IRS: More Lean, Less Mean

Internal Revenue Service Commissioner Charles Rossotti Wednesday unveiled a plan to slash layers of management at the IRS and make taxpayer service the driving force behind its operations.

Testifying before the Senate Finance Committee as it opened a series of hearings on IRS reforms, Rossotti announced a proposal to reorganize the IRS into four operating units that will be responsible for serving different groups of taxpayers. In addition, he said the number of management layers at IRS could be cut in half and asked Congress to approve another round of buyouts for IRS employees.

"The IRS must shift its focus away from its internal operations and think about its job from the taxpayers' point of view," Rossotti said.

In outlining his proposal--which Rossotti cautioned is only a concept and will have to be reviewed for months before specific actions are taken--the new commissioner said managers would be able to better understand taxpayers' needs and problems because they will be less removed from them.

"The organization would be flatter, there would be fewer layers of management. In fact, we could cut the number of layers in half," Rossotti said. "For each unit, we could establish a cohesive management team which would be able to organize itself internally in ways that are appropriate to the particular needs of the taxpayers they serve."

Many of the offices at IRS headquarters and in its regional offices would disappear as the agency reorganized into four operating units, or business lines, to serve different taxpayer groups: individual taxpayers with wage and investment income; small businesses and self-employed people; large businesses; and pension plans, nonprofit groups and state and local governments. Rossotti said the proposed concept parallels the business structures of many private sector financial institutions that have different divisions serving separate customer bases.

Rossotti said there are now eight layers of management between front-line employees and the deputy commissioner, making lines of command complex and accountability weak. In addition, the agency's 33 district offices and 10 service centers scattered across the country, coupled with the complex structure of regional and headquarters staff, confuse taxpayers when they turn to the IRS for help.

Under the proposal, the performance of executives and managers would be rated in four categories: customer satisfaction, employee satisfaction, overall compliance by major taxpayer segment, and continuous improvement. By eliminating management layers and organizing offices around taxpayer groups, managers would have a clearer understanding of--and greater control over--the responsibilities upon which they would be measured, Rossotti said.

Tuesday's hearing, which also included an appearance by Treasury Secretary Robert Rubin, is the first in a series of hearings Senate Finance Committee Chairman William Roth, R-Del., has promised to hold in the coming months. On Thursday, the committee will hear from four former IRS commissioners, representatives of associations of tax specialists and accountants and Rep. Rob Portman, R-Ohio, who was co-chairman of the National Commission on Restructuring the IRS. Another hearing has been scheduled for Feb. 5 to review legislative proposals for IRS reform, including a House-passed bill that the Clinton administration has endorsed.

The House bill would create an oversight board that would include private sector businesspeople and a representative of the National Treasury Employees Union, the main union for IRS employees. It would also grant the IRS personnel flexibilities to experiment with different compensation and appraisal systems. Though President Clinton urged the Senate to quickly sign off on the House bill, Roth has said he will take his time to make sure the best reforms are chosen.

NTEU President Robert Tobias said he supports Rossotti's concept for reform.

"There's little to disagree with," Tobias told GovExec.com. "But the devil is always in the details."

Meanwhile, the Federal Managers Association sent a letter to Roth outlining concerns that IRS managers need a stronger voice in the plans for reform. In particular, the association's president, Michael Styles, said he objects to the plan to include a union representative on the oversight board and a provision of the House bill that would give NTEU veto power over any personnel changes before they take effect.

"Managers would have no such veto power over personnel changes which affect only managers," Styles wrote. "The result could lead to managers being treated unfairly, while non-managers would be unaffected."