IRS Reorganization: Planning Addressed Key Reform Practices, but Goals and Measures for the Plan Have Not Been Finalized
Fast Facts
The Taxpayer First Act mandated that the Internal Revenue Service develop a reorganization plan to improve customer service programs and to streamline the agency, among other things.
The IRS's planning so far has generally or partially reflected key practices for agency reforms. For example, a senior level team leads the reorganization as suggested. But COVID-19 delayed the planning. So it's currently unclear whether the partially-addressed key practices—such as those involving outcome-oriented goals and performance measures—will be more fully addressed.
Our recommendations can help the IRS refine its upcoming reorganization plan.
Planning is underway to reorganize the Internal Revenue Service.
Highlights
What GAO Found
GAO identified advantages of, challenges related to, and options for improving the Internal Revenue Service's (IRS) current organizational structure, based on GAO's review of prior work and interviews with IRS officials and stakeholders. For example, one advantage of the current structure, according to several interviewees, is that IRS's divisions have developed specialized expertise on different types of taxpayers with similar needs, such as small businesses. Several interviewees also believed that addressing some of IRS's challenges may not require significant changes to IRS's organizational structure. GAO and others have identified challenges and options to improve IRS's structure, processes, and operations in the following areas: (1) customer service; (2) communication and coordination within IRS; (3) technology; and (4) strategic human capital management and training.
While developing its reorganization plan required by the Taxpayer First Act, IRS addressed or partially addressed all six of the key practices for agency reforms that GAO reviewed (see table below).
GAO Assessment of IRS's Reorganization Planning Process against Key Reform Practices
| Key reform practice | Extent addressed |
|
Establishing goals and outcomes |
◑ |
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Involving employees and key stakeholders |
● |
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Using data and evidence |
● |
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Addressing fragmentation, overlap, and duplication |
◑ |
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Addressing high-risk areas and long-standing management challenges |
◑ |
|
Leadership focus and attention |
● |
Legend: ● Generally addressed ◑ Partially addressed ○ Not addressed
Source: GAO analysis of Internal Revenue Service (IRS) information. | GAO-21-18
IRS established a senior-level team—the Taxpayer First Act Office—to lead the reorganization planning, involved employees and key stakeholders, and used multiple sources of data and evidence to inform its planning. Although IRS has developed preliminary goals for the plan, it has not yet finalized and communicated the goals and performance measures for the plan. IRS has also researched potential actions it could take to address long-standing management challenges at IRS, such as those related to areas of fragmentation, overlap, duplication, and high risk that GAO has identified. However, IRS has not yet decided on specific actions to address those areas in its plan.
IRS officials told us that they intend to take these additional steps, but COVID-19 delayed the completion of their reorganization plan to December 2020. As a result, it is still unclear whether the reorganization plan will have outcome-oriented goals and performance measures or whether it will identify specific actions to address long-standing management challenges. Taking these steps could help IRS identify and achieve the intended outcomes of the reorganization plan, and identify reforms that can create long-term gains in efficiency and effectiveness.
Why GAO Did This Study
The Taxpayer First Act required that a comprehensive written plan to redesign IRS be submitted to Congress by September 30, 2020. Reforming and reorganizing a federal agency as large and complex as IRS is not an easy task. However, a potential reorganization could provide IRS with an opportunity to address emerging and long-standing challenges.
GAO was asked to review IRS's organizational structure and IRS's plans to reform it. This report examines (1) reported advantages of, challenges related to, and options for potentially improving IRS's organizational structure; and (2) the extent to which IRS's reorganization planning process is consistent with selected leading practices.
GAO reviewed documents from IRS and other sources; interviewed IRS officials and stakeholders, including three former IRS commissioners; and assessed IRS's reorganization planning process against selected key practices for agency reform efforts developed by GAO.
