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The nation's tax agency is finally putting the "service" back into Internal Revenue Service. With a new commissioner at the helm, the IRS is taking a number of administrative steps to reform itself--including measures that take the specific needs of small businesses into account.
Some lawmakers, however, remain skeptical; they say only tough legislative changes will do the trick. IRS Commissioner Charles Rossotti says he supports legislative changes as well, but he maintains the agency is instituting many reforms that are bringing about immediate improvements--including 100 actions implemented to honor commitments made during the Senate hearings on IRS abuses held last year. "We are not just tinkering at the margins here," says Rossotti. "We are effecting fundamental change."
Change Is In The Air
Here are some of the improvements the IRS has made so far:
- Taxpayer problem-solving days. The IRS now provides taxpayers with an opportunity to meet with IRS personnel to resolve complex tax problems on specific days designated by the agency. As of mid-January, IRS employees had met face-to-face with more than 16,200 taxpayers nationwide. In addition, the agency opened district offices on Saturdays during the busiest weekends of the filing season. Rossotti notes that customer satisfaction surveys distributed at one of these Saturday sessions last year indicated that taxpayers were "extraordinarily pleased with the quality of the service they received."
- Better training for IRS personnel. The agency has held several videoconferences with employees to discuss lessons learned from the Senate hearings. It has held focus group interview sessions with more than 2,000 employees to get feedback from them on what they see as barriers to proper treatment of taxpayers and how to improve. According to Rossotti, the IRS is also training its personnel to treat taxpayers "fairly and courteously."
- Doing away with revenue goals. After the Senate hearings, the IRS stopped ranking the 33 district offices and 10 service centers based on revenue and enforcement results. It also no longer issues these kinds of performance goals to regions, districts and service centers. New procedures now require more senior levels of approval for seizures of taxpayer property. (For more on this subject, see "Tax Talk," April.)
Vice President Gore recently announced some IRS initiatives as well, several of which are designed specifically to make life easier for entrepreneurs. One change allows small-business owners to use a system called 941 TeleFile to file their quarterly Form 941 payroll returns via telephone. Similar to the TeleFile system for individual returns, 941 TeleFile is free, paperless and automatically calculates the taxes owed.
In addition, the Pacific Northwest district office in Seattle is serving as the first IRS small-business laboratory. The lab will test new approaches designed to lessen the burden of tax filing for small businesses. If successful, the strategies will be extended nationwide.
Rossotti's plans for the agency's future include a reorganization of its administrative structure to make it more accountable to taxpayers. He hopes to set up four separate units at the IRS, each designed to serve the needs of a particular group of taxpayers.
One unit would be devoted to individual taxpayers with only wage and investment income; another would be for small-business owners, including sole proprietors and small-business corporations; a third unit would cover larger businesses; and the fourth would be devoted to the tax-exempt sector, including employee plans, exempt organizations, and state and local governments.
The IRS estimates that there are about 25 million small-business filers. "This group has much more frequent and complex filing requirements, and pays much more money directly to the IRS, including tax deposits, quarterly employment returns and many other types of income tax returns and schedules," says Rossotti.
Marvin Michelman, director of IRS practice and procedure for the New York City office of Deloitte & Touche LLP, adds, "Creating a structure that is geared toward small business is going to be very helpful because you will have a whole division within the IRS dedicated to helping small-business owners."
The IRS also hopes to encourage more taxpayers to file their tax returns electronically. Although there is still some paperwork involved (taxpayers have to sign and mail a Form 8453-OL, which authenticates the electronic transmission, and mail W-2 forms and other supporting documents), electronic filing is expected to help speed the agency's work and lower the chances of error. The 18 percent error rate on paper tax filings falls to less than 1 percent on electronic returns. Filing electronically also means faster refunds. The IRS says taxpayers usually receive their refunds within 21 days if they file electronically--half the time it takes with the traditional filing method.
Eventually, all businesses will be encouraged to file electronically. Vice President Gore recently announced the creation of a special 10-to-12-member advisory group to help plan a strategy for making paperless filing the most convenient method of filing tax returns. The agency is looking for advisory group member nominations from private and public interest groups such as employers, tax software developers, small and large businesses, and individual taxpayers.
Someone On Your Side
Another way the IRS is staying in touch with taxpayers is through its Office of Taxpayer Advocate. The office, which replaced the Office of Taxpayer Ombudsman, is charged with protecting taxpayers' interests in disputes with the IRS. In fiscal year 1997, the advocacy office helped more than 237,000 taxpayers solve their tax complaints, according to the IRS.
Some complaints involve collection situations, says Michelman. "If the agent is asking the taxpayer to pay more than he or she can afford and it's not possible to arrive at a solution, the taxpayer advocate will attempt to work out a more equitable payment arrangement or [make] an offer of compromise," he explains. Under the law, the advocate's rulings can only be overturned by the IRS commissioner or deputy commissioner.
In addition to helping resolve disputes, the advocacy office is charged with providing an independent report to Congress each year identifying the most significant problems facing taxpayers and ways to address those problems.
To further assist taxpayers, the agency is also increasing the National Office of Problem Resolution's staff size by one-third and is conducting a workload review to determine what additional resources are needed in field offices.
For some, the changes the IRS has made so far aren't nearly pervasive enough. Senate Finance Committee Chairman William V. Roth Jr. (R-DE) responded to these latest initiatives by saying, "Legislation needs to go beyond `Reinventing Service at the IRS.' I intend to reinvent the IRS as a whole."
Last year, the House made strides toward that goal by passing a bill that would revamp the IRS and expand taxpayer rights. (For details on the House bill, see "Tax Talk," January.) In May, the Senate passed an IRS reform measure that is more costly and extensive than the one the House passed.
Skepticism may abound, but some observers still believe the IRS is taking important steps toward improvement. Says Michelman, "I am very impressed with the efforts. The IRS recognizes that, now more than ever, helping the taxpayer is the best way to go."
While the IRS has made a number of important changes, a good deal remains to be done. "Just as the problems of the IRS took a long time to develop, it's going to take a great deal of time and effort by all of us to build the kind of IRS the taxpayers deserve," says Treasury Secretary Robert E. Rubin. "There are no quick fixes or easy solutions, but dramatic change is an absolute necessity."
Joan Szabo is a writer in McLean, Virginia, who has reported on tax issues for more than 12 years.
To stay current on all the changes taking place at the IRS, visit the IRS' Web site at http://www.irs.ustreas.gov