LMSB realignment.

Editor's note: Mr. Ely is the former chair of the AICPA Relations with the IRS Committee. Messrs. Dougherty and Taylor are members of the IRS Practice and Procedures Committee.

LMSB Realignment

In 2000, as part of its modernization effort, the IRS reorganized the Large and Mid-Size Business Division (LMSB) along industry lines. It intended to improve taxpayer customer service by grouping revenue agents (RAs) by industry "expertise." While the Service's new approach has been partially successful, it needed further modification to achieve its original objectives. Thus, starting in October 2002, the IRS reorganized the LMSB to have a geographic focus, while still maintaining much of the industry alignment.

Industry Focus

Organization along industry lines encourages identification of common issues and helps the IRS develop guidance for use nationwide. Further, it promotes uniformity and consistency in how the Service treats taxpayers within the same industry.

In 2000, the IRS arranged the LMSB into five industries:

* Communications, Technology and Media;

* Financial Services, Professional and Scientific;

* Heavy Manufacturing and Transportation;

* Natural Resources and Construction; and

* Retail, Food, Pharmaceutical and Healthcare.

Industry Directors (ID) lead each industry, supported by Directors of Field Operations, Senior Industry Advisers, Territory Managers, Team Managers and RAs. The RAs were assigned to a particular industry; attempts were made to delegate cases along those lines. Territory and Team managers were also allotted cases based on the same principle.

Obstacles

The industry-alignment approach posed several problems. First, the Territory Manager assigned to a particular examination did not always work in the same city as the Team Manager, who, in turn, might have been in a city other than that of the RA. This was further exacerbated when Field Specialists were involved. As a result, high travel costs and inefficiency were incurred to manage and staff cases in a particular industry. Further, for any given case, Territory Managers had to supervise and coordinate IRS personnel from too many different locations.

Another obstacle was the apparent inability of LMSB teams to work on priority cases in the division as a whole, rather than on an industry-by-industry basis. Ideally, the teams would want to tackle high-risk cases first. However, under the industry approach, low-risk cases had priority, when they were the only ones available in the locale that were also in the RAs' assigned industries. Some offices could have a substantial number of high-risk cases in a particular industry, but might not have anyone in that industry and geographic area to work on them.

A third obstacle involved personnel matters; RAs within the same office could work for several different managers, triggering numerous problems. For example, each manager established his or her own personnel policies, resulting in inconsistencies and conflicts of interest. There was a declining sense of "team" within a post of duty (POD). Further, union representatives were delegated to particular geographic areas; thus, Territory Managers had to coordinate with multiple representatives on personnel issues, resulting in inefficiencies and difficulties.

New Approach

The IRS recognized that it could be more efficient by reorganizing the LMSB along both industry and geographic lines. The new alignment can be described as having a geographic focus with many Industry Specialization Program issues. The field offices are primarily allied geographically, but IDs provide guidance on specific issues. Almost all of the current territories are affected by the change.

Some teams and territories are now grouped into different industries depending on the need in a particular geographic region. In the past, 58 PODs touched on multiple industries. Now, only 16 do, while the other 42 PODs are aligned with only one industry.

Under the new organization, IDs could have two roles depending on the nature of a case: "line authority" ID or "industry aligned" ID (or both). If an ID is responsible for managing a case, he or she would play the line-authority role. If, on the other hand, the ID controls the case's industry issue, he or she would be an industry-aligned ID. When the ID manages the case and the issues are within his or her industry, he or she would play both roles.

IDs determine the proper level and/or type of engagement. The line-authority ID communicates to the team and all intermediate management levels, any decisions made on an engagement. If the industry-aligned ID becomes engaged by the team, he or she must have the line-authority ID's concurrence.

To ensure consistency, the line-authority ID follows issued guidance and considers emerging issues of the industry-aligned ID, absent any compelling reason to the contrary. The line-authority ID has final decision-making authority. However, decisions can be appealed to the Division Commissioner or Assistant Division Commissioner, but only rarely.

Benefits of New Alignment

The reorganization allows managers to make decisions faster, because they are located in close proximity to RAs working on the same case and can more easily respond to issues. Territory Managers and the teams should be able to work more closely at less cost. The new structure also facilitates assignment of the "next best case," regardless of industry. Despite the change, the LMSB still has an industry emphasis, which ensures that issues are handled consistently and fairly throughout the country.

Conclusion

Achieving a balance of efficiency and effectiveness is a difficult task for any organization; often, one is sacrificed for the other. However, in combining a geographic and an industry focus, the LMSB can achieve a fine balance of the two approaches.

FROM JIM DOUGHERTY, DIRECTOR, AND RONA FAUST, SENIOR MANAGER, TAX CONTROVERSY, DELOITTE & TOUCHE LLP, WASHINGTON, DC

Mark H. Ely, J.D., CPA
Partner
Washington National Tax
KPMG LLP
Washington, DC