TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
MANAGEMENT ADVISORY REPORT: THE SMALL BUSINESS/SELF-EMPLOYED DIVISION WILL SUBSTANTIALLY STAND UP ON OCTOBER 1, 2000
Reference No. 2000-30-149
In early 1998, the Internal Revenue Service (IRS) Commissioner outlined a program to modernize the IRS, offering more efficient work processes and better service to American taxpayers. The Congress subsequently passed the IRS Restructuring and Reform Act of 1998 (RRA 98), mandating that the IRS modernize itself to improve operations and to better serve its customers. As a result, a comprehensive strategy was developed to reorganize the IRS into four operating divisions. The four operating divisions are: Wage and Investment, Small Business/Self-Employed, Large and Mid-Size Business, and Tax Exempt and Government Entities. The Small Business/Self-Employed (SB/SE) Division will service small corporations and partnerships (less than $5 million in assets) and fully and partially self-employed taxpayers.
Part of the modernization process in establishing the four operating divisions is called "standing up." This process is defined as the establishment of a new IRS organization with at least the minimum requirements of operating. These requirements include filling key management positions, completing actions to realign positions, ensuring workarounds are developed and in place, establishing a finance office and separate budgets, and ensuring necessary business authorities are in place.
The Treasury Inspector General for Tax Administration identified the modernization of the IRS as one of the major challenges facing the IRS and, as a result, initiated audit coverage of this area. The overall objective of this review was to determine if the SB/SE Division will substantially achieve stand-up by October 1, 2000.
Important aspects of the overall implementation of the SB/SE Division are already complete, and the implementation team has positioned the Division to substantially achieve stand-up on October 1, 2000. Specifically, most key managers are in place, employees have been realigned, the finance office is in place, many delegation orders are in place, and a detailed plan of workarounds has been developed. However, there are four areas which management needs to address or monitor implementation activities: timely obtaining space for the headquarters office, updating Delegation Orders, establishing Memoranda of Understanding with other IRS functions, and implementing the Taxpayer Education and Communication (TEC) function.
Many Key Management Positions Have Been Filled
Most of the executives for the Headquarters, Customer Account Services (CAS), and Compliance functions have been selected and will be in place on October 1, 2000. As of late August, 7 (70 percent) of 10 Headquarters executives, 7 (88 percent) of 8 CAS function executives, and 20 (80 percent) of 25 Compliance executives had been selected.
Actions to Realign Positions Have Been Substantially Completed; However, Delays Remain in Establishing a Unified Headquarters Space
Employees scheduled to work in the new unit have been identified, and letters have been issued notifying them where they will be placed. However, sufficient space will not be available for all headquarters activities to be together until April 2001. While this condition is temporary and the SB/SE Division apparently has no other options, the ability to start a new headquarters organization will be somewhat hindered when employees are located in different offices.
The Financial Office and Budget Have Been Established
The SB/SE Division has its own budget for Fiscal Year (FY) 2001 and will be responsible for tracking and meeting budget requirements. The Division has also developed its own financial resource structure for FY 2001 and has begun drafting comprehensive financial operating policies and guidelines.
Delegations of Authority Have Been Received, but Additional Attention in this Area Is Necessary
The creation of the SB/SE Division required the updating of 164 Delegation Orders to realign the authority for collecting tax revenue and operating the IRS with the new positions created by the reorganization. While 154 of the Delegation Orders have been properly updated, 4 were not properly transferred to positions within the new Division, and 6 were transferred based on the authority of an outdated Treasury Order or Treasury Directive. Additionally, although the IRS plans to update the Delegation Orders, which are located in part one of the Internal Revenue Manual (IRM), it does not plan to update the remainder of the IRM to reflect the new organizational titles.
A Detailed Plan to Allow the Division to Function Has Been Completed, but Additional Attention to Inter-Divisional Memoranda of Understanding Is Needed
The SB/SE Division has developed a detailed plan of workarounds to allow it to function after stand-up. As part of this effort, the Division developed, or is developing, Memoranda of Understanding (MOU) covering 33 shared services. However, an effective means of monitoring these agreements still needs to be developed. In addition, the SB/SE Division does not have an agreement with the Agency Wide Shared Services function.
Additional Attention in the Taxpayer Education and Communications Area Is Needed
Management faces several major challenges in attempting to develop a TEC function that will be able to provide specialized programs to small business taxpayers in the near future. The IRS: