. The Committee's
support for these changes will be appreciated.
Mr. Chairman, the actions we have taken since your September
hearings and the ongoing discussion of the restructuring legislation
point the direction for the IRS into the next century. Let me now
turn to my concept for modernizing the nation's tax agency.
Concept To Modernize the Nation's Tax Agency
Mr. Chairman, I noted at the outset that your hearings were a
call to action for the IRS. As you begin to consider restructuring
legislation, I want to lay out my concept of how we can modernize
the IRS. Let me stress at the beginning that enactment of
restructuring legislation is crucial to the effort I am about to
outline. The legislation is a necessary and critical enabler of the
change that the IRS must undertake.
How can the IRS shift its focus and become the customer-oriented
agency it must become?
I have carefully reviewed the work done by the National
Commission on Restructuring the IRS, read many thousands of pages of
internal studies of IRS business practices, technology and
organization, and have met with hundreds of IRS employees as well as
others who are vitally interested in our tax system. I have
consulted with the Secretary of the Treasury and benefited by the
work of the Treasury and National Performance Review task force on
A clear sense of direction has emerged from this work and from
the problems brought to light by this Committee. The IRS must shift
its focus from its own internal operations and think about its job
from the taxpayers point of view.
The IRS today does a remarkable job of processing 200 million
tax returns, collecting with great integrity over $1.5 trillion and
providing service to millions of taxpayers. These capabilities
represent great strengths for our country.
To meet the public's legitimate expectations in the future,
however, we in the IRS must fundamentally change the way we think
about our agency. We must become fundamentally committed to customer
service. We must shift our focus, as many large companies have
already done, from expecting our customers, the taxpayers, to
understand and navigate the IRS according to our internal
operations, to thinking about everything from the taxpayers' view.
We must gain a greater understanding of taxpayers' problems and how
we can best help them meet their obligations under the tax laws.
From the taxpayer's viewpoint, we provide service in two ways.
We serve each taxpayer with whom we deal directly, one at a
time. These interactions with taxpayers range from the routine, such
as providing forms and information, to the complex, such as when a
taxpayer may be thought to owe more money as a result of an
examination. In each and every one of these interactions with
taxpayers, we should provide first quality service and treatment
that is prompt, professional and helpful based on what we know to be
their particular needs.
Secondly, we serve all taxpayers by ensuring that compliance is
fair. Our tax system depends on each person who is voluntarily
meeting his or her tax obligations having confidence that his or her
neighbor or competitor is also complying.
I believe that the IRS, over time, can greatly improve both
kinds of service to the public. Furthermore, I believe that we can
accomplish this, while also processing an increasing workload with
the workforce we have. Our workforce is competent and dedicated, but
handicapped by outdated practices and technology.
In the near term, we are taking action to move forward toward
As I mentioned earlier, the Problem Solving Days that we have
been holding monthly across the country are excellent examples of
the way we should be serving taxpayers. We are extending the hours
of telephone service this filing season to 16 hours a day 6 days a
week. We are setting up a special process to resolve the
particularly difficult taxpayer cases that we are identifying
through your Committee and our internal programs. We have taken
steps to raise the level of management review on enforcement actions
such as seizures and to see that inappropriate use of enforcement
statistics is ended. These are only a few of the hundreds of actions
we are taking this year to improve service and provide proper
treatment to taxpayers.
We are also closely managing our enormous and challenging
program to update our computer systems for the century date change
and the tax law changes required by the 1997 Taxpayer Relief Act.
Most of this work must be completed in the next 12 months prior to
the 1999 filing season.
As important as these steps are, they will not enable us to meet
our goals unless we make more fundamental changes to our way of
doing business. These changes will take time but are essential for
the IRS to meet the public's legitimate expectations for service
from its tax agency.
Five Key Elements
The concept that I will outline today includes a renewed mission
with emphasis on service and fairness to taxpayers and practical
goals and guiding principles which define the path forward. We will
reach our goals of service to each and to all taxpayers through
changes in five key areas, each complementing the others. These five
areas, along with the goals and guiding principles are summarized on
Revamped IRS business practices that will focus on understanding,
solving and preventing taxpayer problems.
Each of the IRS's business practices, from customer education to
filing assistance to collection, holds great promise for improvement
by our gaining a greater understanding of the particular problems
that taxpayers have and focusing continuously on solving them. In
most cases, there are very close parallels in the private sector
that we can draw on.
