The Internal Revenue Service, Its Mission and Function

August – September 2006 At-a-Glance: The Internal Revenue Service, its Mission and Function

By Charles P. Rettig

Charles Rettig provides a history of income taxation in the United States and an overview of the IRS as it is currently structured.

hen was the IRS created? Who does the IRS appointment of a Commissioner of Internal Revenue report to? Who makes the decisions as to to administer and supervise the execution and ap- Wwhich players will be on the fi eld? Looking plication of the internal revenue laws. for a complete copy of the Form 1040 fi rst introduced The IRS Mission. “Provide America’s taxpayers top in 1913? Many practitioners know that IRS Special quality service by helping them understand and meet Agents attained national prominence in the 1930’s their tax responsibilities and by applying the tax law for their efforts leading to with integrity and fairness the conviction of “Public to all.” This mission state- Enemy Number One,” Al The IRS role is to help the large ment describes the IRS’s Capone (for income tax majority of compliant taxpayers role and the public’s ex- evasion) and their role with the tax law, while ensuring pectation about how the in solving the Lindbergh IRS should perform that kidnapping.p However, that the minority who are unwilling role. In the United States, dididid yyouuku knkknow the fi rst IRS to comply pay their fair share. Congress passes tax laws crcriminalrimimiinal SSpecialcial AgenAgentss and requires taxpayers to wwereere aactuallyctuaally InspInspectorspecto s comply. The IRS role is to transferredanssferre to the Bureau of Internal Revenue from help the large majority of compliant taxpayers with the United Stateses Postost OOffi cce?e? ththee ttaxax llaw,aw, wwhwhile ensuring that the minority who are A quick look toot theeof offifici ciala IIRSRS iinternetnte net ssite—ite wwww.ww ununwillingnwi lingt to cocomply pay their fair share. irs.gov—will provide all of the information you’ve The Agency. The IRS is a Bureau of the Depart- been searching for these many years! If you haven’t ment of the Treasury and one of the world’s most stopped by, do it now! Not only can you get a detailed efficient tax administrators. In 2004, the IRS players roster (an organizational chart with contact collected more than $2 trillion in revenue and information), but you can get the entire history of the processed more than 224 million tax returns. In organization! Following are random bits of interest- 2005, the IRS spent just 44 cents for each $100 ing information gleamed directly from www.irs.gov. it collected and, for the first time, a majority (52 What you didn’t know won’t be held against you percent) of individual taxpayers filed their tax (yet)...but what you learn may surprise you! returns electronically; more than 8 million busi- Statutory Authority. The IRS is organized to carry ness returns were filed electronically; more than out the responsibilities of the Secretary of the Trea- 75 million individual and business returns were sury under Code Sec. 7801. The Secretary has full prepared by tax professionals using a computer; authority to administer and enforce the internal approximately 120,000 tax professionals used revenue laws and has the power to create an agency IRS’s e-Services, a web-based suite of services to to enforce these laws. The IRS was created based on help prepare, research and submit tax returns elec- this legislative grant. Code Sec. 7803 provides for the tronically; more than 1 million taxpayers enrolled in the IRS’s Electronic Federal Tax Payment System Charles P. Rettig is a Principal with the fi rm of Hochman, (EFTPS) in fiscal year 2005; IRS received 1.4 mil- Salkin, Rettig, Toscher & Perez, P.C., in Beverly Hills, California. lion credit card payments; and approximately 1.2

