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Rossotti's new reorganizational chart.

The American public is set to vote in Congressional and state elections this month. Regardless of the outcome of these elections, Social Security reform and tax cuts will remain national policy issues when Congress reconvenes in January 1999. It is not likely that Congress will reopen its investigation of the IRS and its tax collection practices when legislators return in January. Nevertheless, IRS Commissioner Charles Rossotti will continue his busy pace of implementing the IRS Restructuring and Reform Act as signed into law by President Clinton several months ago. The Commissioner is also busy at the same time implementing his own reorganization plan for the agency.

In recent months, Rossotti has announced the appointments of a new national taxpayer advocate and two Deputy Commissioners. Commissioner Rossotti has announced the promotion of Bob Wenzel to the position of Deputy Commissioner for Operations. Wenzel was previously the Chief Operations Officer for the agency. The Deputy Commissioner position for Modernization has been filled by John LaFaver, formerly the Kansas Secretary of Revenue. Rossotti has named W. Val Oveson as the new National Taxpayer Advocate. Mr. Oveson is formerly the Chairman of the Utah State Tax Commission.

With these appointments in place, Rossotti believes he is laying the groundwork for making the IRS more customer friendly and more efficient from an administrative perspective. Commissioner Rossotti is set to reorganize the staff of the agency along four distinct operating divisions, such as wage and investment income, large businesses, small businesses and the self-employed, and tax-exempt organizations. Proponents of Rossotti's reorganization plan compare the Commissioner's vision (for the agency's 102,000 employees) with a reorganization plan implemented by the Australian tax agency.

According to the August 31, 1998 edition of Barrons, Rossotti has openly criticized the current IRS setup of 10 regional service centers. In discussing Rossotti's concerns, Barrons states "It's not unknown for the service centers to interpret tax laws differently, which is especially nettlesome for huge corporations with subsidiaries or divisions reporting to more than one region."

The Commissioner told Barrons that the wage and investment income division will handle 14 million tax returns, the bulk of which are relatively simple and which are filed once a year. Eighty percent of the returns received by this division are expected to receive refunds. These returns principally represent individual taxpayers who are receiving W-2s and 1099s.

A second division, the one handling small business and self-employed taxpayers, will interact with about 40 million filers. Rossotti has been quoted as stating this segment is a "huge section of the economy and in terms of cash flow to the IRS . . . It's almost half the total cash that comes in."

Barrons points out that Rossotti recognizes small business persons interact with the IRS nearly 10 to 20 times more frequently that taxpayers in the wage and investment income division category. This is because small business and self-employed taxpayers are more apt to have a lot of paperwork problems, according to Barrons. Rossotti acknowledges "A lot of people who complain to [Congress] are people in this category. And we [the IRS] are really not well organized to deal with these people."

A third division, based on Australian model, is scheduled to deal with the nation's 80,000 largest U.S. corporations. As stated above, the last division under Rossotti's reorganization chart will handle returns from tax-exempt organizations.

The Commissioner's reorganization chart is designed to change the IRS' internal culture from one which rewards tax collection procedures to one that is more customer service oriented. Rossotti does recognize, however, that the internal culture of the IRS will not change unless new employee performance standards are implemented.

IRS Official Claims There Will be No Increase In Audits Resulting from IRS Reform Act

At a recent meeting before the American Bar Association, IRS Assistant Chief Counsel Deborah Butler stated that the IRS is not planning to step up the pace of audit examinations in response to the burden of proof provision contained in the new IRS Restructuring and Reform Act. Ms. Butler informed meeting participants the IRS has already told Revenue Agents and Field Attorneys that the scope of audit examinations will not change significantly in most cases.

Under the IRS reform law, the burden of proof shifts to the IRS for any court proceeding involving a factual issue in which the taxpayer has introduced credible evidence pertaining to that factual issue and as long as the evidence is relevant to determining the taxpayer's income tax liability. In order for the burden of proof to be on the IRS, the taxpayer must: (1) comply with the tax law and regulations relating to substantiation of items on the return, (2) maintain proper books and records, and (3) comply with reasonable requests by the IRS for meetings, interviews, documents, and so forth.

In reality, Ms. Butler may be saying indirectly that she does not believe there will be a shift in the burden of proof in very many cases. This is because the IRS reform law requires the taxpayer to "cooperate" with the IRS in order for there to be a shift in the burden of proof to the agency. Along these lines, Butler told the ABA that IRS employees will be monitoring taxpayer cooperation carefully. A recent issue of the BNA IRS Practice Advisor reports that IRS field employees will be documenting the level of cooperation by taxpayers. The IRS Practice Advisor stresses the fact that the new law imposes the responsibility on taxpayers of producing credible evidence and of substantiating claims.
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Title Annotation:IRS Commissioner Charles Rossotti's enforcement of the IRS Restructuring and Reform Act and restructuring plan for the agency
Author:Goldstein, Benson
Publication:The National Public Accountant
Date:Nov 1, 1998
Previous Article:Client report.
Next Article:Long-term care insurance taking advantage of member benefits.

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