January 2000

IRS Deputy Commissioner Discusses Restructuring

Four "Stovepipe" Divisions Under Way

By James L. Craig, Jr., CPA

The IRS is about to be transformed from an octopus-like creature, with 33 districts each serving the full range of taxpayers in a geographic region, to a four "stovepipe" concept, with each of four new operating divisions serving a unique category of taxpayers. Deborah M. Nolan, CPA, deputy commissioner of the soon-to-be-operational Large and Medium-size Business Division, gave some insights into the restructured IRS to CPAs attending the NYSSCPA Annual Tax Plenary Session in November, chaired by Steven S. Goodman and Avery E. Neumark.

"Our division will be responsible for the tax filings of approximately 200,000 businesses with assets of $5 million or more, which pay approximately $519 billion in federal taxes," Nolan said. "A major objective will be to help these entities file the correct tax return in the first instance. We plan to be out there with them, on a proactive basis, to resolve issues before the returns are filed."

Nolan said that her division will encourage taxpayers to resolve controversial items in prefiling conferences. She indicated that her division will be based in Washington, D.C., but will have industry-specific offices in other locations. Heavy manufacturing, construction, and transportation will be based in New Jersey; retailers in Chicago; financial services and health care in New York; natural resources in Texas; and communications and technology in California.

The other IRS operating divisions are Exempt and Government Entities (approximately 1.5 million filers), Small Business/Self-employed (40 million filers); and Wage and Investment (88 million filers). The latter division will handle the W-2, 1099-based returns of individual taxpayers. The IRS's timetable calls for the four divisions to be fully operational by August 2000.

Nolan expects the transition to be transparent and seamless. The focus will be on the taxpaying entity--the customer--and the emphasis will address individual needs. Funds have been made available to bring industry executives into the program for the initial start-up, to remain for up to two years. Thirty-one executive positions, with salaries as high as $175,000, have been authorized to attract industry talent.

Prior to Nolan's address, NYSSCPA member Robert Goldstein chaired a panel discussion on the restructuring, which has its origins in the 1998 IRS Restructuring and Reform Act. Charles R. Baugh, IRS district director for Manhattan, and Steve Burgess, assistant district director for Brooklyn, gave insights on the changes under way and the institutional desire for better service by IRS people that know the issues and have the authority to act. In addition to the four operating divisions, there will be functional divisions (counsel, appeals, taxpayer advocate service, and criminal investigations). A concern expressed during the panel discussions was how an entity with issues that affect more than one operating division will interface with the IRS.

Nolan views the restructuring with enthusiasm. It is an integral part of transforming the IRS into a world-class organization, operating in an environment of fairness and integrity, she said. She closed by expressing the goals of IRS Commissioner Charles O. Rossotti: "service to each taxpayer, service to all taxpayers, and service to the public." *