Tax Administration

As part of its plan to fully embrace customer service as a core organizational value, the IRS is restructuring operations around specific groups of taxpayers. One new organizational unit, the Small Business and Self-Employed Operating Division, will focus on the needs of small business. According to IRS, small businesses are more likely than other taxpayers to have compliance problems. They may not always have the resources needed to deal with filing, reporting, and deposit requirements placed on them or complex tax issues such as employment taxes and depreciation. Many small businesses are unaware of IRS services developed specifically for small businesses or are reluctant to go to the IRS for help. Structured along functional and geographic lines, IRS has not operated in a way that best enables it to serve small businesses. Its focus on back-end correction of problems versus up-front prevention is problematic for small businesses that need assistance up front and that, absent that help, are at a high risk of going out of business if problems arise.

GAO noted that: (1) according to IRS, small businesses are more likely than other taxpayers to have compliance problems; (2) tax law complexity was the most commonly mentioned reason why small businesses might have trouble complying; (3) IRS has not operated in a way that best enables it to serve small businesses; (4) IRS has been structured along functional and geographic lines, with each function and each geographic unit responsible for all types of taxpayers, from individuals whose only income is from wages to multinational corporations; (5) IRS has also historically allocated most of its resources to correcting problems after they occur rather than preventing problems from occurring; (6) many small businesses in GAO's survey population were unaware of various services that IRS has developed specifically for small businesses, and many others who knew of the services did not use them; (7) when small businesses in GAO's survey population used certain IRS services, such as tax publications and toll-free telephone assistance, they were often not happy with the experience; (8) the various changes discussed in IRS' plans for the new organization indicate that it will be taking steps to address those factors that GAO has identified as complicating the interactions between IRS and small businesses; (9) although the new organization may not be able to do much to reduce the tax law complexity facing small businesses, it should be better able to help businesses deal with those complexities; (10) all of this assumes that the various changes discussed in IRS' plans come to fruition; (11) however, implementing the new Small Business and Self-Employed Operating Division will not be easy; (12) for example, the diversity of the taxpayer population for which the new operating division will be responsible could stretch the capabilities of management and staff and dilute the division's customer focus; and (13) the new division also will be: (a) hindered in its ability to deliver new programs and services by antiquated information systems and a shortage of employees with needed skills; and (b) challenged, as is all of IRS, to develop an integrated performance management system that creates incentives for employee behavior that supports organizational goals.