I. Executive Branch Governance
A. IRS Restructuring and Creation of IRS Oversight Board
1. IRS restructuring and mission
IRS organizational plan
Under Reorganization Plan No. 1 of 1952, the Internal Revenue Service ("IRS") is
organized into a 3-tier geographic structure with a multi-functional National Office, Regional
Offices, and District Offices. A number of IRS reorganizations have occurred since then, but no
major changes have been made to the basic 3-tier structure. Presently, as a result of a 1995
reorganization, there is a Regional Commissioner, a Regional Counsel and a Regional Director of
Appeals for each of the following 4 regions: (1) the Northeast Region (headquartered in New
York); (2) the Southeast Region (Atlanta); (3) the Midstates Region (Dallas); and (4) the Western
Region (San Francisco). There are 33 District Offices, 10 service centers, and 3 computing
IRS mission statement
The IRS mission statement provides that:
The purpose of the Internal Revenue Service is to collect the proper amount of tax revenue
at the least cost; serve the public by continually improving the qualify of our products and
services; and perform in a manner warranting the highest degree of public confidence in our
integrity and fairness.
Description of Proposal
The IRS Commissioner would be directed to restructure the IRS by eliminating the present
law 3-tier structure and replace it with an organizational structure that features operating units
serving particular groups of taxpayers with similar needs. The legality of IRS actions would not
be affected pending further appropriate statutory changes relating to such a reorganization (e.g.,
eliminating statutory references to obsolete positions).
The IRS would be directed to revise its mission statement to provide greater emphasis on
serving the needs of taxpayers.
The proposal would be effective on the date of enactment.
2. Establishment and duties of IRS Oversight Board
Under present law, the administration and enforcement of the internal revenue laws are
performed by or under the supervision of the Secretary of the Treasury.
Federal employees are subject to rules designed to prevent conflicts of interest or the
appearance of conflicts of interest. The rules applicable to any particular employee depend in part
on whether the employee is a regular, full-time Federal Government employee or a special
government employee, the length of service of the employee and the pay grade of the employee. A
"special government employee" is, in general, an officer or employee of the executive or legislative
branch of the U.S. government who is appointed or employed to perform (with or without
compensation) for not to exceed 130 days during any period of 365 days, temporary duties either
on a full-time or intermittent basis. Violations of the ethical conduct rules are generally punishable
by imprisonment for up to 1 year (5 years in the case of wilful conduct), a civil fine, or both. The
amount of the fine with respect to each violation cannot exceed the greater of $50,000 or the
compensation received by the employee in connection with the prohibited conduct.
Under the ethical conduct rules, all Federal Government employees (including special
government employees) are precluded from participating in a matter in which the employee (or a
related party) has a financial interest. In addition, special government employees cannot represent
a party (whether or not for compensation) or receive compensation for representation of a party in
relation to a matter (1) in which the employee has at any time participated personally and
substantially, or (2) which is pending in the department or agency of the Government in which the
special government employee is serving. In the case of a special government employee who has
served in a department no more than 60 days during the immediately preceding 365 days, item (2)
does not apply. Thus, for example, such an individual can receive compensation for
representational services with respect to matters pending in the department in which the employee
serves, as long as it is not a matter involving parties in which the employee personally and
The conflict of interest rules also impose restrictions on what a Federal Government
employee can do after leaving the Government. Under these rules, senior level officers and
employees (including special government employees) cannot represent anyone other than the
United States before the individual's former department or agency for 1 year after terminating
employment. Whether an employee is a senior level officer or employee is determined by pay
grade. The one-year post employment restriction does not apply to special government employees
who serve less than 60 days during the 365-day period before termination of employment.
Federal employees with pay grades above certain levels are required to file annually public
Description of Proposal
Duties, responsibilities, and powers of the IRS Oversight Board
The proposal would provide for the establishment within the Treasury Department of the
Internal Revenue Service Oversight Board (referred to as the "Board"). The general
responsibilities of the Board would be to oversee the IRS in the administration, management,
conduct, direction, and supervision of the execution and application of the internal revenue laws.
As part of its oversight responsibilities, the Board would have the responsibility to ensure that the
organization and operation of the IRS allows it to carry out its mission. The Board would sunset
September 30, 2008.