JOURNAL OF TAX PRACTICE & PROCEDURE 59 IRS: At-a-Glance

million tax payments were made via electronic gress passed the Volstead Act, which gave the funds withdrawal. Commissioner of Internal Revenue the primary responsibility for enforcement of Prohibition. Brief History of IRS Eleven years later, the Department of Justice assumed primary prohibition enforcement duties. 1862—President Lincoln signed into law a rev- 1931—The IRS Intelligence Unit used an under- enue-raising measure to help pay for Civil War cover agent to gather evidence against gangster expenses. The measure created a Commissioner Al Capone. Capone was convicted of tax evasion of Internal Revenue and the nation’s fi rst income and sentenced to 11 years. tax. It levied a three-percent tax on incomes be- 1933—Prohibition repealed. IRS again assumed tween $600 and $10,000 and a fi ve-percent tax responsibility for alcohol taxation the following on incomes of more than $10,000. year and for administering the National Firearms 1867—Heeding public opposition to the income Act. Later, tobacco tax enforcement was added. tax, Congress cut the tax rate. From 1868 until 1942—The Revenue Act of 1942, hailed by 1913, 90 percent of all revenue came from taxes President Roosevelt as “the greatest tax bill in on liquor, beer, wine and tobacco. American history,” passed Congress. It increased 1872—Income tax repealed. taxes and the number of Americans subject to the 1894—The Wilson Tariff Act revived the income income tax. It also created deductions for medical tax, and an Income Tax Division within the Bu- and investment expenses. reau of Internal Revenue was created. 1943—Congress passed the Current Tax Pay- 1895—The Supreme Court ruled the new income ment Act, which required employers to withhold tax unconstitutional on the grounds that it was a taxes from employees’ wages and remit them direct tax, and not apportioned among the states quarterly. on the basis of population. The Income Tax Divi- 1944—Congress passed the Individual Income sion was disbanded. Tax Act, which created the standard deductions 1909—President Taft recommended Congress on Form 1040. proposepproopoos a constitutional amendment that would 1952—President Truman proposed his Reorgani- giveggivive thetht governmentovernnmen the powerp to tax incomes, zation Plan No. 1, which replaced the patronage withoutwwitithohout aapportioningpportioning the bburden among the states system at the IRS with a career civil service sys- ini linelin with population.l Congress also levied a tem. It also decentralized service to taxpayers one-percentt taxt x onn netnet corporatecorppo te incomesincomees of andand soughtsouggh to restore public confi dence in the more than $5,000.$5 00 agency.agencyy 1913—As the threat of war loomed, Wyoming 1953—President Eisenhower endorsed Truman’s became the 36th, and last, state needed to ratify reorganization plan and changed the name of the the 16th Amendment. The Amendment stated, agency from the Bureau of Internal Revenue to “Congress shall have the power to lay and collect the Internal Revenue Service. taxes on incomes, from whatever source derived, 1954—The fi ling deadline for individual tax re- without apportionment among the several states, turns changed from March 15 to April 15. and without regard to any census or enumera- 1961—The Computer Age began at IRS with the tion.” Later, Congress adopted a one-percent tax dedication of the National Computer Center at on net personal income of more than $3,000 with Martinsburg, W.Va. a surtax of 6 percent on incomes of more than 1965—The IRS instituted its fi rst toll-free tele- $500,000. It also repealed the 1909 corporate in- phone site. come tax. The fi rst Form 1040 was introduced! 1972—The Alcohol, Tobacco and Firearms 1918—The Revenue Act of 1918 raised even Division separated from the IRS to become the greater sums for the World War I effort. It codifi ed independent Bureau of Alcohol, Tobacco and all existing tax laws and imposed a progressive Firearms. income-tax rate structure of up to 77 percent. 1974—Congress passed the Employee Retirement 1919—The states ratifi ed the 18th Amendment, and Income Security Act, which gave regulatory barring the manufacture, sale or transport of responsibilities for employee benefi t plans to intoxicating beverages (“Prohibition”). Con- the IRS. 60 August – September 2006

1986—Limited electronic fi ling began. President Commissioners served the shortest times in offi ce, Reagan signed the Tax Reform Act, the most less than one year: Robert E. Hannegan,10/9/1943– signifi cant piece of tax legislation in 30 years. It 1/22/1944 (3 months, 14 days);William Orton, contained 300 provisions and took three years 7/1/1865–10/31/1865 (4 months); Alfred Pleason- to implement. The Act codifi ed the federal tax ton,1/3/1871–8/8/1871 (7 months, 6 days);George S. laws for the third time since the Revenue Act of Boutwell, 7/17/1862–3/4/1863 (7 months, 16 days); 1918. Shirley D. Peterson, 2/3/1992–1/20/1993 (11months, 1992—Taxpayers who owed money were al- 18 days). lowed to fi le returns electronically. 1998—Congress passed the IRS Restructuring Longest-Serving Commissioners of and Reform Act, which expanded taxpayer rights Internal Revenue and called for reorganizing the agency into four These Commissioners served the longest terms, operating divisions aligned according to taxpayer five years or more: Guy T. Helvering,6/6/1933– needs. 10/8/1943 (10 years, 4 months); David H. Blair, 2000—The IRS enacted reforms, ending its geo- 5/27/1921–5/31/1929 (8 years); Joseph S. Miller, graphic-based structure and instituting four major 3/20/1885–3/20/1889 and 4/19/1893–11/26/1896 (7 operating divisions: Wage and Investment, Small years, 7 months); Green B. Raum 8/2/1876–4/30/1883 Business/Self-Employed, Large and Mid-Size (6 years, 9 months); John W. Yerkes, 12/20/1900– Business and Tax Exempt and Government Enti- 4/30/1907 (6 years, 4 months); Roscoe L. Egger, Jr., ties. It was the most sweeping change at the IRS 3/14/1981–4/30/1986 (5 years, 1 month); Charles O. since the 1953 reorganization. Rossotti, 11/13/1997–11/12/2002 (5 years). 2001—The IRS administered a mid-year tax refund program to provide advance payments of a Offi ce of IRS Chief Counsel tax rate reduction. 2003—The IRS administered another mid-year Mission refund program, this time providing an advance Serve America’s taxpayers fairly and with integrity ppaypaymentymme of an increase in the Child Tax Credit. by providing correct and impartial interpretation EElEleElectronicectro c filingfiling reachedreache a new high—52.9 of the internal revenue laws and the highest qual- mmimillionillillioonn taxtax returns,retuurns, more than 40 percent of all ity legal advice and representation for the Internal iindindividualdivi returns. Revenue Service.