For example, our business practices should make filing easier
for all. taxpayers by providing easily accessible high quality
assistance to those taxpayers who need help in filing and by having
more returns filed electronically. Just as companies develop very
particular marketing programs to reach customers with differing
needs, we can help taxpayers more effectively by tailoring our
publications, education, communications and assistance programs to
taxpayers with particular needs. College students who often can file
with a simple 1040EZ form and a 10 minute phone call have very
different needs from senior citizens with social security and
investment income who may be best served through a network of
volunteers who specialize in the needs of seniors.
This principle of tailoring our services to the needs of
particular groups of taxpayers is a cornerstone of how we can
dramatically improve our service to taxpayers as well as our
As another example, some of our most difficult interactions with
taxpayers occur when additional money may be due and collection
activity is required. Today, 90% of the active collection activity
by the IRS telephone and field collectors is on accounts that are
more than 6months old, and most are much older than that. This is
the reverse of practices in the private sector. The proven keys to
effective collection are to identify as promptly as possible
customers who may present risk of non- payment and to work out a
payment program that addresses the particular payment problem of
that customer. This helps the customer as well as the collecting
agency and minimizes the need for enforcement actions.
Organizational structure built around taxpayer needs.
The IRS organizational structure no longer enables its managers
to be knowledgeable about and take action on major problems
affecting taxpayers nor is it capable of modernizing the business
practices and technology needed to achieve our goals. The principal
IRS organization today, as shown in Chart A, is built around 33
districts and 10 service centers. Each of these 43 units is charged
with the mission of serving every kind of taxpayer, large and small,
with simple or complex problems, in a defined geographical area. If
a taxpayer moves, the responsibility moves to another geographical
area. Further, every taxpayer is serviced by both a service center
and a district and sometimes more than one. Service centers and
districts each perform customer service, collection and examination
activities for the same taxpayer.
For example, in the collection area, there are three separate
kinds of organizations, Speed over 43 organizational units, that use
three separate computer systems to support collection. Each of these
three types of units collects from every kind of taxpayer, from
small businesses to wealthy individuals.
There are 8 intermediate levels of staff and line management
between a front line employee and the Deputy Commissioner, who is
the only manager besides the Commissioner who has full
responsibility for service to any particular taxpayer. Although
important improvements have been made in this structure over the
last few years, notably the reduction in the number of districts,
the fundamental problem remains: the structure is far too complex
and accountability is weak.
Fortunately, there are solutions to this organizational problem
which are widely used in the private sector and may enable us to
better serve the American taxpayer. The approach I am discussing
today is to organize around the needs of our customers, the
taxpayers. Just as many large financial institutions have different
divisions that serve retail customers, small to medium business
customers, and large multinational business customers, the taxpayer
base falls rather naturally into similar groups. This fact simply
reflects the structure of the US economy.
Therefore, as shown in Chart B, one logical way to organize the
IRS is into four units, each charged with end-to-end responsibility
for serving a particular group of taxpayers with similar needs.
These units could replace the four regional offices and a
substantial part of the national office, allowing the national
office to better fulfill its responsibilities of oversight and broad
policy rather than operations. As I noted at the outset, this is a
concept - a concept that will require outside validation. I am
initiating a review of this concept because I believe we need to
refocus and realign the efforts of the IRS on our customers - the
American taxpayers. Of course, during and after the review, we may
need to revise this proposal, depending on the results.
By organizing in this way, the management teams for each unit
could learn a great deal about the needs and particular problems
that affect each group of taxpayers. The tax code is extremely
complex but most of it does not apply to each group of taxpayers.
There are 100 million filers, comprising about 140 million
taxpayers, who have only wage and investment income. For this very
large group, almost 80% of all taxpayers, the primary needs are
improved assistance in filing or in getting information about an
account or a refund. Collection problems are relatively limited
since most of their taxes are paid through withholding by employers.
Compliance problems are concentrated in the area of dependent
exemptions, credits, filing status, and deductions, many of which
can be addressed in part by better education of taxpayers with the
assistance of volunteer groups and preparers. Improved phone service
and more walk-in "retail" sites where taxpayers can get quick,
in-person assistance are also important.
Another very important group of taxpayers are small businesses,
including sole proprietors and small business corporations. There
are about 25 million filers in this category. Compared to other
individual taxpayers, this group has much more frequent and complex
filing requirements and pays much more directly to the IRS,
including tax deposits, quarterly employment returns and many other
types of income tax returns and schedules. Providing good service to
this group of taxpayers is more difficult than wage and investment
filers, and compliance and collection problems are also much
greater. Small start-up businesses in particular need special help.
