Pay Your Taxes, Please
incent Caputo, a 27-year veteran of the Internal Revenue Service, has spent the past 12 years of his career in what he calls the agency's last line of defense-collections. After delinquent taxpayers have ignored payment notices and refused to pay their tax bills, collection agents knock on their doors to recover what the government is owed. In the past, he says, that task typically involved entering a taxpayer's home and saying: "You have a house and equity in it. You owe taxes. We want your equity."
But that aggressive, unrelenting approach is giving way to a kinder, gentler way of doing business. Under the leadership of Commissioner Charles Rossotti, the IRS is introducing a sweeping customer-service effort that is transforming both the organization's structure and how it interacts with the American taxpayer.
After numerous taxpayers testified before Congress last year about mistreatment at the hands of the IRS and agency whistleblowers revealed they were rated largely on the basis of how much revenue they generated, Congress passed the IRS Restructuring and Reform Act. The law requires the IRS to overhaul its operations and upgrade its technology to improve customer service.
Shortly after Rossotti took the helm of the IRS in November 1997, the agency adopted a new mission statement: "Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all." To see this vision become a reality, Rossotti and his top executives will have to persuade 98,000 full-time employees and 15,000 part-timers to assist taxpayers rather than punish them.
Rossotti must also find the answer to this question: How can the IRS offer customer service on the scale of leading-edge American companies and yet still perform its central function of extracting $1.7 trillion in taxes annually from taxpayers who aren't thrilled to be giving up their hard-earned money?
The fast, effective customer service now displayed by many American companies, especially those that are using the Internet to its full advantage, has raised the bar in terms of the expectations of how the IRS and other federal agencies relate to the people they serve.
"My view is that the American public has not only asked the IRS to change but asked all public agencies to change," says Bob Wenzel, deputy commissioner of operations for IRS, who joined the agency in 1963 and now oversees customer service, compliance and criminal investigations. While most Americans accept paying their fair share of taxes, they expect "federal agencies to give them the best product and service," Wenzel says.
That's hard for an agency that has long defined itself in terms of tax collection. "Previously the IRS measured success by its collection revenue," says Eugene Steuerle, a former deputy assistant secretary of the Treasury and now a senior fellow at the Urban Institute, a Washington think tank. Of course, he notes, the main reason the agency did so is because that's what Congress wanted it to do. During the era of high budget deficits, Congress dictated that the IRS maximize the amount of revenue it collected. Now that the deficit has been reduced, the pendulum has swung to a new focus on assisting taxpayers.
How antagonistic was the IRS in the past toward taxpayers? "The outlook of many agents was 'I'm going to get you,' " says Sharon Cranford, director of government relations and public affairs at the National Association of Enrolled Agents (NAEA), which represents 10,000 of the 35,000 licensed private-sector federal tax practitioners. "IRS agents saw taxpayers as adversarial. Further, if the IRS did something wrong, such as distributing incorrect forms, they would deny they were responsible for the mistake."
"The IRS has operated as an insular, secretive agency. It is more secretive than the CIA," says Chris Bergin, editor of Tax Notes, a weekly journal.
Instead of being forced to relinquish property or take out a home-equity loan, the delinquent taxpayer under the new IRS approach has several options, including paying on the installment plan, much like paying off a credit card balance. "Now I ask the taxpayer what he or she wants," says Caputo, who prefers the new approach. If a taxpayer has lost his or her job or is suffering from a long-term illness and has no history of avoiding payments, the IRS can design a hardship installment payment. But if the taxpayer has a chronic problem with paying what he or she owes, the IRS will demand payment or start criminal procedures.
Customer satisfaction, employee satisfaction and business results will serve as the three critical elements in measuring the performance of IRS employees under the new system, says Jamie Kavanaugh, a vice president at Booz-Allen & Hamilton, the management consulting firm that's helping to implement the new system. "If you want effective business results, you need to satisfy taxpayers and you need to have employees satisfied," she says.
The new approach requires IRS managers to use new approaches to solving problems. For example, at tax filing season, when phones are ringing off the hook, should a manager shift employees away from their regular duties to handle customer queries over the phone? What if that causes delays in other areas? "We're trying to get IRS employees to think about how they manage to achieve their overall goal, which is revenue collection," Kavanaugh says.
