Treasury Plans Major Revamp of IRS

The Treasury Department is expected to announce today a major reorganization of the Internal Revenue Service, aimed at exerting greater control over an agency that has come under increasingly harsh criticism during the past year.

The reorganization plan appears to be an effort by the Clinton administration to preempt IRS critics, who are demanding sweeping changes to the agency and to the federal tax system.

But the Treasury Department plan, while significant in its aim to increase direct supervision of the IRS, stops far short of any wholesale remaking of the tax system or the IRS’ key functions.

The reorganization, which is scheduled to be disclosed in a speech by Deputy Treasury Secretary Lawrence Summers, would give the Treasury Department greater day-to-day control over the IRS.

An outside advisory board, made up of business executives, Treasury officials and tax professionals, would be created to help the Treasury Department in overseeing the agency, a senior Treasury Department official said Sunday.

Until now, the IRS has operated with far greater independence than most other federal agencies. There are only two political appointees in its management: its commissioner, who heads the agency, and its general counsel.

While the Treasury Department plan would not overtly politicize the IRS, it clearly would give Clinton administration officials a greater role in the agency’s management.

A national commission to restructure the IRS has been holding hearings for about six months and is expected to make its recommendations this summer. It is expected to suggest that the IRS be put under the control of an outside board of directors. The advisory board that Summers will announce stops far short of that, the senior Treasury official said.

In addition to the oversight board, the overhaul would include giving the IRS greater latitude in hiring and transferring senior executives. It would also allow the IRS to create long-term budgets for big projects, rather than get annual approvals from Congress.

Among other things, the IRS has come under intense criticism over obsolete technology that has created frustrations for ordinary taxpayers. After spending $4 billion to modernize its computer systems, the agency acknowledges that its efforts have gone badly off track.