IV. Business Practices and Strategies · of improvement in business practices in a modernized IRS....

Modernizing America’s Tax Agency 17

The way the IRS interacts with taxpayers isdefined by its business practices, such as howfiling is done, what notices are sent under what

circumstances, the way phones are answered, the waycollections of balances due are carried out and the wayexaminations are conducted. These business practiceshave historically been carried out by the IRS’ functionaldisciplines, principally Examination, Appeals,Collection, Criminal Investigation, SubmissionsProcessing and Customer Service (the latter being anamalgam of functions, including examination andcollection, which have in common that they deal withthe taxpayer by phone or mail).

Closely related to business practices are IRS strategiesthat guide such practices, such as how returns areselected for examination, what kinds of complianceissues to emphasize and how to encourage electronicfiling. Strategies are ways of deciding how best to uselimited resources to achieve defined goals.

Many IRS practices are codified in the Internal RevenueManual and in various rulings and regulations. Bothstrategies and practices are also constrained by, and to aconsiderable degree determined by, the establishedorganization structure and the installed technology base,the two principal instruments through which the IRSexecutes its business practices and strategies. Theseinteracting factors - business practices, strategies,organization and technology - are so tightly joined andinterdependent that it is not possible to make fundamen-tal improvements in any of them without addressing allof them in an integrated fashion. This is a key reasonwhy past efforts to adopt very promising improvementsin compliance and customer service practices have notbeen fully implemented, despite important successes ona limited basis. Conversely, programs to improvetechnology, while accomplishing important incrementalimprovements, have not succeeded in replacing the oldand inadequate base of technology on which the IRSdepends.

By revamping its business practices and strategy in waysthat were successful in the private and public sectors(and often on a limited basis at the IRS), the IRS can

make major strides toward all three strategic goals.These changes are discussed below in summary, but fullimplementation of these changes is a major undertakingand will take place over a period of years, dependingheavily on requisite changes in organization andtechnology.

Prevent taxpayer problems oraddress them as early as possibleOne of the overriding themes in improving IRS businesspractices is to shift from addressing taxpayer problemswell after returns are filed to addressing them as early inthe process as possible, and in fact prevent problemswherever possible.

Malcolm Sparrow of Harvard’s Kennedy School ofGovernment, and one of the world’s leading analysts ofgovernment compliance programs, said it simply:

Speed of reaction after the fact is consideredsecond best; prevention is considered better, butis harder to quantify.

This approach follows the well-established qualityprinciple that it is far better for the customer and far lessexpensive to eliminate defects than to fix them. Inmaking cars, for instance, it is very expensive to issue arecall because of a defect; it is less expensive to fix adefect before the car leaves the factory; and it is best ofall to improve the design and manufacturing process sono defect occurs. So it goes with tax returns. As a rule,if a taxpayer files a correct return, no further costs areincurred by the taxpayer or the IRS. If the taxpayermakes an error, it is highly beneficial for both the IRSand the taxpayer to find and fix the error as soon aspossible. If the taxpayer fails to pay the correct amountdue, the sooner the issue is addressed, the lighter theburden on the taxpayer and the greater the likelihood thatthe IRS will receive payment. Interacting with taxpayersis a three-part process:

IV. Business Practices and Strategies

Modernizing America’s Tax Agency

1. Pre-filing: services provided to a taxpayer beforethe return is filed to assist in filing a correct return.

2. Filing: services provided to a taxpayer in the process of filing returns and paying taxes.

3. Post-filing: services provided to a taxpayer after a return is filed, to identify and correct possible errors or underpayment.

Some of the services provided by the IRS in each ofthese categories, and the approximate distribution ofIRS resources in each category, are shown below.

The IRS activities chart shows that the balance of IRSresources is heavily weighted to intervention after prob-

lems occur while relatively little is devoted to prevent-ing problems, with 73 percent of the budget allocatedto post-filing activities. In fact, nine times as much isspent addressing problems after the fact than is spentin preventing them.

Experience at the IRS and elsewhere shows that thereare many opportunities to improve service andcompliance and increase productivity by pursuing moreaggressive use of techniques to prevent errors andaddress recurring and systematic compliance problems.(See Appendix 1.)

18

11% 17% 72%Percent of IRS Budget

NOTE: Budget figures exclude Counsel and support programs such as IS and facilities.

PRE-FILINGCustomer Education and Assistance

• Forms

• Publications

• Toll-free tax law assistance

• Web site

• Taxpayer education programs

• Public service announcements

• Volunteer tax assistance sites

• Advanced pricing agreements

• Published tax law guidance

• Private letter rulings

• Determination letters

• Tip rate determination and education

• Letters advising taxpayers of potential

problems:

- Duplicate SSNs

- Self-employment tax

- Cash vs. accrual accounting methods

IRS ACTIVITIES

FILINGCustomer Account Services

• Processing paper returns

• Processing electronic returns

• Crediting payments

• Advising taxpayers of errors and

balances due

• Arranging installment agreements

• Answering taxpayer inquiries about

their accounts

• Making corrections and adjustments

to taxpayer accounts

• Abating penalties on taxpayer

accounts when appropriate

• Paying refunds

POST-FILINGCompliance

• Auditing returns

• Recommending assessments if addi-

tional tax is due

• Arranging methods of paying off

balances due

• Evaluating offers in compromise

• Taking collection actions, such as

liens, levies and seizures

• Handling taxpayer appeals on

assessments and collection actions

• Litigating disputes

• Detecting and investigating possible

fraud

• Resolving complex taxpayer account

and collection situations

• Evaluating and addressing “hardship”

situations

Modernizing America’s Tax Agency

In addition, when taxpayer problems occur, it is importantto intervene as quickly as possible, particularly in the caseof underpayment or nonpayment. The key to effectivecollection anywhere is to identify as quickly as possiblethe potential risks of nonpayment and obtain an agree-ment to settle the debt.

The table shown above depicts commercial experience incollecting debts. As is evident from the table, the chancesof successful collection decline rapidly with time,dropping to 56 percent after six months. By contrast,because of IRS practices, 90 percent of the working casesof IRS telephone and field collection personnel are morethan six months old, and most are several years old.

Examination of returns also usually occurs well afterreturns are filed. Examination of individual and smallbusiness returns often occurs six months to one year afterfiling, and completion of the examination requires anadditional five to 12 months. Audits of returns of largecorporate taxpayers often do not begin until 2 1/2 yearsafter returns are filed. Resolution of assessments, whichgo into accounts receivable, often does not occur for anadditional two to four years.

In effect, the majority of IRS resources today are beingapplied to address taxpayer errors or issues that arosethree to seven years ago. One of the implications is that64 percent of the amounts shown as owed by taxpayers in

the GAO report on IRS financial statements are for interestand penalties, and only 36 percent are the original tax due.

While great gains in both service and compliance can beanticipated by preventing taxpayer problems and errorsand addressing those that occur much faster, changingestablished practices is dependent upon changes inorganization and technology that will require signifi-cant investments of time and money.

Improve communications withtaxpayers

The IRS communicates with millions of taxpayerseach year through multiple channels: mail, telephone,Internet and in-person. The communications have awide subject range, from tax forms and publicationsdescribing how to file, to phone calls setting upinstallment agreements, to in-person meetings toresolve longstanding issues and disputes.

Communications can be initiated by either the taxpayeror the IRS, and it is common for the same issue or subjectto be addressed through multiple channels, e.g., when thetaxpayer calls in response to a notice sent by mail.

IRS communications with taxpayers are not onlydiverse, they are extremely voluminous and complex in

19

Collectability of Delinquent Commercial Debts1009080706050403020100

98.7 93.285.0

72.3

56.142.9

28.412.5

90% of IRS Collection Resources

0 1 2 3 6 9 12 24 Months Delinquent

IRS Telephone and Field Collect ion

% Collectable

Modernizing America’s Tax Agency20

subject matter. The IRS currently provides 484 differ-ent tax forms, including 7 new forms, 177 modifiedforms and 105 publications. In 1999, the IRS mailedover 100 million tax packages to taxpayers and distrib-uted an additional 650 million forms and publications,including over 57 million downloaded from its website. In 1999, the IRS sent taxpayers 105 millionnotices, received between 20 to 30 million incomingpieces of correspondence and 168 million incomingphone calls on toll-free numbers, and served over tenmillion taxpayers at walk-in sites. Over 20,000employees are dedicated solely to these tasks and, intotal, over 70,000 employees regularly communicatewith taxpayers.

The issues communicated through correspondence andphone calls are often more complex than those handledby typical commercial call centers. The average lengthof a call with a customer service representative on theIRS 800-number to respond to notices is eight to tenminutes, while the average talk time at a typicalcommercial credit corporation is 3.5 minutes.

From the taxpayer’s point of view, the quality ofservice the IRS provides through these various formsof communication has been well below expectations.Since almost every taxpayer also deals with leadingcommercial companies in credit, direct mail andother similar operations, a comparison is readilyavailable. Typically, such operations have a level ofservice whereby a customer has a 90 to 95 percentchance of getting through on a given telephone call.In 1999, the chances of getting through to an IRStoll-free assistor was 53 percent.

IRS written communications, such as notices, arewidely criticized as hard to understand. Furthermore,the topics on which taxpayers are calling are often ofgreat importance to them, creating high anxiety if thematter cannot be resolved quickly. For example, ataxpayer who calls in response to a balance due noticeis subject to accumulating interest and penalties andeven levy of property if the matter is not resolved.

Improving convenience and quality of communica-tions with taxpayers is one of the most important areasof improvement in business practices in a modernizedIRS.

Some significant progress was made in 1999. Thisincludes expansion of hours of phone service to 24hours a day, seven days a week, Saturday hours at250 walk-in sites throughout the country, and rewrit-ing of some notices to make them easy to under-stand. Also, the IRS web site has been very success-ful, providing immediate access to all forms andpublications and answers to many tax questions. In1999, the IRS web site had over 767 million “hits”during which taxpayers downloaded more than 57million forms and publications. In the longer term,the concept of a modernized IRS is to organizecommunications so that taxpayers can get accurateand prompt information and correct resolution ofissues in a time and manner most convenient for them,whether by letter, phone, Internet or in person.

Given IRS operations’ scale and complexity, this is along-term task requiring fundamental change in allaspects of IRS operations, including organizationand management, training of front-line personnel, inter-nal and external distribution of information, informationtechnology and performance measurements. Followingare some examples of impediments to improvingcommunications with our taxpayers that require funda-mental change:

• Improving the level of phone access and providing24-hour service requires managing calls andschedules on a nationwide basis, yet untilOctober 1, 1999, IRS’ 24 call sites reported tolocal service centers or district directors whowere responsible for a geographic area and whooften had differing technology and managementpractices.

• Improving the quality of call responses requireshaving front-line people who are properly trainedand equipped to handle the subject matter. Thecomplexity and diversity of the subject matter of thecalls requires constant management of the wayagents are organized and trained and the way callsare routed. This in turn depends on having manage-ment that is highly knowledgeable of the specificneeds of the taxpayers being served as well as theability to make constant improvements in thecommunications process. Yet because of theirhistorically geographic focus, most call sitesattempted to manage communications for everytaxpayer type on a wide range of subject matters.


• Improving the quality of all communications criti-cally depends on providing the front-line employeesaccess to accurate, up-to-date information abouttaxpayers’ accounts and the ability to adjust accountsimmediately when needed. IRS computer systemsgenerally do not have this capacity.

• Improving the quality of communicationsrequires an accurate system for measuring qual-ity, from both a technical point of view and thetaxpayer’s point of view. In 1999, such a systemof measures was first introduced.

• Improving the quality of written communications(including forms, publications and notices) requiresincorporating user-friendly, educational, helpful,easy-to-understand language and complete data thathelps taxpayers comply with their tax obligations.This requires a complete rewrite of most notices andoften depends on displaying taxpayer account datathat IRS systems cannot provide.

The modernization program is designed to address allof these impediments in order to improve dramaticallythe convenience and quality of communications withtaxpayers.

Expansion of taxpayer rights

Taxpayer rights include a wide range of protections andprocedural safeguards designed to ensure that taxpayersget a fair hearing on their cases before the IRS takesany adverse action against them. In certain cases, thelaw requires that the taxpayer’s personal circumstancesmust also be considered so that the taxpayer will notsuffer undue hardship from an IRS action.

Taxpayer rights were considerably expanded in the IRSRestructuring and Reform Act of 1998, which includedover 70 provisions concerning taxpayer rights. Forexample, some of the provisions in the bill are:

• “Due process in collections” provisions, whichprovide taxpayers facing collection action the rightto have their case heard by the IRS Appeals office,and potentially a court, prior to levies being made.

• Expanded “innocent spouse” provisions that undercertain circumstances provide increased authority

for the IRS to relieve spouses of liabilitiesincurred on joint returns.

• Expanded authority for the IRS to “compromise” ontaxes owed under certain circumstances.

• Change in “burden of proof” in certain court cases.

• Extension of privileged communications betweentaxpayers and attorneys to certain other advisors.

While the taxpayer rights provisions are now law andbeing implemented by the IRS, they are also consistentwith and reinforce the direction of the overall modern-ization effort. Many of the modernization changes willincrease the quality and effectiveness of the IRS inadministering these rights. Of particular importanceare the organizational changes that establish theNational Taxpayer Advocate’s office as an independentstructure within the IRS, and the revamping ofperformance measures to include taxpayer rights.

Although most of the changes required by RRA ‘98have now been implemented, many more changes willbe required over the next five years to learn how toadminister these provisions effectively and efficiently.

Broaden use of electronic taxadministrationElectronically-filed returns improve service fortaxpayers and boost productivity by reducing errors,speeding refunds and reducing labor costs. Whileelectronic filing has been increasing rapidly, 77 percentof returns are still filed on paper. Reaching thecongressionally-mandated goal of 80 percentelectronically-filed returns will require manyimprovements within the organization, such asenhanced IRS technology to allow filing of a full rangeof returns, resolution of security issues to eliminaterequirements for separate signature documents,tailoring of marketing and education programs toattract taxpayers and practitioners with varying needs,and broadening the number of effective paymentoptions in conjunction with filing.

The opportunities to improve business practicesthrough electronic communications with customers andpractitioners go far beyond filing of returns. Customer


education and assistance programs through the IRSweb site, such as distribution of forms and publicationsand answers to tax law questions, are growing rapidly.Eventually, secure communication over the Internetwith practitioners and taxpayers will be used moreeffectively to resolve taxpayer account issues,facilitating resolution of examinations, providingtaxpayers authorized transcripts of their accounts andgenerally improving the timeliness and quality of thefull range of IRS interactions with taxpayers.

In 1999, using highly secure technology, the IRS beganthe first pilot project to communicate taxpayer accountdata over the Internet with a small group of practition-ers. Although this pilot program involved only 100practioners, it is the first step in a major change in theuse of electronic channels by the IRS.

To date, IRS electronic tax administration programswere developed as specialized “add-on” programs. Torealize the potential, they must be integrated into thebasic ways of doing business throughout the organiza-tion, as well as into new technology programs.

Leverage IRS resourcesthrough effective partnershipsThere are many organizations and groups that areactively involved in tax administration and deal regularlywith taxpayers. Among the most notable are State revenueagencies, tax practitioners of many kinds, industry associa-tions, small business associations, federal agencies such asthe Small Business Administration, hundreds of commu-nity and volunteer groups, services for low income anddisadvantaged taxpayer services, and large businesses andinstitutions offering tax filing assistance to their employees.

Historically, the IRS worked with many of theseorganizations to share information about IRS programsand taxpayer concerns and, in the case of States, toexchange information for compliance purposes. TheIRS also has some joint electronic filing programs withStates.

In the future, the IRS must place far greater emphasison working in partnership with all of these groups toreach solutions on taxpayer issues, and especially toimprove taxpayer education and assistance. Many ofthese groups established communications channels to

millions of taxpayers and are enthusiastic about workingwith the IRS to help their members avoid tax problems.Many taxpayers are also more likely to listen to andtrust information that comes to them from organizationswith which they regularly deal and depend on ratherthan from the IRS directly.

Examples of partnership programs that provideinformation to taxpayers include the following:

• The ABA and IRS produced an interactive educa-tion module for teens for use in high schoolscalled "TAXi" and made it available on theInternet through the IRS Digital Daily website.

• The Banks, Post Office and Library (BPOL)program facilitates distribution of publicationsand forms through participating banks, postoffices and libraries.

• The FY 2000 Small Business Resource GuideCD-ROM, designed as a reference guide for theentrepreneur, was produced and distributed free tothe public in FY 99 as a pilot product.

• Through its Corporate Partnership Program, theIRS made forms and publications available to14.8 million employees through the Intranet sitesof over 2,200 companies.

• The Copy Center Program encourages copycenters to distribute free tax forms. Over 2,900copy centers participate nationwide with supportfrom large chains such as Office Depot, OfficeMax and Sir Speedy.

• Other partnership programs focus on outreach totaxpayers in under-served communities such asthe Newspaper Supplement Program that distrib-utes tax information through local newspapers anda pilot program in the Austin area that provideslaminated tax forms for copying by grocery storecustomers.

The IRS has much to learn about specific taxpayerproblems and concerns from the groups that are inti-mately knowledgeable about the taxpayer’s point ofview. Such an approach is very much in keeping withour guiding principle of “understanding and solvingproblems from the taxpayer’s point of view.” It is also


a way of improving productivity, since a small invest-ment of time and money in supporting a partnershipwith an organization of thousands of members is muchmore efficient than attempting to communicate directlyto individual taxpayers.

The states offer special opportunities for usingresources and improving service to taxpayers.Since most taxpayers deal with at least one state aswell as the IRS, there is a great deal of overlappinginformation providing significant opportunities forreducing the burden on taxpayers.

The IRS and the Montana Department of Revenueare testing a Simplified Tax and Wage ReportingSystem (STAWRS). Upon successful completion ofthe test, Montana employers will be able to takeadvantage of combined federal and state filing.STAWRS reduces taxpayer burden on small busi-nesses by combining into one tax return the infor-mation now contained in the IRS employment taxreturn (Form 941), the Montana withholding returnand the Montana unemployment insurance return.State government partnership programs will enableus to meet our joint mission as tax administrators toreduce employer burden while improving the effi-ciency and effectiveness of government operations.

In order to implement improvements in business prac-tices, the principle of effective partnership must be inte-grated into the basic structure of the organization andbe given sufficient management attention and support.

Tailor practices and strategiesbased on specific taxpayerneeds and problemsJust as companies develop particular products andmarketing programs to reach customers with differingneeds, most IRS business practices offer the opportunityfor dramatic improvement by tailoring them to addressparticular taxpayer needs and problems. These needsand problems vary enormously, as just a few examplesillustrate:

• Individual taxpayers with income reported predomi-nantly by third parties have a much more limited set

of reporting and payment problems than those with business income, but prompt payment of refunds isvery critical to them.

• College students, whose returns can often be filedby telephone, have different service needs andpreferences than senior citizens with retirementincome.

• Large businesses, with extensive international activi-ties, have a different set of tax problems that requiremuch different service than small, start-up businesses.

An IRS working group recently studied taxpayers withonly wage and investment income and identifiedgroups of individual taxpayers with particular circum-stances and needs (Exhibit A). To serve these taxpay-ers effectively, it is essential to understand their particu-lar needs and circumstances and to meet them withappropriate services and programs.

Tailoring IRS services to particular groups of taxpayersis a cornerstone of how we can dramatically improveour service to taxpayers as well as increase productivitywithin the organization. Virtually all IRS services canbe improved using this principle. Pre-filing assistanceprograms, such as customer education, telephone andInternet assistance and publications and forms design,all represent obvious opportunities for more clear andeffective communications. Filing-related programs,such as electronic filing, telephone account assistanceand notices also need to be tailored to suit the needs ofindividual, small business and large business taxpayers.In addition, post-filing compliance programs offermajor opportunities to allocate resources more effec-tively based on knowledge of specific issues affectingtaxpayers in particular industries or business situations.In turn, the post-filing knowledge gained from workingwith taxpayers in examination and collection can beused to develop improved guidance and educationprograms to prevent future problems, thus reinforcingthe problem prevention strategy.

Understanding taxpayer problems and needs and tailor-ing and improving programs to meet these needs is sofundamental to meeting IRS strategic goals that it mustbe a key organizing principle for the way the IRS ismanaged.


Exhibit A: Modernizing America’s Tax Agency

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Apply risk-based complianceintervention techniques

Regardless of how successful the IRS is in preventingtaxpayer errors, it will always be necessary to intervenethrough examinations, collection actions and investiga-tions when noncompliance or nonpayment is found orsuspected to be occurring. Since the IRS has limitedresources, it is essential to apply resources where theywill be of most value in reducing noncompliance, bothin specific cases and in patterns of noncompliance.Strategies that target resources effectively benefit indi-vidual taxpayers by reducing the need to burden thosetaxpayers who comply. For example, the IRS was apioneer in using statistical techniques in selecting taxreturns for audits that were likely to contain an under-statement of tax.

With the advent of many new best private sector prac-tices, the IRS has an important opportunity to use theinformation it has to deploy compliance resources moreefficiently. This is especially the case with respect tocollections, where great progress in developing moreeffective collection techniques and practices has beenmade in both private and public agencies. The provenkeys to effective collections are: (1) to identify aspromptly as possible, using all available information,customers who may present a risk of nonpayment; and(2) to intervene in the most effective way, whetherthrough mail, phone calls or in-person visits, to workout a payment program that addresses that particularcustomer’s payment problem. This helps the customersas well as the collecting agencies, and limits the needfor enforcement actions.

Although risk-based compliance techniques offer greatopportunities for progress on all three of IRS’ strategicgoals, they are dependent upon clear, centralizedmanagement of compliance resources for relativelyhomogeneous sets of taxpayers. In addition, accurate,up-to-date data about taxpayers’ returns and accounts,and modern technology such as constantly updated deci-sion models, telephone dialing equipment that assists theoperator in making calls and collection support systemsare essential. Long-established business practices mustbe modified and updated.

Address willful noncompliance

As the agency tasked with administering and enforcingthe tax laws, the Internal Revenue Service is required todetermine who is not in compliance with their tax-paying responsibilities, and bring them into compliance.The IRS has the authority to impose civil fines andpenalties for delinquent payments and filings and gener-ally pursues civil remedies through its Examination andCollection functions. Civil actions are usually sufficientfor bringing most noncompliant taxpayers into compli-ance. However, there are a small number of taxpayerswho willfully violate the tax code with criminal intent.A Roper survey commissioned by the IRS in June 1999found that 87 percent of Americans feel that it is not atall acceptable to cheat on your taxes. Only eight percentsay it is okay to cheat a little, but three percent thought itacceptable to cheat on taxes “as much as you can getaway with.”

IRS Criminal Investigation (CI) is responsible for investigating criminal tax violations and related financialcrimes in support of the administration of the InternalRevenue Code. CI is the only federal law enforcementagency with the authority to investigate income, exciseand employment tax criminal violations. CI conducts acomprehensive financial investigation and determineswhether sufficient evidence exists to recommend prose-cution to the Department of Justice for willful attemptsto violate the federal tax laws. Criminal penalties aresought only in appropriate matters involving willfulviolations of the tax code.

CI is an essential component of effective tax administra-tion. Over the past decade, the number of cases referredto CI from within the IRS decreased significantly. TheIRS is no longer the largest source of referrals and nowsupplies less than 12 percent of all criminal cases requir-ing investigation. In April 1999, Judge William Websterissued several recommendations following a year-longstudy of the IRS’ Criminal Investigations. JudgeWebster identified in his report that “Examination,collection and CI must reinvigorate the fraud referralprogram...making clear CI’s commitment to tax enforce-ment.” In 2000, the IRS will begin to focus its investiga-tive resources on those cases having the biggest impacton noncompliance with the tax law.


Integrate compliancestrategies

The greatest payoff in progress on all three of IRS’strategic goals will come when all of the improvedbusiness practices can be implemented through effec-tive and integrated compliance strategies. An inte-grated strategy is one in which the needs and problemsof a set of taxpayers are clearly understood and all thetechniques and resources from all the disciplines of theIRS are applied appropriately to solve those problemsover a period of time.

Again, to quote Malcolm Sparrow:

In both Australia and California, renewedattention was paid to service functions, topublic education programs and provision oftimely and well-targeted information. Butattention never wavered from the centralmission of making sure taxpayers paid up, infull and on time. For any particular kind ofidentified noncompliance, the choice betweenusing the ‘service arm,’ and the ‘enforcementarm,’ or something else became a matter ofcrucial professional judgment on which thepublic image and credibility of the agencydepended.

An example of such an approach is the IRS EarnedIncome Tax Credit (EITC) Program. The EITC ishelping millions of lower-income workers, bothwith and without children, make ends meet. In1997, over 19 million workers received creditsworth almost $30 billion. The IRS’ goal is toencourage every eligible taxpayer to claim thecredit. But, the IRS must also work to ensure thatclaims for the credit are accurate while preventingthose who are ineligible from receiving it.

Professional tax practitioners prepare over 60percent of the returns filed with a claim for EITC.To increase the effectiveness of the preparercommunity in servicing their clients, legislation wasenacted which provided that penalties be applied topreparers who fail to diligently determine the

accuracy of the taxpayer information used toclaim EITC.

In order to assist the practitioner community inmeeting its obligations with respect to due diligencein the area of EITC, the IRS developed the EITCPreparer Outreach Program, a strategy of combinedoutreach and compliance checks. Between November1999 and January 2000, Service employees are visit-ing over 10,000 preparers. The employees arediscussing the eligibility requirements for ataxpayer to claim an EITC benefit as well as therecordkeeping requirements for preparers. Duringthese visits, preparers are also receiving an EITCProfessional Kit which contains an overview of theEITC; information on valid identification numbers,eligibility and due diligence requirements and otherhelpful information.

In addition, the IRS has partnered with the twolargest national preparers, H&R Block and JacksonHewitt, which have agreed to provide the necessaryeducation to their own employees and franchisees.They also agreed to change their software to elimi-nate all default answers on the due diligence forms.

While we have yet to determine the compliance bene-fits in tax dollars protected, we feel confident that theimproved customer service will lead to an improvedpartnership between the IRS and the professional prac-titioner community.

Near-Term ImprovementPrioritiesThe development and implementation of integratedstrategies on a large scale depend on having a clearunderstanding of taxpayer problems, an organizationstructure that permits comprehensive addressing ofthese problems, and appropriate performance measuresto encourage and quantify progress.

As is evident from the above examples, there are majoropportunities for progress on all three of the IRS’strategic goals by revamping business practices andstrategies, and there are hundreds of specific actionsthat are required to implement these improvements.


The National Performance Review study titledReinventing Service at the IRS made 295 specificrecommendations and many more have been identifiedfrom other sources. While some of these actions canand are being implemented quickly, the most importantchanges are dependent upon other fundamental changesin the organization, management and technology.

Through a rigorous prioritization process, 157 near-term initiatives to improve business prac-tices were identified in 1999; of these, about halfare mandates. Many of the higher profile initiativeswere implemented or partially implemented in1999, 12 initiatives were added and six expandedfor 2000, as shown on the following pages.


Mak

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Exhibit B-1: Near Term Improvement Priorities

PRODUCTIVITYSERVICE TO EACH

SERVICE TO ALL

LEGISLATIVE (RRA) . . . .52NON LEGISLATIVE . . . . .37

Post-Filing

Filing

14

20

55

Pre-Filing

Improve taxpayer assistance bymeeting demand and increasingaccuracy.

1. Expand telephoneservice to 24 hours aday, 7 days a week.

2. Use call-routing technol-ogy to ensure bettermanagement of phonetraffic.

3. Provide bi-lingualservice on the tele-phone.

4. Provide nationwideaccess to the SERP,Service-wide ElectronicResearch Project.

Increase use of, and offer easy-to-use alternatives to, paperfiling.

1. Implement actions tomandate electronic filing ofForm 1065.

2. Accept alternative methods ofpayment.

3. Increase marketing of all e-file products.

4. Increase electronic optionsfor businesses.

Meet customer demand for fastresponsive account assistanceby telephone.

1. Arrange for each localDistrict Office to publishaddresses and phonenumbers in local telephonedirectories.

2. Complete AutomatedCollection System (ACS)redesign study.

3. Monitor and assess theAtlanta ConsolidatedCall Site Pilot (ACCSP) todetermine if conceptsmerit Service-wide implementation.

Meet demand for walk-in assis-tance.

1. Expand and standardizehours of operation.

2. Improve availability of formsand publications.

3. Ins ta l l Q-Mat ic a t 15addi tional sites.

Simplify notices andcorrespondence.

1. Improve written communica-tions by rewriting notices inplain language.

2. Reduce volume of undeliveredmail.

3. Flatten the notice issuancepattern throughout each year.

4. Include the name, telephonenumber and unique identify-ing number of an IRSemployee on any manualcorrespondence.

Provide specialized products andservices for small businesses.