Offi ce of ththe CCommissioneri off Overview Internal Revenue The IRS Chief Counsel is appointed by the President The Offi ce of Commissioner of Internal Revenue was with the advice and consent of the Senate. As the created by an Act of Congress on July 1, 1862. The chief legal advisor to the IRS Commissioner on all Commissioner is appointed by the President with matters pertaining to the interpretation, administra- the advice and consent of the Senate. With no set tion and enforcement of the Internal Revenue Laws tenure, Commissioners served as long as they and the (as well as all other legal matters), the Chief Counsel President chose. The IRS Restructuring and Reform provides legal guidance and interpretive advice to Act of 1998 amended Code Sec. 7803 to set a fi ve- the IRS, Treasury and taxpayers. year term of offi ce. The fi rst such term was applied to the Commissioner serving when this Act became Large and Mid-Size Business law, Charles Rossotti, beginning with the date of his appointment. He served the full fi ve years, from (LMSB) Division November 1997 to November 2002. The Large and Mid-Size Business (LMSB) Division serves corporations, subchapter S corporations and Shortest-Serving Commissioners of partnerships with assets greater than $10 million. Internal Revenue These businesses employ a large number of employ- Not counting those who served as Acting Com- ees, deal with complicated issues involving tax law missioner between permanent appointees, these and accounting principles and conduct business in

JOURNAL OF TAX PRACTICE & PROCEDURE 61 IRS: At-a-Glance

an expanding global environment. LMSB is organized them of their tax obligations, developing educa- among fi ve industries: Communications, Technology tional products and services, and helping them and Media; Financial Services; Heavy Manufacturing understand and comply with applicable laws, and and Transportation; Natural Resources and Con- to protect the public interest by applying the tax struction; and Retailers, Food, Pharmaceuticals and law with integrity and fairness to all. Healthcare. There are also Field Specialists operating in a support function for SB/SE has primary these operations. The cur- responsibility for all tax- rent strategic priorities of [The Intelligence Unit] attained payers fi ling Schedule Cs, LMSB include Globaliza- Schedule Fs, Schedule tion (dealing with a global national prominence in the 1930s Es, Forms 2106, Partner- economy), Issue Manage- for the conviction of public enemy ship and S Corporation ment (attempt to resolve number one, Al Capone, for Returns and Corporate potential tax disputes ear- Returns with assets un- lier in the process), Abusive income tax evasion and its role in der $10 million. SB/SE Tax Shelters (LMSB’s high- solving the Lindbergh kidnapping. serves approximately est enforcement priority) 45 million taxpayers of and Assessing Compliance which about 33 million Risks within the LMSB taxpayer population. Other are fully or partially self-employed; about 7 million high risk issues requiring additional research and small businesses with assets of less than $10 mil- appropriate compliance improvement action involve lion, having some of the most complex issues due executive compensation, offshore tax avoidance trans- to tax law requirements and the number of forms actions, fl ow-through entities, special purpose entities and schedules required; most have four–60 routine and fi nancial versus tax reporting discrepancies. transactions with the IRS per year. LMSB Strategic Initiatives Strategic Priorities TheThhe LMSB’sLMMSSB Abusive Tax Avoidance Transactions SB/SE’s foremost priorities include meeting the (A(ATAT)ATAAT) groupgrou combatscombbats abusiveabusiv tax avoidance trans- public’s expectations by always being responsive and acactionsctiioons byby providingprovidding early-investingearly guidance, always performing with integrity when dealing with addressingddrresssin shelters at the promoter level and in- customers; recognizing the need for continuous train- creasing the strengthrength ofo ATATATAAT issueissu development.deevvelopmment ining,g, sskillskil s eneenhancementha and open communications Compliance Risksk serveserves LMSBLMMSB by identifyingdentify ng andan bebetweenetwweeen eemployeesmplo and management; encouraging addressing LMSB compliance risks for the increas- compliance by partnering with the taxpayer from ingly global LMSB taxpayer. Re-engineering and the “start-up” business phase and throughout the Issue Management re-engineers and institutionalizes business life cycle; stabilizing and improving busi- issue-management strategies and compliance pro- ness results. cesses. Compliance Information Management uses partnerships, processes and legislative changes to SB/SE Division Operates through provide timely data to effectively assess the reporting Five Organizations compliance risks in the LMSB population. Human Collection—The mission of Collection is to col- Capital recruits, develops and retains a highly skilled lect delinquent taxes and secure delinquent tax and satisfi ed workforce. returns. Compliance Services Campus Operations—This Small Business/Self-Employed division oversees operations of the Brookhaven, Philadelphia, Cincinnati, Memphis and Ogden (SB/SE) Division Campuses. Mission Examination—It is the function of the Examination Division to make checks of returns fi led and select The mission of the Small Business/Self-Employed returns for audit based on various criteria. (SB/SE) Division is to provide SB/SE customers Specialty Taxes—Currently, there are four market top-quality service by educating and informing segments for which this division has responsibili- 62 August – September 2006

