Congress passed a law 18 years ago requiring reforms at the Internal Revenue Service that still remain overdue today, according to a new government report.
The report, from the Treasury Inspector General for Tax Administration, found that implementation of the Internal Revenue Service Restructuring and Reform Act of 1998 remains an ongoing challenge for the IRS. The law, also known as RRA 98, was designed to change the IRS into a modern financial institution that was taxpayer-focused, resulting in the largest overhaul of the IRS since the 1950s. The legislation changed the IRS mission, organizational structure, and business focus to replace the culture of “enforcement first” with a customer-oriented one, transforming the agency through innovations and new management practices.
The required changes included establishing an Oversight Board to assist in governance; creating a taxpayer-focused organizational structure; achieving an 80 percent electronic filing rate for returns and information documents; offering online personal accounts; avoid diverting training resources to meet other budget requirements; participating in reducing tax law complexity; and increasing voluntary compliance through applied research.
In its evaluation, TIGTA found that in recent years several problems and challenges involving the IRS have given rise to congressional concerns, and overall reductions in discretionary government spending have reduced the annual IRS budget by several billion dollars. As a result, several of the issues that prompted the restructuring have resurfaced, including insufficient employee training and long wait times when taxpayers and tax practitioners call the IRS for information. Other goals of the law have remained substantially unrealized, such as the Oversight Board suspending operation.
The Treasury Department requires that, before extensive organizational changes can be approved, the IRS must have a documented business case. Several major IRS organizational changes were completed without a business case and without required Oversight Board approval. In addition, the Oversight Board has continually experienced membership vacancies, and it suspended operations in April 2015.
TIGTA also found the IRS has not sustained the goal of providing prompt taxpayer service. Taxpayers have experienced difficulty when corresponding with, calling, or visiting the IRS. The IRS’s lower staffing allocation levels are not enough to meet the demands for service.
However, TIGTA found the IRS substantially incorporated consideration of taxpayer rights and protections into its practices and procedures. In 2014, the IRS adopted the Taxpayer Bill of Rights to provide the nation's taxpayers with a better understanding of their fundamental rights when dealing with the IRS. The agency has repeatedly highlighted these 10 rights for taxpayers and shared them extensively on a continuing basis with its employees.
TIGTA recommended the IRS commissioner ensure that all organizational changes for offices reporting directly to a deputy commissioner or the commissioner have a documented business case. In addition, the chief of the IRS’S Communications and Liaison office should contact the congressional tax-writing committees to determine whether the IRS should provide the required tax complexity report.
The RRA 98 requires the IRS commissioner to perform an annual analysis of the sources of complexity in tax administration, including common errors made by taxpayers, areas of tax law that result in frequent disagreements between the IRS and taxpayers, and the time it takes taxpayers to review and complete forms. The analysis is required to make recommendations for reducing complexity, including provisions that should be repealed or modified. The IRS issued two annual tax complexity analyses since the RRA, with the last issued in September 2002.
In response to TIGTA’s evaluation report, IRS officials agreed with the report’s recommendations and plans to take corrective actions. The deputy commissioner for services and enforcement will ensure that extensive organizational changes that move the agency away from a customer-centric model have a documented business case before making the changes. The chief of the Communication and Liaison office will contact the congressional tax-writing committees and determine whether there is interest in having the IRS dedicate resources to preparing an annual tax complexity report.
“As part of RRA 98, the IRS reorganized to closely resemble the private sector model, organizing around customers with similar needs,” wrote John M. Dalrymple, the IRS’s deputy commissioner for services and enforcement, in response to the report. “The blueprint of our customer-based organizational structure, with four main operating divisions, remains the foundation of today’s IRS.”
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