In order to improve customer service, the IRS is modernizing its antiquated computer systems, which have been a source of frustration and complaints for years. For example, if a taxpayer had a question about a tax payment, he or she often would have to wait several days for a response while an IRS agent researched as many as seven different databases.
The agency, however, is taking a cautious approach to information technology improvements, because it has previously spent $4 billion on systems that failed to meet its needs. The 1998 IRS Reform and Restructuring Act authorized $506 million for modernization efforts, and the IRS has hired Computer Sciences Corp., a management consulting and information technology company, to begin the effort. "We're building a central database that will provide a single repository, an entire tax history," says Don Brown, a CSC program executive. When completed by the year 2002, the new system will enable customer service representatives to answer almost any taxpayer question quickly and easily.
The IRS has also launched a telephone information hot line that operates 24 hours a day, seven days a week, like General Electric's respected consumer hot line. To be more responsive to taxpayers, 250 of the agency's offices are now open on Saturday mornings. Brochures and pamphlets are being rewritten in plain language. More than 25 percent of taxpayers are filing returns electronically, and the service is aiming for 80 percent electronic filing by 2007. IRS employees will be participating in a new training program called Worldwide Customer Service, which Wenzel describes as "offering the best of the private and public sector to educate our workforce on how to interact with taxpayers."
But training alone will not transform the IRS culture. The IRS also is undergoing a major restructuring. Charles Baugh, director of the agency's New York office, which has 1,750 employees, says the IRS' new alignment "revolves around meeting customer and taxpayer needs."
The IRS' 33 regional offices will disappear, as will the jobs of the people who head them. In its new structure, the agency is divided into four specialty areas-taxpayers with wage and investment income, small businesses and the self-employed, mid-to-large businesses, and tax-exempt organizations. "We're becoming specialists, not generalists," Baugh says. For example, in New York, small-business specialists will become adept at answering the questions of taxicab drivers and beauty salon operators, while in Northern California they will learn to deal with questions posed by vineyard owners.
To help make sure the agency maintains its customer focus, Congress created the job of national taxpayer advocate in the IRS Restructuring and Reform Act. Val Overson, the new advocate, explains his mission this way: "Resolving taxpayers' problems with the IRS, analyzing why these problems occur, and then recommending solutions through administrative or statutory changes." The taxpayer advocate operates independently of the IRS commissioner and the Treasury Secretary and has the authority to make recommendations for legislation directly to Congress.
Overson notes that 70 percent of the problems raised by taxpayers involve procedural errors or snafus such as misapplied payments, which he expects to resolve. He is hiring GS-15 managers dedicated to customer service. Overson will oversee 1,700 employees in 76 locations and is seeking employees who exhibit "a willingness to work with taxpayers, listen to their concerns and help them find solutions." The new law even grants the taxpayer advocate the ability to determine compensation for a taxpayer who is "suffering a significant hardship as a result of the manner in which internal revenue laws are administered."
To protect taxpayers from abuses, the IRS Act designated 10 actions (known to employees as the "10 Deadly Sins") for which employees can be fired. The actions include violating a citizen's civil rights, threatening a taxpayer during an audit for personal gain, and destroying documents to hide mistakes. Currently 240 IRS employees are under investigation for abuses, but none has been dismissed or otherwise penalized.
Nonetheless, the fear of reprisals from taxpayer complaints has sent a shudder through the 40 percent of IRS employees involved in audits and collections. Some of the actions on the list "are so broad that they freeze enforcement personnel in their tracks," wrote Donald C. Alexander, IRS commissioner from 1973 to 1977, in an article in Tax Notes earlier this year. "How can an IRS front-line employee or manager with examination or, particularly, collection responsibilities, be certain that he or she has not unknowingly violated some provision of an unfamiliar law in the course of an examination or enforcement action?"
Indeed, specific types of collections have plummeted recently. For example, in the past two years, seizures of property have dropped by 98 percent, garnishments of bank accounts and paychecks are down by 75 percent, and tax liens have diminished by two-thirds. Shifting auditors and collection personnel into customer service was a factor in collection reductions, but fear of reprisal is contributing to the situation.
The IRS sees the drop-off in collections as a temporary response while it clarifies its goals, trains its new staff and updates its guidelines. Once employees see that few dismissals will actually occur and procedures are rolled out that clarify how to deal with complaints and allegations, then seizures, garnishments and tax liens will rise, Baugh predicts. The agency is on target to meet its overall projection of collecting almost $1.7 trillion in 1999, IRS officials note.