ties. They are Employment Tax, Excise Tax, Estate lion, 88,000 federal, state and local entities, and over and Gift Tax and International tax issues. 550 federally recognized Indian tribes. Taxpayer Education and Communication (TEC)— TEC is a customer-focused organization that Wage and Investment routinely will solicit information from taxpayers and external stakeholders concerning the needs (W&I) Division and characteristics of its customers. TEC will Mission implement its programs based on that feedback mechanism and will continuously research and Employees in the Wage and Investment Divi- analyze taxpayer trends to ensure that products sion (W&I) educate and assist their customers and services are tailored to meet the needs of in understanding and satisfying their tax respon- SB/SE taxpayers. TEC also will partner with other sibilities. W&I provides this service in a high government agencies and state and local entities quality, fair and equitable manner through a to provide one-stop assistance. partnership between management, employees and stakeholders. Tax Exempt & Government Entities Division (TE/GE) Strategic Priorities Mission W&I services approximately 122 million mostly wage-earner taxpayers through five IRS Service To provide TE/GE customers top quality service Centers, supporting the IRS’s strategic goals and by helping them understand and comply with objectives through initiatives that meet the needs applicable tax laws and to protect the public of taxpayers; reduce taxpayer burden; broaden the interest by applying the tax law with integrity use of electronic interactions; address key areas of and fairness to all. noncompliance; stabilize traditional compliance activities; recruit, develop and retain a quality work- TE/GETEE/GGE is designedd to serve the needs of three very force; and provide high-quality, effi cient, responsive distinctdiitiistincctt cuccustomeromer segmsegments:ents: Employee Plans, Ex- information and shared support services. emptemmppt OrganizationsOrgagannizationns andd GovernmentGov Entities. The customersustommer range fromf small local community orga- Appealspp nizations and mumunicipalitiesicipaalities to mmajoror uuniversities,nivversitiees huge pension funds,und stastatete go ggovernments,overnnme ts InIndianndian tribalriba MissionMMissssioon governments and participants of complex tax exempt To resolve tax controversies, without litigation, bond transactions. These organizations represent a on a basis which is fair and impartial to both the large economic sector with unique needs. Although Government and the taxpayer, and in a manner generally paying no income tax, this sector does pay that will enhance voluntary compliance and over $220 billion in employment taxes and income public confi dence in the integrity and effi ciency tax withholding and controls approximately $8.2 of the Service. trillion in assets. Governed by complex, highly specialized provisions of the tax law, this sector is not designed to generate revenue, but rather to ensure Continuing the Tradition that the entities fulfi ll the policy goals that their tax The Appeals function serves as the administrative exemption was designed to achieve. forum for any taxpayer contesting an IRS compliance Employee Plans taxpayers represent private and action. It traces its origins to August 1, 1927, when public retirement plans with approximately $4 trillion the Commissioner established a Special Advisory in assets. Exempt Organization taxpayers represent Committee to provide an appeal for cases pending more than 1.6 million tax exempt organizations—in- before the Board of Tax Appeals, the predecessor to cluding about 400,000 religious organizations—with the U.S. Tax Court. While the organizational structure approximately $2.4 trillion in assets. Government and name of the Committee has changed over the Entities taxpayers include outstanding tax exempt years, Appeals’ mission to expedite the settlement of bonds with a total value of approximately $1.8 tril- tax disputes without formal trial remains the same.

JOURNAL OF TAX PRACTICE & PROCEDURE 63 IRS: At-a-Glance

From 1927 to today, Appeals employees have been In July 1978, the Intelligence Unit changed its proud of their role in tax administration. From a func- name to Criminal Investigation (CI). Over the years tion with less than 50 employees and an inventory CI’s statutory jurisdiction expanded to include money of approximately 5,000 cases, Appeals has grown laundering and currency violations, in addition to its to over 1,800 employees with an inventory of over traditional role in investigating tax violations. How- 68,000 cases. ever, Criminal Investigation’s core mission remains unchanged. It continues to fulfi ll the important role Strategic Priorities of helping to ensure the integrity and fairness of our The priorities of the Offi ce of Appeals are to address nation’s tax system. the changing and growing inventory; reduce the Since CI’s inception in 1919 to the present, the length of the appeals process; improve quality of conviction rate for federal tax prosecutions has never referrals to Appeals; implement Appeals tax shelter fallen below 90 percent. This is a record of success resolution strategies; improve stakeholder and cus- that is unmatched in federal law enforcement. Not tomer awareness of Appeal rights and processes; only do the courts hand down substantial prison promote employee productivity, engagement and sentences, but those convicted must also pay fi nes, satisfaction; and implement Appeals’ presence in IRS civil taxes and penalties. campus environments. Overview Criminal Investigation (CI) IRS Criminal Investigation (CI) is comprised of approximately 4,400 employees worldwide, ap- Mission proximately 2,800 of which are special agents whose investigative jurisdiction includes tax, money Criminal Investigation (CI) serves the American laundering and Bank Secrecy Act laws. While other public by investigating potential criminal violations federal agencies also have investigative jurisdiction of the Internal Revenue Code and related fi nancial for money laundering and some bank secrecy act crimes in a manner that fosters confi dence in the violations, IRS is the only federal agency that can taxxsyx systemsyysteem and compliancep with the law. investigate potential criminal violations of the Internal Revenue Code (“the Code”). Compliance with the tax laws in the United HistoryHisH stooryy oof CI States relies heavily on self-assessments of what On July 1, 1919,9, thee IRSS CommissionerCCoommmissi ner createdcreatedd thethe tataxx isi owed.owed. This is called “voluntary compli- Intelligence Unitnit to invinvestigatevestigate widwidespreadespreead alallega-ega anance.”nce ”W WhenWhhen individuals and corporations make tions of tax fraud. To establish the Intelligence Unit, deliberate decisions to not comply with the law, six U.S. Post Offi ce Inspectors were transferred to they face the possibility of a civil audit or criminal the Bureau of Internal Revenue to become the fi rst investigation, which could result in prosecution special agents in charge of the organization that and possible jail time. Publicity of these convic- would one day become Criminal Investigation. They tions provides a deterrent effect that enhances formed the nucleus that built the Intelligence Unit voluntary compliance. into an elite group of highly trained, dedicated pro- As fi nancial investigators, CI special agents fi ll a fessionals, who are recognized as the fi nest fi nancial unique niche in the federal law enforcement com- investigators in the world. munity. Today’s sophisticated schemes to defraud The Intelligence Unit quickly became renowned for the government demand the analytical ability of the fi nancial investigative skill of its special agents. fi nancial investigators to wade through complex pa- It attained national prominence in the 1930s for the per and computerized fi nancial records. Due to the conviction of public enemy number one, Al Capone, increased use of automation for fi nancial records, for income tax evasion and its role in solving the Lind- CI special agents are trained to recover computer bergh kidnapping. From these promising beginnings evidence. Along with their fi nancial investigative the Intelligence Unit expanded over the interven- skills, special agents use specialized forensic tech- ing decades, investigating tax evasion by ordinary nology to recover fi nancial data that may have been citizens, prominent businesspersons, government encrypted, password protected or hidden by other offi cials and notorious criminals. electronic means. 64 August – September 2006

Strategic Priorities Unlike most of the IRS, the TAS continues to be The CI strategic plan is comprised of three inter- a geographically based organization. The field dependent programs: Legal Source Tax Crimes; organization consists of nine Area TAS Directors, Illegal Source Financial seven of whom over- Crimes; and Narcotics see casework by Local Related Financial Crimes. Where TAS cannot provide a Taxpayer Advocates in These three programs are remedy for taxpayers because assigned territories, and mutually supportive and of defi ciencies in administrative two of whom oversee encourage utilization of casework from Local all statutes within CI’s ju- procedures or barriers imposed Taxpayer Advocates in risdiction, the grand jury by the tax law, TAS will propose service centers. The process and enforcement administrative solutions or field organization also techniques to combat tax, includes two Operat- money laundering and cur- legislative changes, as appropriate. ing Division Taxpayer rency crime violations. CI Advocates, who are re- must investigate and assist in the prosecution of those sponsible for systemic analysis and advocacy. signifi cant fi nancial investigations that will generate Both the Area Taxpayer Advocate Directors and the maximum deterrent effect, enhance voluntary the Operating Division Taxpayer Advocates re- compliance and promote public confi dence in the port directly to the National Taxpayer Advocate. tax system. Seventy-four Local Taxpayer Advocates report to the Area Taxpayer Advocate Directors and are Taxpayer Advocate Service (TAS) responsible for handling taxpayer cases at the local level. Mission Since TAS is structured around geographic, rather The Taxpayer Advocate Service helps taxpayers than taxpayer, segments, Taxpayer Advocates han- resolve problems with the IRS and recommends dle all categories of taxpayer issues, irrespective chchangeshanges to prevent the problems.p of the subject matter, in their assigned territories. Thus, all taxpayers in a specifi c locality will go to TheThhe InternalIInnternrnaal RevenueRevenue ServiceServic Restructuring and the same advocate offi ce, whether the taxpayer is a ReformefoormmA Act of 1998 (RRA ‘98) amended Code Secs. small business, a large corporation, a wage earner 7803 and 7811, ccreatingeatingg ththehee posppositionitio of ththee NatiNationalona or a ggovgovernmentvernmme entity. Local and area advocates Taxpayer Advocatecat and strengtheningstreengthen gt theheT Taxpayeraxppaye willwill dealddeaal primarilypr m with casework issues, i.e., is- Advocate organization by making it independent sues involving specifi c taxpayers rather than broad within the IRS. In the spirit of the legislation and the organizational issues. IRS’s modernization, the Advocate Organization was Broad organizational issues will be handled by the restructured, the mission statement revised and the Advocacy Analysts assigned to, and remotely man- organization renamed the Taxpayer Advocate Ser- aged by, the Operating Division Taxpayer Advocates. vice. The Taxpayer Advocate Service (TAS) offi cially Advocacy issues are generally those issues that im- transitioned as a modernized organization on March pact a large segment of taxpayers or are issues that 12, 2000. recur with some frequency. Depending on the nature TAS fulfills its mission through taxpayer case- of the problem presented, Advocacy Analysts will work and advocacy initiatives. TAS handles not recommend either administrative solutions to the IRS only cases in which a taxpayer is suffering or about or legislative solutions to the Congress through the to suffer a significant hardship, but also cases National Taxpayer Advocate’s Annual Report. in which the taxpayer, while not experiencing Issues involving the Taxpayer Advocate should a hardship, would benefit from the involvement be set forth on IRS Form 911 which could then be of TAS. Where TAS cannot provide a remedy for mailed or faxed to the local Taxpayer Advocate taxpayers because of deficiencies in administra- office. Form 911 requires the TAS to determine if tive procedures or barriers imposed by the tax a significant hardship exists and whether actions law, TAS will propose administrative solutions or can be taken to relieve the hardship. Significantly, legislative changes, as appropriate. the TAS attempts to resolve taxpayer problems that

