IRS Restructuring Act

This testimony discusses the Internal Revenue Service's (IRS) progress in implementing the taxpayer rights and protections mandated by the IRS Restructuring and Reform Act of 1998. The act was passed in response to concerns that IRS had been overemphasizing revenue production and compliance at the expense of fairness and consideration of taxpayer interests. GAO found that IRS has made a concerted effort to implement the taxpayer protection provisions. In some cases, implementation is not complete, and in others, it is too soon to tell whether implementation will be successful. IRS has had difficulty in implementing some of the act's mandates. These problems include determining when enforced collection actions, such as the seizure of taxpayers' assets, are appropriate and responding to requests for relief under the innocent spouse provisions. GAO believes that IRS' efforts to modernize its organizational structure, performance management system, and information systems are heading the agency in the right direction. If successful, IRS' modernization efforts should create an agency culture dedicated to serving the public and spur efficiency improvements throughout the agency. Both are necessary for culture change to institutionalize taxpayer service as a core value, and efficiency gains to allow IRS to better target is resources to promote compliance and taxpayer service. resources to promote compliance and taxpayer service.

GAO noted that: (1) IRS has embarked on a concerted effort to implement the taxpayer rights and protection provisions; (2) in some instances, implementation is not complete, and in some others, it is too early to tell if implementation is successful; (3) IRS has experienced difficulties in implementing some aspects of the mandates; (4) these difficulties included determining when enforced collection actions, such as the seizure of delinquent taxpayers' assets, are appropriate and dealing with requests for relief under the innocent spouse provisions; (5) to streamline its management structure and create a more taxpayer-focused organization, IRS is in the midst of instituting a major reorganization; (6) IRS' new organization structure is built around four operating units, each with end-to-end responsibility for serving a group of taxpayers with similar needs; (7) through its new taxpayer-focused divisions, IRS is centralizing management of key functions and creating narrower scopes of responsibility; (8) IRS needs to develop an integrated performance management system that aligns employee, program, and strategic performance measures and creates incentives for behavior supporting agency goals; (9) at the operating level, IRS is measuring its progress toward these goals through customer satisfaction surveys and through business results measures of quality and quantity; (10) IRS' system difficulties hinder, and will continue to hinder, efforts to better serve taxpayer segments; (11) IRS has dozens of discrete databases that are function specific and are designed to reflect transactions at different points in the life of a return or information report--from its receipt to disposition; (12) as a consequence, IRS does not have any easy means of accessing comprehensive information about individual taxpayer accounts or summary data on groups of taxpayers; (13) GAO made over a dozen recommendations to correct management and technical weaknesses that jeopardized IRS' information systems modernization process; (14) in fiscal years 1998 to 1999, Congress provided IRS funds for systems modernization and limited their obligation until certain conditions, similar to GAO's recommendations, were met; (15) while IRS made progress in addressing GAO's recommendations and complying with the legislative conditions, IRS has not yet fully implemented GAO's recommendations; and (16) GAO believes that IRS' ongoing efforts to modernize its organizational structure, performance management system, and information systems are heading the agency in the right direction.