Tax Executives Institute-Internal Revenue Service Liaison Meeting Minutes.

February 9, 1999

On February 9, 1999, Tax Executives Institute held its annual liaison meetings with officials of the Internal Revenue Service. The agenda for the meeting was published in the January-February 1999 issue of The Tax Executive. The minutes of the meeting, which have been reviewed by both the IRS and TEI, are printed below.

On behalf of the Internal Revenue Service, Commissioner Charles O. Rossotti welcomed TEI President Lester D. Ezrati and the other members of the delegation from Tax Executives Institute to the liaison meeting. The IRS's and TEI's delegations to the liaison meeting are set in the accompanying box.

Opening Comments

On behalf of the Institute, Mr. Ezrati thanked the Commissioner for meeting with the Institute and invited the IRS's own questions and comments on how the Institute can interact more effectively with the agency. He thanked the Office of Public Liaison for its assistance in preparing for the meeting.

Referring to the ongoing efforts to restructure the IRS, Mr. Ezrati stated that the Institute looks forward to working with the IRS within its new structure by building upon its past relationship. He explained that TEI representatives have recently assisted the IRS on projects relating to the role of specialists in the examination process and conflict resolution training. Turning to the guidance process, he commended the IRS for recent guidance concerning the conversion to the euro and the deductibility of Year 2000 conversion costs. He singled out the IRS's Advance Pricing Agreement (APA) program as a paradigm for resolving disputes. The IRS can do more, he stated, to resolve audit issues in a timely fashion by expanding the APA concept to other areas.

Mr. Ezrati referred to the IRS's restated mission: "[T]o provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities with integrity and fairness to all." Although the Institute recognizes that recent legislative changes were aimed primarily at individual taxpayers, he concluded, business taxpayers should be included within this mission.

Commissioner Rossotti stated that the most important word within the IRS now is "change." Although the IRS must not forgo its mission to collect taxes, it also must expand its concept of service to taxpayers -- all taxpayers. The IRS is rethinking the way it works with taxpayers, the Commissioner stated, at the same time that it continues its more traditional technical activities. He asked for patience because the changes will take time. It is a daunting task, he remarked.

Commissioner Rossotti noted that one of the agency's initiatives is the revision of the IRS's performance measurements. The IRS recently held a two-day training conference with the agency's leadership on establishing a balanced measurement system, he said. In addition, the IRS is gearing up to replace its computer system, having just awarded a prime contract to Computer Sciences Corporation.

Mr. Ezrati expressed the Institute's support for the IRS, referring briefly to TEI's role in the recent restructuring legislation. The Commissioner thanked TEI for its involvement, adding that the Institute assists in two ways, Commissioner Rossotti stated. It communicates with a significant group of taxpayers and provides guidance to the IRS on administrative matters.

Mr. Ezrati referred to three major issues facing the IRS: the restructuring initiative, including its effect on the APA program, the Appeals function, and the role of Counsel; the need for post- INDOPCO guidance; and reducing taxpayer burden and complexity. How can TEI help? he asked.

IRS Restructuring and Reform

1. Formation of IRS Operating Divisions. Mr. LaFaver explained that the IRS has undertaken a fundamental restructuring of an agency with more than 100,000 people that collects $1.5 trillion annually in revenues. We have not found a case study of a larger reorganization, he added. From the outset, he continued, the IRS has recognized that this is not an academic exercise; the restructuring is designed to provide better customer service. We need to talk with taxpayers, Mr. LaFaver said, and we are looking from the outside in, not from the inside out. The IRS is actively reaching out to organizations such as TEI to assist in the process, he stated, adding that TEI representatives have contributed to several IRS design teams. The decision concerning the location of the four operating divisions is an important first step in moving toward the new structure, he concluded. Commissioner Rossotti expressed his appreciation to TEI for meeting with several of the teams.

   Mr. LaFaver briefly outlined the decisions made concerning the location of the four operating divisions: the Wage and Investment Division will be in Atlanta; Small Business/ Self Employed Individuals in New Carrollton, Maryland; Middle Market/Large Corporate in central New Jersey; and Tax Exempt Organizations in Washington, D.C. The final blueprint for the reorganization will be announced on April 15, he stated. One objective is to move as few people as possible, he added. IRS design teams are currently working through the details of each segment, Mr. LaFaver continued, and we need to ensure that the final alignment makes sense. He emphasized the need for clear lines of authority and communications.

   The implementation of each segment will not be done all at once, Mr. LaFaver said. The plan for the roll out is currently under construction and will be ready within two months. The IRS intends to have the first two operating divisions -- Tax Exempt Organizations and Middle Market/ Large Corporate -- in place by the end of the year. The agency is currently recruiting for the leadership of these two units. After the year 2000 filing season, the IRS will roll out the remaining two operating divisions, he said. The leadership for these two units, however, should be in place by summer 1999. Commissioner Rossotti remarked that eventually some individuals in the National Office will be reallocated to the operating divisions. This transition will not, however, happen this year.

   Mr. LaFaver stated that the Coordinated Examination Program (CEP) fits neatly within the Middle Market/Large Corporate Division. We hope to have the reorganized unit up and running by October 1, he stated, adding that there are some issues to be resolved in the placement of revenue agents at the GS-12 and GS-13 levels.

   Mr. Murphy remarked that the Institute looks forward to working with the IRS during the transition. Mr. Brown noted that the IRS is particularly conscious of the need for clear lines of control over the audits during the transition. CEP taxpayers will always know who is in charge, he promised. Mr. LaFaver added that teams currently involved in audits will remain until the audit is completed.

   Commissioner Rossotti explained that the IRS is emphasizing...