JOURNAL OF TAX PRACTICE & PROCEDURE 65 IRS: At-a-Glance

may not otherwise be resolved through normal OPR was established in January 2003 as the suc- IRS procedures. cessor offi ce to the former IRS Director of Practice When should the TAS be contacted? If the taxpayer organization. Some differences between OPR and the is about to suffer signifi cant hardship, faces an imme- former Director of Practice Offi ce are that OPR has a diate threat of adverse action, may suffer irreparable redefi ned mission, additional staffi ng and a different injury or long-term conse- reporting structure—OPR quences, has experienced reports directly to the a signifi cant delay of more The OPR investigates allegations Deputy Commissioner, than 30 days in an effort of misconduct or negligence against Service and Enforcement. to resolve an issue or has tax practitioners and enforces the The thrust of IRS enforce- not received a response or ment efforts have been solution in a timely man- standards of practice for those who expanded to include is- ner from the IRS. Contact represent taxpayers before the IRS, sues having a greater the TAS if you have an as detailed in Circular 230. impact on tax administra- ongoing issue with the IRS tion. The OPR Licensure that has not been resolved and Education unit ad- through the normal administrative processes, or you ministers the Special Enrollment Examination for have suffered, or are about to suffer, a signifi cant those who wish to become enrolled agents, processes hardship as a result of the administration of the tax applications for enrollment and monitors enrolled laws. Once contacted, the TAS will assign a “case agent continuing professional education. The OPR advocate” to the matter. The TAS is not a substitute for Enforcement units handle all disciplinary matters and established IRS procedures or the formal administra- potential denials of applications for enrollment. tive processes (compliance-appeals, etc.). What types of behavior could subject a tax Offi ce of Professional practitioner to be sanctioned by the OPR? The OPR investigates allegations of misconduct or ResponsibilityReResppopon (OPR) negligence against tax practitioners and enforces MissionMissiionn the standards of practice for those who represent taxpayers before the IRS, as detailed in Circular 230. FosterFoosteer eexcellence in tax professional services by In general, there are four broad categories of miscon- setting, communicating,un catinng, aandndd eenforcingnffo ng standardstandarrds duduct,ct, whichwhich maym be subject to disciplinary action: of competence,ce integritytegrity andaand conduct.con uct (1(1))m mmisconductisconnduc while representing a taxpayer; (2) misconduct related to the practitioner’s own return; (3) giving a false opinion, knowingly, recklessly or What is the OPR? through gross incompetence; and (4) misconduct not The OPR administers the laws for the practice of at- directly involving IRS representation. torneys, certifi ed public accountants, enrolled agents, enrolled actuaries and appraisers before the IRS as Communications set forth in Treasury Department Circular No. 230 (Circular 230 provides the regulations governing the & Liaison Division practice of attorneys, CPAs, enrolled agents, enrolled Mission actuaries, and appraisers before the IRS). In addition, OPR reviews applications from individuals who wish Supports the IRS mission and business objectives to become an enrolled agent or enrolled actuary, who using strategic relationship management, commu- are tax professionals meeting certain testing or experi- nication tools and processes, resolution of issues ence requirements. The Director of OPR sits on the of mutual concern, and information sharing. IRS Enforcement Committee, a panel of senior agency executives, who meet regularly to develop strategies The Offi ce of Communications is the focal point for on the top compliance problems facing the IRS. OPR planning, coordinating and producing IRS-wide com- is also charged conducting a broad review of the IRS’s munications. It provides a wide range of expertise, overall relationship with the practitioner community. products and services to help achieve business out- 66 August – September 2006 comes through communications within and outside the hearing, a fi nal regulation or a temporary regulation agency. The offi ce works with national and local media is published as a Treasury Decision (TD), again, in to enhance the public’s understanding of the IRS and the Federal Register. its mission, programs and policies; manages national media campaigns to help the IRS meet its goals and Revenue Ruling business objectives; manages voicemail and Intranet A revenue ruling is an offi cial interpretation by the channels for communicating with all IRS employees; IRS of the Code, related statutes, tax treaties and and produces interactive video teletraining and oper- regulations. It is the conclusion of the IRS on how ates a satellite television network that reaches 135 IRS the law is applied to a specifi c set of facts. Revenue offi ces nationwide. rulings are published in the Internal Revenue Bulletin for the information of and guidance to taxpayers, Strategic Priorities IRS personnel and tax professionals. For example, a The Communication and Liaison Division enables revenue ruling may hold that taxpayers can deduct IRS business objectives by supporting the operating certain automobile expenses. and functional divisions’ major strategies and opera- tional priorities; ensures that communications with Revenue Procedure customers, Congress and stakeholders are consistent A revenue procedure is an offi cial statement of a pro- and coordinated IRS-wide and integrate stakeholder cedure that affects the rights or duties of taxpayers or relationship management in the day-to-day operations other members of the public under the Code, related of the agency; ensures a quality work environment that statutes, tax treaties and regulations and that should is operationally effi cient and effective, including an be a matter of public knowledge. It is also published emphasis on automating business processes; and en- in the Internal Revenue Bulletin. While a revenue sures the appropriate collection, use and protection of ruling generally states an IRS position, a revenue information to accomplish IRS business objectives. procedure provides return fi ling or other instructions concerning an IRS position. For example, a revenue UnderstandingUnndder IRS Guidance— procedure might specify how those entitled to deduct certain automobile expenses should compute them AAB BBrBriefrieef PrimPrimermer by applying a certain mileage rate in lieu of calculat- ForFoFor aanyonenyonene notnot familiarfamiliar forfor the inner workings of tax ing actual operating expenses. administration,dmminiistr theh array of IRS guidance may seem, well, a little puzzlingzz ng att fi rrstst glance.glaance To takeake a littlelittle Privatev Letter Ruling of the mystery away,aw yh here’sere’s a briefbr ef lookook ata seveneven ofo A privateprivvatel letteretter ruling, or PLR, is a written statement the most common forms of guidance. issued to a taxpayer that interprets and applies tax In its role in administering the tax laws enacted by laws to the taxpayer’s specifi c set of facts. A PLR the Congress, the IRS must take the specifi cs of these is issued to establish with certainty the federal tax laws and translate them into detailed regulations, consequences of a particular transaction before the rules and procedures. The Offi ce of Chief Counsel fi lls transaction is consummated or before the taxpayer’s this crucial role by producing several different kinds return is fi led. A PLR is issued in response to a written of documents and publications that provide guidance request submitted by a taxpayer and is binding on the to taxpayers, fi rms and charitable groups. IRS if the taxpayer fully and accurately described the proposed transaction in the request and carries out Regulation the transaction as described. A PLR may not be relied A regulation is issued by the IRS and the Treasury to on as precedent by other taxpayers or IRS personnel. provide guidance for new legislation or to address PLRs are generally made public after all information issues that arise with respect to existing Code sec- has been removed that could identify the taxpayer tions. Regulations interpret and give directions on to whom it was issued. complying with the law. Regulations are published in the Federal Register. Generally, regulations are fi rst Technical Advice Memorandum published in proposed form in a Notice of Proposed A technical advice memorandum, or TAM, is guid- Rulemaking (NPRM). After public input is fully con- ance furnished by the Offi ce of Chief Counsel upon sidered through written comments, and even a public the request of an IRS director or an area director of

JOURNAL OF TAX PRACTICE & PROCEDURE 67 IRS: At-a-Glance

68 August – September 2006

Appeals, in response to technical or procedural ques- regulatory policies. It conducts in-depth regulatory tions that develop during a proceeding. A request review of signifi cant rules proposed by federal agen- for a TAM generally stems from an examination of cies, as well as promotes best practices management a taxpayer’s return, a consideration of a taxpayer’s across the federal government. www.whitehouse. claim for a refund or credit, or any other matter gov/omb/ involving a specifi c taxpayer under the jurisdiction TIGTA: The Treasury Inspector General for Tax of the territory manager or the area director of Ap- Administration (TIGTA) provides audit and investiga- peals. Technical Advice Memoranda are issued only tive services that promote economy, effi ciency and on closed transactions and provide the interpreta- integrity in the administration of the internal revenue tion of proper application of tax laws, tax treaties, laws. www.treas.gov/tigta/index.shtml regulations, revenue rulings or other precedents. The advice rendered represents a fi nal determination of Advisory/Advocacy the position of the IRS, but only with respect to the specifi c issue in the specifi c case in which the advice Organizations is issued. Technical Advice Memoranda are generally ETAAC: The Electronic Tax Administration Ad- made public after all information has been removed visory Committee (ETAAC) conveys the public’s that could identify the taxpayer whose circumstances perceptions of the IRS electronic tax administration triggered a specifi c memorandum. activities; offers constructive observations about current or proposed polices, programs and pro- Notice cedures; and suggests improvements. The ETAAC A notice is a public pronouncement that may contain provides an organized public forum for discussion guidance that involves substantive interpretations of of electronic tax administration issues in support of the Code or other provisions of the law. For example, the overriding goal that paperless fi ling should be notices can be used to relate what regulations will the preferred and most convenient method of fi ling say in situations where the regulations may not be tax and information returns. published in the immediate future. IRPAC: The Information Reporting Program Advisory Committee (IRPAC) advises the IRS on AnnouncementAAnnoouun ment information reporting issues of mutual concern AnAn announcementannoununccement is a public pronouncement that to the private sector and federal government. The hasas onl oonlyly iimmediate or short-term value. For example, Committee works with IRS executives to provide announcementss canc n be useduseed to summarizesummar ze the lawlaaw ininformationforrmmation aand recommendations on a range of or regulations withoutwi out makingmakkinng anyany substantivesubbstantive in-n ississuessuesre regardingegaarddin information reporting administra- terpretation, to state what regulations will say when tion. The IRPAC’s advice is used to assist in the they are certain to be published in the immediate execution of IRP objectives while ensuring fairness future or to notify taxpayers of the existence of an to taxpayers. approaching deadline. IRSAC: The Internal Revenue Service Advisory Council (IRSAC) conveys the public’s percep- Federal Oversight Organizations tion of IRS’s activities. The IRSAC provides an organized public forum for IRS officials and rep- GAO: The Government Accountability Office resentatives of the public to discuss relevant tax (GAO) is an agency that works for Congress and administration issues. The Council advises the IRS the American people. Congress asks GAO to study on issues that have a substantive effect on federal the programs and expenditures of the federal gov- tax administration. ernment. GAO, commonly called the investigative Taxpayer Advocacy Panel: The Taxpayer Advocacy arm of Congress, or the congressional watchdog, Panel (TAP) listens to taxpayers, identifi es taxpay- is independent and nonpartisan. It studies how ers’ issues and makes suggestions for improving the federal government spends taxpayer dollars. IRS service and customer satisfaction. The TAP acts www.gao.gov/ as a two-way conduit, serving as a focus group for OMB: The Office of Management and Budget the IRS, providing input on strategic initiatives, as (OMB) assists the President in the development and well as providing a venue for raising issues identi- implementation of budget program, management and fi ed by citizens.

JOURNAL OF TAX PRACTICE & PROCEDURE 69 The IRS Oversight Board: The IRS Oversight Board is Congressional Oversight an independent body charged to provide the IRS with Committees long-term guidance and direction. Since it began its operations in September 2000, the Board has sought Senate Committee on Finance, Subcommittee on Taxa- the views and insights of those who work regularly tion and IRS Oversight: www.senate.gov/~ﬁ nance/ with the IRS. www.treas.gov/irsob/ House Committee on Ways and Means, Subcommit- tee on Oversight: http://waysandmeans.house.gov/

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