By dedicating a fully responsible unit to providing all IRS services
for the self employed and small business, this unit will be able to
work closely with industry associations, small business groups and
preparers to solve problems for the benefit of all.
Larger businesses, although few in number, pay a substantial
share of their tax in the form of withholding, employment and excise
taxes, and corporate income taxes. Complex tax law, regulatory and
accounting questions, including many issues arising from
international activities, dominate the work of the IRS in serving
this group. A management team and unit dedicated to serving these
taxpayers will be able to understand and solve these problems more
effectively than at present.
Finally, the tax exempt sector, including employee plans, exempt
organizations and state and local governments, represents a large
economic sector with unique needs. Although generally paying no
income tax, this sector pays over $190 billion in employment taxes
and withholding for employees and manages $5 trillion in tax exempt
assets. This huge sector will benefit from a dedicated unit that
understands its special problems.
Management roles with clear responsibility.
Since each unit will be fully responsible for serving a set of
taxpayers with like needs, the management teams responsible for each
of these units will be able to become knowledgeable about the needs
and problems of their customers, and be held fully accountable for
achieving specific goals in serving them. Furthermore, having
learned about problems, managers can cut dramatically the time
required to communicate with the workforce and implement solutions.
Because the organization would be "flatter," there would be fewer
layers of management. Frontline employees and first-line managers
would have a much closer identification and communication channel to
people with general management responsibility.
For each unit, a cohesive management team will be established
which will be able to organize internally in ways that are
appropriate to the particular needs of the taxpayers they are
serving. I believe that highly qualified managers, from internal or
external sources, will be far more attracted to these kinds of
management jobs than those in today's complex structure.
Balanced Measures of Performance.
It is essential to have measures of organizational performance
that balance customer satisfaction, business results, employee
satisfaction and productivity. It is particularly important that
performance measures do not directly or indirectly cause
inappropriate behavior toward taxpayers, and that they provide
incentives for service-oriented behavior.
The establishment of management teams with clear responsibility
for serving large groups of taxpayers with reasonably common
characteristics and needs will help make it possible for the first
time to develop realistic and meaningful measures of organizational
performance in the areas of customer satisfaction and overall
compliance on a continuing basis. This will help eliminate the
problem that has plagued the IRS for decades, namely the use of
"enforcement" results as a key measure of success.
One of the limiting factors in our ability to modernize our
business practices at the IRS today is our computer systems, which
are extremely deficient in their ability to support our missions and
goals. But computer systems essentially represent a detailed
codification of the business practices and organization structure
that exist. Building new computer systems to support the old
business practices and complex organization structure will not work.
The recently issued technology modernization blueprint and the
new CIO organization provide an outstanding and professional basis
for managing the evolution of our technology. The revamped business
practices and rationalized organizational structure I discussed
earlier will provide a sound basis for completing and implementing
the modern systems envisioned in the blueprint.
The management teams in each unit will be able to act as
knowledgeable and responsible business owners to work with the
centralized professional information systems organization and
outside contractors. For the first time, this will establish all the
critical elements needed to manage a large-scale
technology/modernization program successfully.
The comprehensive modernization concept I have outlined includes
a renewed mission with emphasis on service and fairness to
taxpayers, practical goals and guiding principles which define the
path forward, revamped business practices that focus on solving
taxpayer problems, a new organizational structure built around
serving groups of taxpayers with like needs, more accountable and
attractive management roles, balanced measures of performance tied
to achievement of goals, and a workable way of modernizing our
technology. All this is summarized on one page in Chart C.
I want to emphasize that much study is required to validate this
concept and to decide on hundreds of details. Much consultation will
be involved, internally and externally, during this study process
which we hope to complete by early summer. While an enormous job is
ahead of us, I am confident that, given time and support from
Congress and the public, this path will lead us to the goal we all
seek: an IRS which provides consistently first quality service to
Let me also stress that this concept is fully consistent with
and, in fact complements, the Oversight Board that is created in the
Restructuring Bill. Under the structure proposed, the Commissioner
and the National Office will be better able to fulfill their
appropriate top management roles and will be able to be accountable
to the Board for the achievement of overall organizational goals as
approved by the Board.
In conclusion, I want to assure the Committee that it is a new
day at the IRS. The agency is committed to moving forward in ways
that keep up with a changing world and the increased expectations of
the American taxpaying public. Restructuring legislation will help
us get there, and the work of your Committee has served as one of
our catalysts for change. Thank you, Mr. Chairman, and I will be
happy to answer any questions.
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