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Rossotti Promises Reorganized IRS

By Albert B. Crenshaw
Washington Post Staff Writer
Thursday, January 29, 1998; Page A04

Promising "a new day" at the embattled Internal Revenue Service, the agency's recently appointed chief told the Senate Finance Committee yesterday that he would reorganize the IRS from top to bottom and change its culture to one of "problem solvers, not problem creators, for taxpayers."

IRS Commissioner Charles O. Rossotti and Treasury Secretary Robert E. Rubin, facing the panel that created a sensation last fall with testimony from taxpayers who had been badly abused by the IRS, sought to assure the members that the Clinton administration is dedicated to remaking the agency.

Rossotti said the current structure of the IRS "is just too complex" and contains unnecessary layers of management. He proposed reorganizing the agency around the needs of four large groups of taxpayers: those with primarily wage and investment income; small businesses and self-employed people; big business; and tax-exempt organizations, including pension plans.

Aspects of Rossotti's plan won praise from some accountants and tax lawyers, but he faced a skeptical audience on Capitol Hill. Indeed, yesterday's hearings are just the opening bell of a 15-round fight the agency will face in the next year. The panel plans more hearings today and in the coming weeks.

"I will be honest with you," Senate Majority Leader Trent Lott (R-Miss.) told Rossotti. "You run an agency that I don't like, and that I wish did not exist. Some call the IRS a `necessary evil.' I know I agree with the second part of that description. I have not made up my mind about the first part."

The House has already passed a bill to restrict some of the agency's activities and to place more power into the hands of taxpayers, and the Senate panel is considering even tougher legislation. The administration endorsed the House measure, but it is plainly concerned that the Senate could tilt the field so far in favor of taxpayers that revenue collection could be impaired.

At the same time, both measures contain provisions on personnel flexibility and other management issues that Rossotti called crucial for his success.

Republicans discovered during last fall's hearings that criticism of the IRS resonates strongly with voters as few other issues do. The outpouring caught Democrats and the Clinton administration by surprise and has kept them on the defensive..

Thus, the GOP is not eager to let the IRS issue fade, and Republicans have vowed to make reform of the agency a party priority through the coming year. Lott, in his response to president Clinton's State of the Union address Tuesday night, stated right at the beginning that "one of the first things we'll tackle is real reform of the IRS."

At the hearing, Senate Finance Chairman William V. Roth Jr. (R-Del.) complained that it takes too long for the IRS to notify taxpayers of mistakes, citing a case where a "10-cent error ballooned into a $500 cascading penalty."

Yet a number of senior Republicans also make it clear that their real target is the income tax itself. Attacking it on grounds that it is excessively complex, a deterrent to saving and investing, and a drag on the economy, these members are backing a number of alternatives ranging from a flat tax on income to a national sales or value-added tax.

Rossotti acknowledged that the IRS is struggling to implement last year's massive tax bill and deal with the "year 2000 problem" -- many computers will be unable to process returns when the century ends -- while trying to change the agency's internal culture. He said the overall reorganization he is promising is currently only a concept, which must be studied and which will not be put in place until at least the middle of next year.

But he said the reorganization is a key to making the agency more efficient. Installing new computers and other modernized systems without updating the agency's structure would be "like paving cow paths," he said.

Under his proposal, each of the taxpayer units would have "end-to-end responsibility." This means taxpayer assistance, auditing, collections and other functions for each group would be handled by IRS employees in that group -- in contrast to the present system in which 43 agency units deal with taxpayers of all kinds.

"For example, in the collection area, there are [now] three separate kinds of organizations, spread over 43 organizational units, that use three separate computer systems to support collections," Rossotti said.

The new arrangement would simplify this, while allowing IRS workers to become more expert in the law, practices and problems of their particular kind of taxpayer, Rossotti said. "The tax code is complex but much of it doesn't apply to" each of these groups, he said.

Lawyers and accountants here applauded parts of the proposal, especially the elimination of layers of management. However, several cautioned that Rossotti might be taking on too much at a time when the agency has undergone an unprecedented public bashing and morale of its workers cannot be high.

Some also wondered if Rossotti, who is a manager and technology expert and not a tax lawyer, might find reality harder to fit into four categories than he anticipates.

"I'm confused about a couple of things," said Donald Alexander, a former IRS commissioner who is now in private law practice here. "There doesn't seem to be any place for estate and gift taxes," which he said provide at least 1 percent of federal revenue, nor is it clear where excise taxes would go.

Also, would the likes of Microsoft Chairman Bill Gates be lumped in with factory workers? And what about married couples with, say, one wage earner, one small-business owner and a bunch of joint real estate holdings?

An IRS spokesman said the agency is just beginning to study the organizational concept and questions like those would be answered as part of the study.

© Copyright 1997 The Washington Post Company

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