I. Restructuring and Establishment of an IRS Board
A. Statutory Language -Organizational Structure
1. Direct the Commissioner of Internal Revenue to restructure the
IRS by eliminating the three-tier (nation/region/district) structure and
replacing current geographically based organizational units with operating
units serving particular groups of taxpayers with similar needs.
2. Direct the IRS to revise its mission statement to provide greater
emphasis on serving the needs of taxpayers.
B. Establish an IRS Board
1. Generally follow the House bill which would create a Board to
oversee the management and operations of the IRS. As in the House bill,
the Board would be authorized to review and approve strategic plans, the
Commissioner's plan for major reorganization, and the Commissioner's budget
2. The Board would be composed of the Commissioner and 6 "private-life"
experts in certain fields. As in the House bill, the Chairman of the Board
would be a "private-life" member and serve a 2 year term. The
Board shall be part-time and have an independent staff.
3. The "private-life" experts will be subject to the same
conflict-of-interest restrictions as other employees who provide limited
services to the Government. In addition, the "private-life"
experts will not
be allowed to represent parties on any matter before the Board or the IRS
during their term. Nor can the "private-life" experts represent
any party on tax related matters before the Treasury. As in the House bill,
the "private life" experts will be subject to (a) the public
financial disclosure rules and (b) the 1-year post-employment restriction.
4. In addition to the responsibilities provided in the House bill,
the Board must ensure that the IRS has proper procedures in effect to carry
out its mission. The Board will have "big picture" authority
over IRS law enforcement and collection activities. It will have limited
6103 authority with the ability to receive information (including unredacted
reports) prepared by the Treasury Inspector General or made available by
the Commissioner. The Board shall not intervene or be involved in particular
taxpayer matters or individual personnel matters. Board members would be
subject to the same "browsing" rules as other IRS employees.
5. If the Board identifies a potential problem, it may request the Inspector
General to investigate and report. The Board may receive unredacted reports
that may include 6103 information. The Board will review the Commissioner's
policies to address issues. If the IRS fails to fix a problem identified
by the Board, the Board shall consult the chairmen of the tax writing committees.
6. The Board shall provide the Secretary of Treasury with 3 candidates
for the position of Taxpayer Advocate. The Taxpayer Advocate will report
to the Commissioner and the Board.
7. The Treasury Inspector General shall report to the Secretary and
to the Board as to IRS matters.
8. The Board will sunset on September 30, 2008.
9. The Board shall consult with employee representatives relating
to board issues concerning affected employees.
A. Commissioner of Internal Revenue (House
Establish a 5-year term for the Commissioner and require the Secretary
of Treasury to notify Congress of any change of authority delegated to
the IRS Commissioner.
B. Require the IRS Chief Counsel to Report
to the Commissioner
Require the IRS Chief Counsel to report to the Commissioner rather
than to the Treasury General Counsel. The Chief Counsel's powers and duties
would not change unless the Secretary provides notice to Congress. The
Chief Counsel would represent the IRS but would not have any tax policy
C. Structure of Employee Plans & Exempt
Organizations ("EP&EO" Division) (House bill)
Retain the Office of EP&EO and expand its responsibilities to
include nonqualified deferred compensation arrangements. Consistent with
current practice, appropriate funding would be subject to Congressional
D. Taxpayer Advocate
1. Establish an independent Taxpayer Advocate modeled after Senator
Breaux's bill (S.1308). The Taxpayer Advocate will be selected by the Secretary
of Treasury from 3 candidates recommended by the Board. Candidates may
include IRS employees. The Taxpayer Advocate may not be employed by the
IRS within 2 years before and 5 years after working in the Office of Taxpayer
2. Revise the Taxpayer Advocate's responsibilities and reporting
requirements (e.g., providing line authority over local taxpayer advocates
who will be more independent from the IRS).
3. The shall be at least one local taxpayer advocate in each state.
III.Transfer IRS Office of Chief Inspector Function to Treasury Inspector General
A. Transfer approximately 900 FTEs from IRS Internal Security
and portions of Internal Audit to the Treasury Inspector General. The Commissioner
will retain an appropriate number of internal auditors for management matters.