The Board would have the following specific responsibilities: (1) to review and approve
strategic plans of the IRS, including the establishment of mission and objectives (and standards of
performance) and annual and long-range strategic plans; (2) to review the operational functions of
the IRS, including plans for modernization of the tax administration system, outsourcing or
managed competition, and training and education; (3) to provide for the review of the
Commissioner's selection, evaluation and compensation of senior managers and executives; (4) to
review and approve the Commissioner's plans for major reorganization of the IRS (other than the
reorganization provided for under the proposal); and (5) to review operations of the IRS in order to
ensure the proper treatment of taxpayers. In addition, the Board would review and approve the
budget request of the IRS prepared by the Commissioner, submit such budget request to the
Secretary, and ensure that the budget request supports the annual and long-range strategic plans of
the IRS. The Secretary would be required to submit the budget request approved by the Board to
the President, who would be required to submit such request, without revision, to the Congress
together with the President's annual budget request for the IRS. The proposal would not affect the
ability of the President to include, in addition, his own budget request relating to the IRS. As
discussed below, the Board would also recommend candidates for the positions of IRS
Commissioner and Taxpayer Advocate, and could recommend removal of either.
It is intended that the Board would reach a formal decision on all matters subject to its
review. With respect to those matters over which the Board would have approval authority, the
Board's decisions would be determinative. The Board shall consult with representatives of
organizations that represent a substantial number of IRS employees on matters that impact IRS
employees before it concludes its review and/or approval process.
The Board would have no responsibilities or authority with respect to the development and
formulation of Federal tax policy relating to existing or proposed internal revenue laws. In
addition, the Board would have no authority (1) to intervene in specific taxpayer cases, including
compliance activities involving specific taxpayers such as criminal investigations, examinations,
and collection activities, (2) to engage in specific procurement activities of the IRS (e.g., selecting
vendors or awarding contracts), or (3) to intervene in specific individual personnel matters.
Board members would have limited access to confidential tax return and return information
under section 6103. This limited access would permit the Board to receive such information (i.e.,
information that has not been redacted to remove confidential tax return and return information)
from the Treasury Inspector General in connection with reports made to the Board or as provided
by the Commissioner. The Board members would be subject to the anti-browsing rules applicable
to IRS employees under present law.
In exercising its duties, it is expected that the members of the Board shall maintain
appropriate confidentiality, e.g., regarding enforcement matters.
The Board would be required to report each year to the President and the Congress
regarding the conduct of its responsibilities. In addition, the Board would be required to report to
the Ways and Means and Finance Committees upon a determination that problems identified by the
Board are not being adequately addressed by the IRS.
Composition of the Board
The Board would be composed of 7 members. Six of the members would be so-called
"private-life" members who are not otherwise Federal officers or employees. These private-life
members would be appointed by the President, with the advice and consent of the Senate. The
other member would be the Commissioner of the IRS.
The private-life members of the Board would be appointed based solely on their expertise
in the following areas: management of large service organizations; customer service; the Federal tax
laws, including administration and compliance; information technology; organization development;
and the needs and concerns of taxpayers. In the aggregate, the private-life members of the Board
should collectively bring to bear expertise in these enumerated areas. The private-life members
would be appointed to the Board without regard to political affiliation.
The private-life members could be removed at the will of the President. The IRS
Commissioner would be removed from the Board upon his or her termination of employment as
Compensation of Board members
The private-life members of the Board would be compensated at a rate of $30,000 per year,
except that the Chair would be compensated at a rate of $50,000 a year. The IRS Commissioner
would receive no compensation for his or her services as a Board member. The members of the
Board would be entitled to travel expenses in connection with attending Board meetings.
Ethical conduct rules
Under the proposal, the private-life Board members would be subject to the public financial
disclosure rules applicable to Federal government employees above certain pay grades.
The ethical conduct rules applicable to private-life Board members would depend on
whether such members are determined to be "special government employees" under the present
law rules. It is expected that they generally will be. In that case, they will be subject, at a
minimum, to the ethical conduct rules applicable to special government employees. In addition,
during their term as a Board member, a private-life Board member could not represent any party
(whether or not for compensation) before the Board, the IRS, or with respect to any tax-related
matter before the Treasury department . Thus, for example, the day after appointment to the
Board, the Board member could not meet with representatives of the IRS or Treasury on behalf of
a client or the Board member's corporate employer with respect to proposed tax regulations. On
the other hand, the Board member could, for example, represent clients before the U.S. Customs
Service. The special rules applicable to private-life Board members would not preclude the Board
member from sharing in compensation from representation of clients by another person (e.g., a
partner of the Board member) before the IRS. In addition, private-life Board members would be
subject to the 1-year post employment restriction applicable to individuals above certain pay grades
(whether or not the members are special government employees under the present-law rules).