Recommendations
GAO is making three recommendations to IRS as it finalizes its reorganization plan, including that IRS should finalize goals and performance measures, and identify specific actions to address long-standing management challenges. IRS responded that it plans to implement GAO's recommendations when it submits its final reorganization plan to Congress in December 2020.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | The Commissioner of Internal Revenue should finalize specific, identifiable, and outcome-oriented goals and performance measures for IRS's reorganization plan, and communicate those goals and measures. (Recommendation 1) |
In January 2021, IRS submitted a report to Congress that included a reorganization plan, as required by the Taxpayer First Act of 2019. In that report, IRS established three goals for its reorganization: (1) enhance the taxpayer experience, (2) enhance the employee experience, and (3) improve operational efficiencies. In addition, IRS's plan identified some performance measures to measure progress toward its goals. However, some of the measures in the plan were described as notional and still under development. In April 2023, IRS issued its Inflation Reduction Act Strategic Operating Plan (SOP), which superseded the reorganization plan created in response to the Taxpayer First Act, according to IRS. The SOP stated that IRS still intends to implement a new organizational structure, but it did not include specific, outcome-oriented performance measures for those organizational changes. In August 2023, IRS officials told us they were finalizing such performance measures. In February 2024, we issued a report on IRS's reform efforts (GAO-24-106091) recommending that IRS follow leading agency reform practices, which include establishing outcome-oriented goals and performance measures. We will continue to monitor IRS's progress toward addressing these related recommendations.
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| Internal Revenue Service | The Commissioner of Internal Revenue should identify specific actions to address issues of fragmentation, overlap, and duplication, as IRS finalizes its reorganization plan. (Recommendation 2) |
In January 2021, IRS submitted a report to Congress that included a reorganization plan, as required by the Taxpayer First Act of 2019. In the reorganization plan, IRS identified specific actions that it believes could help address areas of fragmentation, overlap, and duplication that IRS identified within the agency. For example, IRS noted that its taxpayer service activities are currently fragmented across different parts of the agency. To address this fragmentation, IRS proposed consolidating all taxpayer-facing service activities under one new Relationships and Services Division, which IRS believes would provide a more seamless experience for taxpayers. Similarly, IRS proposed consolidating fragmented compliance activities under a new Compliance Division. IRS believes having one centralized Compliance Division would reduce duplicative activities related to strategic planning, issue identification, work plan development, case selection, performance monitoring, and research. Identifying specific actions to address these and other areas will help IRS plan its reorganization to help reduce or better manage fragmentation, overlap, and duplication.
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| Internal Revenue Service | The Commissioner of Internal Revenue should identify specific actions to address high-risk areas and long-standing management challenges, as IRS finalizes its reorganization plan. (Recommendation 3) |
In January 2021, IRS submitted a report to Congress that included a reorganization plan, as required by the Taxpayer First Act of 2019. In the reorganization plan, IRS identified specific actions that it believes could help address high-risk areas and long-standing management challenges. In our prior work, we have identified several high-risk areas and long-standing management challenges at IRS. These areas include enforcing tax laws, combating identity theft refund fraud, and improving the management of information technology acquisitions and operations. For example, in its reorganization plan, IRS proposed consolidating compliance activities across IRS into a new Compliance Division in an effort to improve IRS's enforcement programs. IRS believes this new structure would facilitate the development of a compliance strategy that considers compliance issues and compliance-related behavioral trends across all types of taxpayers. In addition, IRS proposed establishing a new Identity Theft/Fraud Office that would integrate IRS's various identity theft assistance, prevention, and resolution activities, which are currently spread across the agency. IRS believes this new office would be better positioned to manage IRS's efforts to prevent identity theft for all taxpayer groups. Furthermore, IRS's reorganization plan proposed elevating IRS's Chief Information Officer to report directly to the IRS Commissioner. IRS believes this change will promote awareness and collaboration across IRS's senior leadership team on information technology issues. Identifying specific actions such as these will help IRS plan its reorganization to help address selected high-risk areas and long-standing management challenges.
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