At least 900 of the approximately 1200 Treasury Inspector General FTEs
must be dedicated to IRS matters.
B. The Treasury Inspector General will be appointed by the President
and confirmed by the Senate. In addition to the standard qualifications
for an Inspector General (e.g., appointed solely on the basis of integrity
and demonstrated successful ability
in accounting, auditing, financial analysis, law,
management analysis, public administration, or investigations), the Treasury
Inspector General should have experience in tax administration and the
demonstrated ability to lead a significant organization.
C. The Treasury Inspector General, Deputy Inspector General, and
two Assistant Deputies (Auditing and Inspection) may not be employed by
the IRS within 2 years before and 5 years after working at the Treasury
Inspector General's office.
D. The Treasury Inspector General must have access to tax return and
E. Congress must be notified if the Secretary interferes with an
F. In addition to standard reporting requirements the Treasury Inspector
General should be responsible for reporting:
1. The number of taxpayer complaints during the period;
2. The number of employee misconduct and taxpayer abuse allegations
received during the period from taxpayers, IRS employees, and other sources;
3. The current status of each complaint and allegation;
4. The disposition of each complaint including the outcome of any
Justice Department action and any monies paid to settle suits; and
5. Whether restrictions on the use of enforcement statistics to evaluate
IRS employees are being followed and that required procedures to protect
taxpayer rights during collection enforcement actions are being followed.
G. The Commissioner of Internal Revenue may request the Treasury
Inspector General to conduct investigations and audits. The Treasury Inspector
General shall timely comply and respond to the Commissioner's requests.
H. The Treasury Inspector General shall make it a priority to ensure
the security and integrity of the IRS computer systems (e.g., detection
and prevention of fraud, unauthorized access, or abuse).
IV. Prohibition on Executive Branch Influence over
Audits and Personnel Flexibilities
A. Prohibition on Executive Branch Influence
Over Taxpayer Audits (House bill)
Prohibit high level Executive Branch Officials (subject to certain
exceptions) from requesting the IRS to conduct or terminate an audit or
investigation of any particular taxpayer.
B. IRS Personnel Flexibilities
Provide personnel tools that will enable the Commissioner to reorganize
1. Flexibilities for Senior Management, Professional and Technical Positions
In order to give the IRS commissioner the ability to bring the type
of executives to the IRS that he feels is necessary to effect the change
in the organization, there would need to be changes in the current personnel
programs. Currently, the number of employees the Commissioner can appoint
and the pay and other remuneration that can be given to these employees
is limited. For example, the Commissioner can only appoint three individuals
to senior positions who are not IRS career service employees. These changes
would be as follows:
a. Give the IRS Commissioner the authority to fill senior executive service
positions which were reserved for IRS career service employees with limited
or temporary appointments of individuals who have not had a career with
the IRS. These individuals would have time limits on their employment of
up to three years (which could be extended). It is anticipated that these
type of employees would be brought into the IRS to perform specific functions
and then return to the private sector.
b. Provide that the Treasury Secretary may appoint up to 40 senior
executives with technical, professional and management expertise at pay
levels not in excess of the compensation of the Vice President without
approval of the OPM and OMB. In addition, the Treasury Secretary may appoint
individuals to critical positions other than those established under the
streamlined authority for senior executives at pay levels not in excess
of the compensation of the Vice President, with the approval of OMB. The
recruitment, retention, and relocation incentives that the IRS can provide
for these type of senior executives would be expanded,
subject to the approval of the OPM.
c. As part of the return to a service-oriented culture and to reward
these new critical executives for attaining specified performance results,
the IRS will be given the authority to provide for variable compensation
(i.e., bonuses) in excess of amounts currently allowed for up to 25 senior
IRS executives. Any variable compensation award in excess of 20% of basic
pay would have to be approved by the Treasury Secretary. In addition, the
amount of the award when combined with other compensation of an individual
cannot exceed the compensation of the Vice President
2. Flexibilities for the General Workforce
a. Extend the voluntary separation incentive pay program that ended
December 31, 1997 to December 31, 2002.
