A Brief History of the Internal Revenue Service Part Two

In 1995, Congress began the most recent overhaul of the nation's internal revenue system. Political inertia had been overcome by a series of revelations about the IRS' inability to modernize its own operations despite the expenditure of billions of dollars and multiple commitments from the Service to get their house in order. Negative news stories about taxpayer misfortune or general public dissatisfaction led to several Taxpayers' Bill of Rights initiatives. Thus in 1995, Congress created a National Commission on Restructuring the Internal Revenue Service. It was composed of public figures and private citizens appointed by the President and Congress.

In June of 1997, the Commission issued its report. Key recommendations were as follows:

• A new entity for congressional oversight be created to ensure that Congress had sufficient information about the Service to make informed decisions.

• That a Board of Directors be created to be given overall responsibility for executive governance of the Service, excluding its law enforcement functions. Members were to be appointed by the President and confirmed by the Senate, and five of them were to be experienced in running large service organizations. The Department of the Treasury would retain responsibility for tax policy.

• The Commissioner of Internal Revenue would be appointed by the Board of Directors for a five year term, and be given greater flexibility in personnel decisions.

• The Service was to receive stable funding for the next three years in order to properly plan a massive overhaul.

• The Service was to properly address consumer issues: training, operations, technology, culture and taxpayer education so that it might function with greater taxpayer focus.

• The Service was to update its technology and treat taxpayer information as a critical strategic asset to improve its customer service and compliance functions.

• The Service was to find a way to make paperless filing the most convenient option for taxpayers within the next ten years.

• The Service was to take steps to improve taxpayer's ability to recover damages for wrongful actions on the part of the Service and make real efforts to protect taxpayers from unnecessary disputes before they occur.

• The tax laws were to be simplified in order to reduce the burden on taxpayers and facilitate tax administration.

The proposed governance structure ran into opposition; just prior to release of the report the Treasury Department had formed its own modernization oversight board. There was also resistance to the division of Treasury's law enforcement function and the Service's policy making and tax administration responsibility, which had traditionally worked hand in hand. However there was little disagreement with the recommendations for improvement of service.

In 1998, the President signed into law the IRS Restructuring and Reform Act of 1998. Since 1952, the three-tier geographic administrative structure had been in place. In 1995, the field structure had been realigned into four regions with an assortment of district offices and service centers. Under the 1998 Act, the Commissioner was charged with reorganizing the Service into units serving groups of taxpayers with similar needs. The focus of the IRS had been expanded to include the taxpayer as well as the taxes.