If the Board members are determined not to be special government employees under the
present-law rules, then they would be subject to the ethical conduct rules relating to regular Federal
Term of appointments
The 6 private-life Board members would be appointed for 5-year terms. The private-life
members could serve no more than two 5-year terms. Each 5-year term would begin upon
appointment. Board member terms would be staggered, as a result of a special rule providing that
some private-life members first appointed to the Board would serve terms of less than 5 years.
Under this rule, 2 members first appointed would serve for 2 years, 2 for 4 years, and 2 for 5
Chair of the Board
The members of the Board would elect a Chair from the private-life members for a 2-year
term. Except as otherwise provided by a majority of the Board, the authority of the Chair would
include the authority to hire staff, call meetings, establish subcommittees, establish the agenda for
meetings, and develop rules for the conduct of business.
The Board would be required to meet on a regular basis (as determined necessary by the
Chair), but no less frequently than quarterly. The Board would be able to meet privately, and
would not be subject to public disclosure laws.
A quorum of 4 members would be required in order for the Board to conduct business.
Actions of the Board could be taken by a majority vote of those members present and voting.
The Board would be authorized to have its own permanent staff. In addition, the Board
would have such staff as detailed by the Commissioner or from another Federal agency at the
request of the Chair of the Board. The Chair could procure temporary and intermittent services
under section 3109(b) of title 5 of the U.S. Code.
Claims against Board members
The private-life members of the Board would have no personal liability under Federal law
with respect to any claim arising out of or resulting form an act or omission by the Board member
within the scope of service as a Board member. The proposal would not limit personal liability for
criminal acts or omissions, wilful or malicious conduct, acts or omissions for private gain, or any
other act or omission outside the scope of service as a Board member. The proposal would not
affect any other immunities and protections that may be available under applicable law or any other
right or remedy against the United States under applicable law, or limit or alter the immunities that
are available under applicable law for Federal officers and employees.
The provisions of the proposal relating to the Board would be effective on the date of
enactment. The President would be directed to submit nominations for Board members to the
Senate within 6 months of the date of enactment. The legality of the actions of the IRS would not
be affected pending appointment of the Board.
B. Appointment and Duties of IRS Commissioner and Chief Counsel
1. IRS Commissioner
Within the Department of the Treasury is a Commissioner of Internal Revenue, who is
appointed by the President, with the advice and consent of the Senate. The Commissioner has
such duties and powers as may be prescribed by the Secretary. The Secretary has delegated to the
Commissioner the administration and enforcement of the internal revenue laws. The
Commissioner generally does not have authority with respect to tax policy matters.
The Secretary is authorized to employ such persons as the Secretary deems appropriate for
the administration and enforcement of the internal revenue laws and to assign posts of duty.
Description of Proposal
As under present law, the Commissioner would be appointed by the President, with the
advice and consent of the Senate, and could be removed at will by the President. The
Commissioner would be appointed to a 5-year term, beginning with the date of appointment. The
Board would recommend candidates to the President for the position of Commissioner; however,
the President would not be required to nominate for Commissioner a candidate recommended by
the Board. The Board would have the authority to recommend the removal of the Commissioner.
The Commissioner would have such duties and powers as prescribed by the Secretary.
Unless otherwise specified by the Secretary, such duties and powers would include the power to
administer, manage, conduct, direct, and supervise the execution and application of the internal
revenue laws or related statutes and tax conventions to which the United States is a party and to
recommend to the President a candidate for Chief Counsel (and recommend the removal of the
Chief Counsel). The Commissioner would exercise the IRS' final authority concerning the
substantive interpretation of the tax laws. If the Secretary determines not to delegate such specified
duties to the Commissioner, such determination would not take effect until 30 days after the
Secretary notifies the House Committees on Ways and Means, Government Reform and
Oversight, and Appropriations, the Senate Committees on Finance, Government Affairs, and
Appropriations, and the Joint Committee on Taxation. The Commissioner would consult with the
Board on all matters within the Board's authority (other than the recommendation of candidates for
Commissioner and the recommendation to remove the Commissioner).
Unless otherwise specified by the Secretary, the Commissioner would be authorized to
employ such persons as the Commissioner deems proper for the administration and enforcement of
the internal revenue laws and would be required to issue all necessary directions, instructions,
orders, and rules applicable to such persons. Unless otherwise provided by the Secretary, the
Commissioner would determine and designate the posts of duty.