1. Make technical correc-tion to clarify the smallbusiness exemptionsfrom the corporate alter-native minimum tax.

2. Provide relevant informa-tion to new employerswhen they apply for afederal employer identifi-cation number (EIN).

3. Encourage the use of theEFTPS and STAWRS.

4. Mentor and monitor NewEmployers prototype.

Protect taxpayer rights.

1. Place burden of proof onIRS in certain cases.

2. Expand innocent spouse relief,separate liability election andequitable relief.

3. Limit circumstances inwhich a taxpayer’s resi-dence or business assetsmay be seized.

4. Hold employees responsiblefor identifying any improperconduct affecting taxpayers.

5. Notify the taxpayer when anotice of federal tax lien hasbeen filed.

6. Maintain records oftaxpayer complaints ofmisconduct by individualemployees.

Improve access to problemsolv ing help.

1. Expand the circumstances underwhich the Taxpayer Advocatemay consider issuing a TaxpayerAssistance Order.

2. Create Citizen’s AdvocacyPanels.

3. Inform public about theTaxpayer Advocate andpublicize the TaxpayerAdvocate’s toll-freenumber.

4. Hold local Problem SolvingDays (PSDs) at least throughApril 1999. Institutionalize PSDsinto daily operations.

Identify systemic causes ofaccount problems and developsolutions.

1. Address systemic causes ofAudit Reconsiderationissues by:

A) Revising statutory noticeprocessing.

B) Reducing processingdelays.

2. Obtain access toFinancial ManagementService’s CheckInformation.

3. Implement Non-MasterFile (NMF) action plan.

4. After December 31, 1999,authority is given to extend10-year collection period incertain circumstances.

SERVICE TO EACH TAXPAYERPr

ovid

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Prom

pt, P

rofe

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Help

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reat

men

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ayer

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Add

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(Pos

t-Fili

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37

31 89

■ = Completed ■ = Partially Completed

Broaden taxpayer paymentoptions whenever appropriate.

1. Allow taxes paid by check ormoney order to be madepayable to the United StatesTreasury.

2. Offer credit cardpayment for balancesdue. Seek credit industrypartners to pilot testcredit cards for taxpay-ers who file electroni-cally in 1999.

3. Test Direct Debit InstallmentAgreement improvements(option to exclude “user fee”with direct debit of payments).

4. Change offer in compro-mise procedures toreduce taxpayer burden.

8937

31



Incr

ease

Fai

rnes

s of

Com

plia

nce

PRODUCTIVITY

SERVICE TO ALL

SERVICE TO EACH

LEGISLATIVE (RRA) . . .22NON LEGISLATIVE . . . . . 9

Increase Compliance

25

7

Increase Fairness

SERVICE TO ALL TAXPAYERS

Incr

ease

Ove

rall

Com

plia

nce

Pursue penalty reform.

1. Reduce the FTP penalty by 50% for individuals who timelyfile returns and pay by installment agreements.

2. Redesign all penalty notices and train Exam, Collection andCustomer Service employees on who is authorized toapprove initial assessments.

3. Investigate the appropriate level for penalty abatement viatelephone.

4. Send a letter to business customers who havemade first-time deposit errors to tell them thepenalty has been waived and how to avoidmistakes in making their next deposit.

Improve and increase use of “upstream” education and delin-quency prevention techniques.

1. Award matching grants up to $100,000 per year todevelop, expand or continue qualifying low-income taxpayer clinics.

2. Provide proactive education to taxpayers to inform them ofpotential issues that could create delinquent tax situations.

3. Improve the EITC program by implementing the EITC actionplan, which includes: education, communication and assis-tance, prevention and identification, research and math errorprogramming for secondary TIN, age-related checks, etc.

Ensure appropriate, fair and consistent use of complianceresources.

1. Develop and implement an approval process underwhich any lien, levy or seizure is approved by asupervisor.

2. Determine a minimum bid price below which theseized property must not be sold.

3. Establish a sunset date of 180 days for notices ofintent to levy.

4. Revenue officers shall determine there will besufficient net proceeds from the sale to apply tounpaid tax liabilities.

Use research to identify potential areas of noncompliance anddevelop effective treatments.

1. Each year, conduct an analysis of the sources of complexityin administration of the federal tax laws.

2. Design a national compliance survey as an effectivealternative to TCMP.

3. Continue to develop and refine alternative treatment revenue(ATR) methodologies to measure the effectiveness of non-enforcement compliance initiatives.


8931

37



Incr

ease

Em

ploy

ee J

ob S

atis

fact

ion

SERVICE TO ALL

SERVICE TO EACH

LEGISLATIVE (RRA) . . .8NON LEGISLATIVE . . . . .29

IRS Reorganization

31

6

Increase

Employee Job

Satisfaction

Ensu

re S

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of IR

S St

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and

Man

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Mai

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a S

tabl

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orkf

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Provide tools and training to enhance customerservice.

1. Submit a comprehensive customerservice employee-training plan toCongress.

2. Provide adequate number of telephone, faxand e-mail capabilities at each post of duty.

3. Create a training module on customer servicefor all functional areas.

4. Develop procedures to include user-friendlyjob aids as part of IRM 2100 to assist front-lineCustomer Service employees.

