Tax Executive Institute-Internal Revenue Service liaison meeting: minutes November 19, 1996.

Minutes November 19, 1996

On November 19, 1996, Tax Executives Institute held its annual liaison meeting with the Commissioner of Internal Revenue and other senior officials of the Internal Revenue Service's National Office. The agenda for the meeting is reprinted in the November-December 1996 issue of The Tax Executive. The minutes of the meeting, which have been approved by both the Institute's delegation to the meeting and the IRS, are reprinted below.

Opening Comments

On behalf of the Internal Revenue Service, Commissioner Margaret M. Richardson welcomed TEI President James R. Murray 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 forth in the box on the following page.

The Commissioner thanked the Institute for scheduling the meeting and said she looked forward to a productive exchange of ideas and views. She also expressed the tax agency's appreciation for the support that TEI had provided, especially during the past year. The Commissioner said that the previous year had been a challenging and exciting one for the IRS, stating that despite the external distractions, the IRS had experienced a productive year. She said that the IRS was continuing to deal with the consequences of its recent reorganization and had faced a good deal of analysis over how it can be more productive. She added that the budget picture would not change materially and, accordingly, the IRS would continue to seek out ways to be more efficient. As always, she added, Congress and the IRS needed to take a hard look at the agency's priorities. She said that it was critical that a proper balance be struck between taxpayer service, compliance and training. If the IRS is to do its job, she said, it is critical that it have well-trained, well-equipped personnel.

The Commissioner explained that the entire government had come under pressure to contract government services and that the IRS had not been immune to that pressure. She said that the IRS's pilot project on contracting out collection services had been extended by Congress, adding that it was really too soon to draw any conclusions from the pilot. (She said the details of the second pilot had not yet been put together, noting that the pilot would be administered by the Department of the Treasury.) She elaborated that the IRS was also evaluating the outsourcing of processing services.

Turning to the budget picture for fiscal year 1998 and beyond, the Commissioner predicted that the IRS's budget would not be much better than it had been. The Commissioner said that the IRS needed to address how best to operate in an environment of shrinking budgets. She emphasized that the IRS wanted to be viewed as part of the solution, not part of the problem. She acknowledged with regret that the IRS budget is viewed as a "spending program," and made specific reference to recent IRS compliance initiatives. The Commissioner continued that the IRS had served more taxpayers during the past year -- by telephone, by the Internet, by person-to-person contact. She then invoked the maxim that "it takes money to make money."

The Commissioner briefed the Institute on the IRS's specific productivity increases, including the success of its TeleFile program whereby three million taxpayers filed by telephone. She said that the IRS wanted to build upon its success and would expand the TeleFile program to all Form 1040 E-Z filers. As for the IRS's experience with the Internet, the Commissioner said that the IRS's home page had been very well received. She noted that comments on proposed regulations could be filed via the Internet and that this new avenue of citizen-to-government contact had spawned numerous comments from "untraditional" sources.

As for the National Commission on Restructuring the Internal Revenue Service, the Commissioner acknowledged TEI's testimony before the group and expressed the IRS's appreciation for the Institute's balanced comments. (The Commissioner serves as an ex officio member of the Commission and was present when the Institute testified before the group on November 8.) She said that the National Commission had many areas of focus and that it was too early to know precisely "where it's going."

Following the Commissioner's opening remarks, Mr. Murray responded that TEI was very pleased to be holding the liaison meeting. He thanked the Commissioner and the other IRS officials who were present for the time they had taken in preparing for the meeting. He said that TEI fully understood the myriad challenges that the IRS was facing, adding that many of the challenges ("doing more with less") were identical to those faced by the business community. Mr. Murray said that the Institute empathized with the IRS's situation. He then commented that TEI was astonished by the frequency and tone of political statements about "pulling the IRS out by the roots." He characterized such comments as inappropriate and said they easily could do more harm than good. He then reiterated the Institute's support for the IRS's modernization efforts and for its training initiatives.

