The IRS's last major restructuring occurred in 1998 with the passage of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA), P.L. 105-206. The RRA ushered in dramatic changes in tax law as well as in the structure and functioning of the IRS. Examples of changes to the IRS's structure included: (1) the replacement of geographic regional divisions of the IRS with units designed to serve particular categories of taxpayer; (2) a five-year term of office for the commissioner of Internal Revenue; (3) the appointment of the national taxpayer advocate by the secretary of the Treasury who reports directly to the commissioner of Internal Revenue; and (4) the creation of an IRS oversight board to ensure, among other things, that taxpayers are treated properly by IRS employees.
After the enactment of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, which is the most comprehensive piece of tax legislation in more than three decades, there appears to be a renewed focus on restructuring the IRS. In April 2018, the House of Representatives passed a series of IRS reform bills, including the Taxpayer First Act (H.R. 5444). Among the actions required by the Taxpayer First Act would be for the IRS to submit to Congress a comprehensive customer service strategy within a year of enactment and a comprehensive written plan to redesign the organization of the IRS by 2020.GOP Blueprint
Prior to the House of Representatives' recent bills to restructure the IRS, there was a June 2016 proposal to restructure the IRS in the GOP's "A Better Way" (GOP Blueprint). The GOP Blueprint discussed the creation of a new streamlined IRS dedicated to delivering world-class customer service. Under the GOP Blueprint, a newly restructured IRS would have three major units:
- A families and individuals unit focusing on state-of-the-art customer service so that taxpayers can get efficient help and answers to their tax questions.
- A business unit focusing on administering the new tax code for all businesses. This unit would include having specialists with expertise on the issues facing startup entrepreneurs and small businesses and specialists with expertise on the issues facing large domestic companies and U.S.-based global corporations.
- A small claims court unit independent of the IRS that would allow routine disputes to be resolved more quickly so as to decrease costs when resolving a dispute with the IRS.
Together, these three units would be the core of the new IRS's commitment to customer service.Taxpayer First Act
On April 18, 2018, the House of Representatives approved the Taxpayer First Act, which was one of 12 separate bills passed focused on improving the IRS. As noted above, the Taxpayer First Act includes provisions requiring the IRS to submit to Congress a comprehensive customer service strategy within one year after enactment, and a comprehensive written plan to redesign the organization of the IRS by Sept. 30, 2020.
As to developing a comprehensive customer service strategy, Section 11201 of the Taxpayer First Act directs the IRS to consult with the national taxpayer advocate and develop a strategy that includes:
- A plan to provide assistance to taxpayers that is secure, is designed to meet reasonable taxpayer expectations, and adopts appropriate best practices of customer service provided in the private sector, including online services, telephone call-back services, and training of employees providing customer services;
- A thorough assessment of the services that the IRS can co-locate with other federal services or offer as self-service options;
- Proposals to improve IRS customer service in the short term, medium term, and long term;
- A plan to update guidance and training materials for customer service employees of the IRS, including the Internal Revenue Manual, to reflect this strategy; and
- Identified metrics and benchmarks for quantitatively measuring the progress of the IRS in implementing this strategy.
As to modernizing the organizational structure of the IRS, Section 11404 of the Taxpayer First Act directs the IRS to submit to Congress a comprehensive written plan to redesign the organization of the IRS that:
- Ensures the successful implementation of the priorities specified by Congress in the Act;
- Prioritizes taxpayer services to ensure that all taxpayers easily and readily receive the assistance they need;
- Streamlines the structure of the agency including minimizing the duplication of services and responsibilities within the agency;
- Best positions the IRS to combat cybersecurity and other threats to the IRS; and
- Addresses whether the Criminal Investigation Division of the IRS should report directly to the Administrator (Section 11401 of the Taxpayer First Act provides for an administrator of the Internal Revenue Service to head the IRS; the IRS administrator would replace the commissioner of Internal Revenue under current law).
So while the Taxpayer First Act provides some direction as to what a reorganized IRS should be able to accomplish, unlike the RRA, there is little guidance as to specific structural changes to be made at the IRS.What's next?
Shortly after the House passed the Taxpayer First Act, along with the other 11 bills associated with reorganizing the IRS, it was reported that Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, was open to considering the 12 bills passed by the House (Moroses, "Hatch, Senate Finance Signal Interest in House-Passed IRS Bills," 2018 TNT 77-5 (April 20, 2018)).
If the Taxpayer First Act is ultimately enacted, the work required to develop the strategies to reorganize and modernize the IRS in accordance with the priorities set forth in the legislation would appear to require a significant amount of time and expense. In addition, much of the work to design a reorganized and modernized IRS would likely need to be done while the IRS is working to implement the new tax law, which requires the IRS to modify forms, reprogram its computers, and issue guidance on the application of the new tax law. While the IRS was provided $320 million to implement the TCJA, its funding for FY 2018 is about the same as for FY 2017 and in inflation-adjusted terms has decreased by approximately $2.5 billion since 2010 (IRS Publication 55B, IRS Data Book, 2017, Table 29; inflation-adjusted amounts were calculated using the U.S. Bureau of Economic Analysis, nondefense gross domestic product chain-type price index with a 2017 base year). The proposed IRS FY 2019 base budget request was approximately $11.135 billion, which is similar to FY 2018 funding levels.
While reorganizing the IRS to streamline the agency's structure, improve customer service, combat cybersecurity threats, and prioritize taxpayer services may be a laudable goal, it is too early to conclude if any legislation will be enacted. And if such legislation is enacted, the question remains whether Congress will provide funding for the appropriate hiring, adequate training, and technological tools that would be required to reorganize and modernize the IRS.
John Keenan, J.D., is a managing director of Tax Controversy Services for Deloitte Tax LLP in Washington. He is a member of the AICPA IRS Advocacy & Relations Committee. For more information about this column, contact email@example.com.