5. Provide electronic research tools to front-lineemployees.

6. Use capabilities of Performance DevelopmentSystem (PDS) to assess competencies anddetermine training needs.

Improve service by reorganizing and refocusing along customersegments.

1. Reorganize the IRS by establishing organizational unitsservicing groups of taxpayers with like needs.

Create an IRS culture that values employ-ees and rewards top quality service.

1. Prohibit the use of records of taxenforcement in evaluating employees.

2. Revise IRS mission to focus ontaxpayer needs.

3. Establish, as a standard prac-tice, that all executives oversee-ing taxpayer contact functionswill interact with taxpayers on aregular basis.

4. Use internal and external feedbacksystems to improve culture by:

A) Improving customer feedback.B) Implementing tests in 4-8 field

offices to improve operationsbased on customer satisfactionsurveys.

C) Implement customer satisfactionmeasures.

Measure progress and performance against a balancedmeasurement system.

1. Develop a balanced measurement system thatmeasures customer service, employee satisfaction andbusiness results by:

A) Aligning all IRS review systems (e.g., businessreview, peer review, etc.);

B) Aligning critical elements of personnel stan-dards into a balanced measures approach;

C) Aligning the balanced measurement systeminto the modernized IRS.

2. Develop and implement a Centralized Quality ReviewSystem to improve quality measures and providebetter feedback to CSRs and managers.

Provide a quality work environment.

1. Establish a new workforce perfor-mance management system.

2. Replace existing workstations asrequired by the National Workspaceand Occupancy Standards.

3. Increase top grade level forcustomer service representa-tives.

4. Change and continuously improvesupervisory practices to enhanceemployee satisfaction at call centers.

5. Implement enhancements to e-mailand VMS.

PRODUCTIVITY THROUGH A QUALITY WORK ENVIRONMENT

PRODUCTIVITY



Exhibit B-4: Potential Expanded or New Near TermImprovement Priorities

NEW OR EXPANDED

New

New

New

Expanded

Expanded

New

Expanded

New

Expanded

New

New

New

Expanded

Expanded

New

New

New

INITIATIVE

SERVICE TO EACH

Develop a viable proposal to include a POA (or other appropriate representational designation) check box on Form 1040.

Rollout of oral Taxpayer Information Authorization (TIA).

Test placement of "stuffers" on local Problem Solving Days in fourth notices from Collection.

Expand Spanish walk-in service to multi-lingual walk-in service via contracted telephone translation support.

Implement ACS redesign recommendations.

Address outstanding issues from the latest NTA "20 Most Serious Problems." The first issue to address will be misapplied payments/unapplied payments. Perform a study to determine the scope of work required and current trends on this issue.

Institutionalize two components of Problem Solving Days within normal operations—taxpayer appointments and cross- functional teams. Recommendations from the current task force will likely expand scope and resource requirements for institutionalizing effort.

Small Business Employment Tax Deposit proposal. Ease the burden on small business employers by increasing or easing the existing criteria for quarterly depositors.

Create a Small Business Transition Office (SBTO) to continue and expand specialized products and services for small businesses—e.g. Small Business Resource Guide (CD-ROM), partnerships with SBA and other agencies, EFTPS support, FEIN projects, STAWRS support, new employers prototype, Web site products, etc.

Coordinate with Small Business Development Centers (SBDCs). Use the over 1200 existing SBDCs as platforms for outreach programs to small businesses.

Oversee and migrate approved Small Business lab projects (Pacific/Northwest District) for implementation and/or integration to Small Business/Self Employed operating division. Lab projects will be approved and tracked using TSI process.

Small Dollar Notices. Conduct a study to determine the viability of sending notice of balance due amount but waiving payment in cases of small dollar notices. Examine situations where the costs of collection are greater than the balancesdue (defined by a to-be-determined tolerance level).

Convene team of field personnel to review new IRM 2100 to identify issues and suggest improvements.

Make progress on notice redesign including measurement of quality and accuracy from taxpayer’s perspective. Conduct focus groups to obtain taxpayers’ points of view on quality of IRS notices.

SERVICE TO ALL

Implement approved recommendations from the "Reducing Burden National Task Force." Potential items include:- Provide quality service during an audit by taking responsibility for a taxpayer’s existing IRS account problems- Expand business hours of audits.

Conduct initiative to combat corporate tax sheltersConduct initiative to combat abusive trusts

PRODUCTIVITY THROUGH A QUALITY WORK ENVIRONMENT

Reduce administrative burden on managers. Managers need to spend more time involved in case work and in mentoring and coaching employees.

Provide tax preparation assistance for lower graded employees at the service centers (GS3s, GS4s…).


Exhibit C: IRS Current Organizations

IRS

Org

aniz

atio

n 1

998

(Sim

plif

ied

)

IV. Business Practices and Strategies · of improvement in business practices in a modernized IRS....

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