b. Establish streamlined demonstration authority to establish new
human resource programs within a specified time period. The streamlining
eliminates or shortens some of the waiting periods and comment periods
that are usually applicable with demonstration projects. The demonstration
project will be subject to the review of the OPM.
c. As the IRS decreases the levels of management in its organization,
the traditional ways of rewarding superior performers by giving them higher
management authority (along with commensurate pay increases) will not be
as available as before. The Treasury Secretary is given the authority (subject
to criteria established by the OPM) to restructure employee pay rates in
connection with implementing a broad banded employee pay system which will
provide for increases in pay based on increases in job competencies, but
without the need for moving to a higher level of management. This will
be different from the current government pay and grading system.
d. The Treasury Secretary may establish a new performance management
system, developing individual accountability for performance reviews. In
conjunction with this new performance review system, the Treasury Secretary
may also establish a new
incentive awards program which awards up to $25,000 without OPM approval.
3. Any of the personnel flexibilities that affect employees represented
by a union must be agreed to between the IRS and the union. If the union
and the IRS cannot agree, then the matter will be brought before the Federal
Impasse Panel for resolution.
4. Tentative Government Affairs Committee Recommendations
The Government Affairs Committee generally approves the personnel
flexibility changes discussed above. However, they suggest a number of
a. All the personnel flexibility changes that are discussed above
should be included in a demonstration project. This would mean that prior
to implementing these changes, there would be notification of the each
House of Congress and to the employees likely to be affected by the change.
A demonstration project would normally last 5 years and a decision
would be made at that point whether to make the demonstration project official
or whether to cancel these changes. It is also possible for the Treasury
and the OPM to terminate the demonstration project during its term.
b. They propose limitations on extensions of the voluntary incentive
pay program so that payments are made only if actual employee headcount
reductions are made.
c. With regard to broad banding pay policies discussed above, they
recommend that cost controls be established in the implementation plan.
d. Finally, they believe that the personnel flexibility measures
concerning incentive awards and recruitment, retention and relocation bonuses
should be instituted government wide. Streamlined demonstration authority
should also be available government wide.
5. Require the IRS to develop employee performance measures that favor
6. Require the IRS to terminate an employee if any of the following conduct
relating to the employees official duties is proven in a disciplinary or
a. Failure to obtain the required approval signatures on documents
authorizing the seizure of a taxpayer's home, personal belongings, or business
b. Perjury (e.g., false testimony in a taxpayer's case, failure to
provide truthful information in the course of a criminal investigation,
or false information in a deposition or affidavit)
c. Falsifying or destroying documents concerning a particular taxpayer
to cover-up employee mistakes.
d. Assault or battery on a taxpayer or other IRS employee.
e. Violation of the civil rights of a taxpayer or other IRS employee.
f. Violation of the Internal Revenue Code, Treasury Regulations,
or policies of the IRS (including the Internal Revenue Manual) for the
purpose of retaliating or harassing a taxpayer or other IRS employee.
The Commissioner of Internal Revenue would have the non-delegable
authority to consider mitigating factors that, in the Commissioner sole
discretion, mitigate against terminating the employee. The Treasury Inspector
General must track the instances of employee termination as well as instances
where the employee is not terminated because the Commissioner believed
there were mitigating circumstances.
V. Electronic Filing
A. Include the House proposal providing that paperless filing should
be preferred and that by 2007, it should be a goal to have no more than
20% of all tax and information returns filed on paper. The Secretary would
be required to establish an electronic commerce advisory group (which would
report to Congress) and establish a plan to meet this paperless filing
B. Include the House provision extending from February 28th to March
31st, the time for electronically filing information returns.
C. Include the House provision requiring the Secretary of Treasury to develop
an alternative to written signatures. This proposal will enhance electronic
filing. However, this proposal would delete the presumption that an unsigned
return (absent an alternative authorized by the IRS) would be presumed
to be signed for criminal and civil purposes.
D. Include the House provision requiring the Secretary to develop
procedures to implement a return free tax system for appropriate individuals
for tax years beginning after 2007. Treasury must report on its progress.
E. Include the House provision which requires the Secretary to develop
by 2007 procedures to allow taxpayers to review their account electronically
if proper safeguards are established.