"Our role is to sort out the 95 percent or more of 250 million taxpayers who are good citizens and want to comply with tax laws from the million or so who don't want to comply and should be treated with enforcement action," says Baugh. But "getting 100,000 [employees] to think differently isn't easy," he admits. Making an arrangement with a taxpayer to accept a $10,000 "offer in compromise" on a tax debt of $50,000 is much trickier than simply demanding, "pay up or else," he says. Under the new IRS approach, taxpayers can make arrangements by phone or correspondence to pay debts of up to $25,000 over a five-year period.
Christopher Clonan, a New York-based IRS revenue officer who specializes in offers in compromise, welcomes the culture change. In the past, enforcement action was a revenue officer's only option. Now, "if there's a hardship, we can take a more liberal approach," he says. "If a taxpayer cannot pay $25,000, we can accept less. We can now accept an offer even if they're not yielding equity in a house." In the past, the IRS accepted few offers in compromise, but last year the agency arranged more than 25,000 such deals, leading to a total of $290 million in collections.
Not everyone is sure that the IRS can forge a new culture. Shelley Davis, who served for eight years as IRS historian and then wrote the scathing Unbridled Power: Inside the Secret Culture of the IRS (HarperBusiness, 1997), says entrenched unionized employees historically simply give lip service to efforts to overhaul the IRS, then wait for a new commissioner to be selected or Congress to change its tune. "The IRS staff counts on public interest waxing and waning. We'll have congressional hearings, followed by headlines of abuses of taxpayers, followed by IRS pledges to do better, followed by a new cycle in three years," says Davis.
Alexander argues that it's unfair to hold the IRS to the same standard as private companies in terms of customer service. The IRS, he notes, can't simply allow some of its customers to opt out of doing business with the agency-or refuse to do business with troublesome taxpayers. What's more, he says, the agency doesn't control its own resources. Congress decides how much money the agency will get every year and often micromanages how it will be spent. In the IRS' fiscal 1999 appropriations measure, for example, the agency was ordered not to reduce the number of criminal investigators in South Dakota and Wisconsin.
"Moreover," Alexander wrote in Tax Notes, "the claim that the IRS must rise to the standard of the best customer service practices in industry fails to recognize that the IRS has to administer an ever-changing law and that Congress regularly adds new and complex burdens."
Still, many IRS executives-and the National Treasury Employees Union, which represents agency employees-are on record supporting the new approach. IRS employees "welcome the opportunity to be evaluated in terms of the quality of work they produce and service they provide to taxpayers, rather than on revenue," says former NTEU president Robert M. Tobias.
Revenue officer Clonan, who was recently promoted to manager in a New Jersey IRS office, says that a day rarely goes by that he doesn't receive a voice mail message introducing a new customer service initiative. Training efforts, new guidelines and explicit directives from executives at staff meetings, he says, indicate the new approach is here to stay. "They've had flavors of the month before, but nothing has been introduced on this large a scale," Clonan says. "The agency is making a major commitment to modernization and customer service. People are bracing for a change." Clonan acknowledges, however, that not all of his colleagues are as open to change as he is.
Customers of the IRS say the agency is making strides but has a long way to go. Peter Sepp, vice president of communications at the National Taxpayers Union, a non-profit organization representing 300,000 taxpayers, says the agency has already implemented improvements such as extended hours during tax filing season, new guidelines evaluating employees on customer service, more attentive service at call centers and increased protection of taxpayer rights. Still, he'd like to see taxpayers receive more information on alternative payment options. If the IRS is to change its culture, "it will require full cooperation with the employee's union and a climate of trust between the director and the lower rank-and-file employees," Sepp says.
The message that is being conveyed to long-term IRS employees who are resistant to change, says NAEA's Cranford, is: "This is not the IRS you joined. If you're not interested in customer service, it will be an uncomfortable place to work."
The culture shift at the IRS is about more than just changing employee attitudes and making taxpayers feel better, says Kavanaugh. It is about improving the bottom line. "If the IRS can deliver taxpayers the information they need, people will be filing more accurately," she argues. "Collections will increase because of the accuracy and fewer delays. An emphasis on taxpayer service will lead to better business results."
Gary M. Stern is a New York City freelance writer who contributes to Reuters, American Way, Continental, Consumer Reports Travel Letter, BizTravel and other publications.