Mr. Murray reported that TEI had reconsidered its own organizational structure in light of the IRS's reorganization, and had realigned its chapters and regions in a way that should facilitate liaison activities between the Institute's local chapters (and regions) and the IRS's streamlined field structure. TEI's new organizational structure will go into effect in August of 1997, he said.

Mr. Murray referred to his testimony before the National Commission on Restructuring the IRS, generally complimenting the IRS National Office for its Coordinated Examination Program (CEP) initiatives. He said that the IRS had done many positive things in recent years, but added that taxpayers were frustrated about the uneven implementation of initiatives in the field. He said another major issue that the Institute wanted to address during the liaison meeting was growing taxpayer concern about the IRS's approach to capitalization issues.

Referring to the Commissioner's comments on the IRS's "budget woes," Charles W. Shewbridge inquired whether the budget situation augured cutbacks in any programs affecting corporate taxpayers. The Commissioner responded that there were no corporate programs specifically designated for reduction, but noted that the IRS's training initiatives would be affected.

Deputy Commissioner Michael P. Dolan reported that, although the budget freeze had adversely affected the IRS's plans to replace engineers and other specialists reduced by attrition, the budget reductions generally would not affect the CEP program. He added that certain support areas would be affected by budget limitations, including training, travel, and the hiring of expert witnesses. The Deputy Commissioner said that Vincent Canciello, National Director of Appeals, was addressing some staffing issues in Appeals, moving personnel from one location or assignment to another in order to redress overstaffing and understaffing issues.

Michael J. Murphy, TEI's Executive Director, asked whether the limitations on travel would prompt the IRS to undertake more support audits, which might well raise communications concerns. Thomas W. Wilson, Jr., National Director of Corporate Examination, said the CEP program has not experienced any dramatic decreases in its travel budget and did not foresee any correlative increase in the number of support audits. He added, however, that the IRS was working to improve internal communications within CEP teams, and he explained that the IRS had installed a Windows NT system that could facilitate better linkages between team members in a secure environment. These linkages could ultimately permit a decrease in travel.

The Commissioner reported to TEI that the IRS was attempting to maximize the benefits flowing from its training program by taking fuller advantage of video-conferencing opportunities and leveraging the abilities of its high-quality instructors. She confirmed Mr. Dolan's statement that CEP taxpayers may be affected to the extent attrition reduces the number of available specialists.

Chief Counsel Stuart M. Brown echoed the Commissioner's and Mr. Dolan's words of welcome. He said that the IRS annually held liaison meetings with a number of stakeholders and he complimented the Institute on its preparation for the meeting; more preparation produces a better meeting, he added. The Chief Counsel said that TEI's written agenda for the meeting was the best it had received, adding that the Institute's efforts helped the IRS tremendously. Mr. Dolan added that TEI's agenda was characterized by an "unmatched literary style." Mr. Brown then said that TEI had historically done a good job of preparing meeting minutes and disseminating them to its membership, and urged the Institute to continue doing so. Mr. Murphy said the Institute believed the wide circulation of the minutes benefitted not only the Institute's membership but also the organization's local liaison activities.

Report of the Taxpayer Advocate

At the Commissioner's request, Lee Monks discussed the effects of recent legislation on his position as the IRS's Taxpayer Advocate. (Previously, Mr. Monks's title was "Taxpayer Ombudsman.") Specifically, Mr. Monks reviewed the changes effected by the Taxpayer Bill of Rights 2 (T2), including changes in the rules relating to Taxpayer Assistance Orders (TAOs) and the enhanced linkage between the Taxpayer Advocate and the Problem Resolution Officers (PROs) in the field. Mr. Monks also explained the requirement that the Taxpayer Advocate prepare annual reports to Congress on (i) the office's plans for the year in respect of taxpayer rights and burdens, and (ii) the significant challenges that taxpayers face...