The Commissioner would be compensated as under present law.
The provisions of the proposal relating to the Commissioner would be effective on the date
of enactment. The provision relating to the 5-year term of office would apply to the Commissioner
in office on the date of enactment. The 5-year term would run from the date of appointment.
2. IRS Chief Counsel
The President is authorized to appoint, by and with the consent of the Senate, an Assistant
General Counsel of the Treasury, who is the Chief Counsel of the IRS. The Chief Counsel is the
chief law officer for the IRS and has such duties as may be prescribed by the Secretary. The
Secretary has delegated authority over the Chief Counsel to the Treasury General Counsel. The
Chief Counsel does not report to the Commissioner, but to the Treasury General Counsel. As
delegated by the Treasury General Counsel, the duties of the Chief Counsel include: (1) to be the
legal advisor to the Commissioner and his or her officers and employees; (2) to furnish such legal
opinions as may be required in the preparation and review of rulings and memoranda of technical
advice and the performance of other duties delegated to the Chief Counsel; (3) to prepare, review,
or assist in the preparation of proposed legislation, treaties, regulations and Executive Orders
relating to laws affecting the IRS; (4) to represent the Commissioner in cases before the Tax Court;
(5) to determine what civil actions should be brought in the courts under the laws affecting the IRS
and to prepare recommendations to the Department of Justice for the commencement of such
actions and to authorize or sanction commencement of such actions.
Description of Proposal
As under present law, the Chief Counsel would be appointed by the President, with the
advice and consent of the Senate. The Chief Counsel would not be an Assistant General Counsel
of the Treasury and would report directly to the Commissioner.
The Chief Counsel would have such duties and powers as prescribed by the Secretary.
Unless otherwise specified by the Secretary, these duties would include the duties currently
delegated to the Chief Counsel. If the Secretary determined not to delegate such specified duties to
the Chief Counsel, such determination would be subject to the same notice requirement applicable
to changes in the delegation of authority with respect to the Commissioner.
The proposal would be effective 90 days after the date of enactment.
C. Structure and Funding of the Employee Plans and Exempt Organizations Division ("EP/EO")
Prior to 1974, no one specific office in the IRS had primary responsibility for employee
plans and tax-exempt organizations. As part of the reforms contained in the Employee Retirement
Income Security Act of 1974 ("ERISA"), Congress statutorily created the Office of Employee
Plans and Exempt Organizations ("EP/EO") under the direction of an Assistant Commissioner.
EP/EO was created to oversee deferred compensation plans governed by sections 401-414 of the
Code and organizations exempt from tax under Code section 501(a).
In general, EP/EO was established in response to concern about the level of IRS resources
devoted to oversight of employee plans and exempt organizations. The legislative history of Code
section 7802(b) states that, with respect to administration of laws relating to employee plans and
exempt organizations, "the natural tendency is for the Service to emphasize those areas that
produce revenue rather than those areas primarily concerned with maintaining the integrity and
carrying out the purposes of exemption provisions."
To provide funding for the new EP/EO office, ERISA authorized the appropriation of an
amount equal to the sum of the section 4940 excise tax on investment income of private
foundations (assuming a rate of 2 percent) as would have been collected during the second
preceding year plus the greater of the same amount or $30 million. However, amounts raised
by the section 4940 excise tax have never been dedicated to the administration of EP/EO, but are
transferred instead to general revenues. Thus, the level of EP/EO funding, like that of the rest of
the IRS, is dependent on annual Congressional appropriations to the Treasury Department.
Description of Proposal
Because the funding formula for EP/EO set forth in section 7802(b)(2) would, if utilized,
result in an unstable level of funding that may bear little or no relation to the amount of financial
resources actually required by the EP/EO division, the proposal would repeal the funding
mechanism. Thus, the appropriate level of funding for EP/EO would, consistent with current
practice, be subject to annual Congressional appropriations, as are other functions within the IRS.
In this regard, however, given the magnitude of the sectors EP/EO is charged with regulating, as
well as the unique nature of its mandate, an adequately funded EP/EO is extremely important to the
efficient and fair administration of the Federal tax system. Accordingly, financial resources for
EP/EO should not be constrained on the basis that EP/EO is a "non-core" IRS function; rather,
EP/EO, like all functions of the IRS, should be funded so as to promote the efficient and fair
administration of the Federal tax system.
The proposal would be effective on the date of enactment.