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A Look at the IRS Reorganization from the Inside: A Personal View of the old Sacramento District

On Behalf of | Nov 11, 2014 | Firm News

My last blog of November 3rd generated some lively emails and comments on LinkedIn and it appears as though I hit a nerve. There are plenty of IRS veterans still in place as well as alumni

around who remember what the IRS field offices were like both before and after the 1998 Reorganization. A lot of them are stepping up and following Professor Frank Wolpe’s admonition in the subtitle of his White Paper [1], which says, “If you see something, say something; and make no mistake, restoring trust in the IRS is a national security need.”

It is almost fashionable today to jump on the IRS-bashing band wagon. For some members of Congress, IRS bashing is good sport because the message to the folks back home is their rep in Washington is standing up to the most obvious symbol of unthinking Big Government and the erosion of personal freedom. For some practitioners it is fair game because the IRS really cannot fight back. For one thing, it is not set up that way and for the people who work there, hyperbolic screeds, mouthing off, and the wrath of crack pot conspiracy theorists just comes with the territory.

Of course this is not to say that an organization of 90,000 people doesn’t have some bad apples nor that the IRS sometimes has done, and probably always will do, some stupid things. Unfortunately, the very nature of big government today is such that it is seemingly incapable, just by its very nature, of protecting us from its tendency to do flop-headed things, notwithstanding the good will of the rank and file people who work there.

The challenge in this whole Reorganization discussion is trying to find out what has gone wrong with the IRS, and how to rearrange things so that future damage is kept to a minimum. The purpose behind the old structure (which dates back to the Truman Administration in 1952), before the Stove Top Stuffing Reorganization in 1998, was to organize the agency in a way which had responsible, visible, and accountable people in place at the local level who were empowered and smart enough to make it at least look like the government knew what it was doing. In today’s world it seems, sometimes the best we can expect from government is to just keep things from getting worse. But when it comes to collecting enough money to keep the lights on and protect our shores from lunatics who wish we were dead, we better get it right.

Again, as Professor Wolpe reminds us, the old IRS alignment served as a “self-protective structure for early detection and correction” of potential problems.

My IRS experience permits me to state without qualification that the overwhelming majority of people who work for the IRS do so in good faith and sincerely believe they are performing a valid public service organized around rules which are fair, and make the government cut square corners with  the people whose lives they touch. The fact that I approach the IRS this way is a comfort to my clients. Approaching an IRS agent or attorney with the same respect and dignity as I would any other person in the private sector, usually makes things go a lot easier.

This is purely anecdotal but my guess is the folks who work for the IRS are over represented compared to the rest of the population when it comes to involvement in community service organizations, attending religious services, volunteering-type activities and all the other kinds of human conduct we like to think make up a well-informed,  and responsible citizenry. The people who work for the IRS are you and me, the same people you see in the Safeway and at your kids’ soccer games.

Making the IRS visible to the local community is one of the reasons we need to return  to the District Director Model:

Professor Wolpe’s White Paper spells out why having a visible local person, or District Director in charge of the IRS is so critical:

Education and outreach was part of the job so that it was expected that each DD would
become a community leader, partnering with local chambers and other stakeholders,
emphasizing community service and identifying with charitable activities. They
earned their spurs by being respected in their posts of duty as fair-minded
hands-on Service senior-executives.

 The short-lived Sacramento District:  After 15 years with the IRS in Washington, I had the privilege of opening up a new office for the Chief Counsel to accompany one of the three newly-formed districts in California in 1984. The newly-appointed Sacramento District Director, a very cool guy named Ray Spillman, was both a CPA and an attorney from Chicago who came up through the ranks as an outstanding revenue agent. The custom in the IRS is for the Counsel organization to mirror the “client organization” –the 85,000 people we served as “house counsel,” ergo the need for a new Counsel office.

Viewing  the Reorganization from the vantage point of the Counsel organization was a good perspective. My relationship with the District Director was somewhat akin to an attorney/client relationship in the private sector. Ray didn’t supervise me, meaning he had no “line authority” over me. His division chiefs had to laugh at his jokes at staff meetings but I could tell him if I didn’t like his tie. I would meet with him for 15 minutes before his weekly staff meetings and we would enter the staff meeting together through his private door. Ray sometimes delighted in calling me his “consigliore” and he would give me a heads up on issues he was about to discuss with the chiefs and their aides. If there was a topic on the table to which he had already given some thought, I made it my business to get up to speed to support him if need be.

Opening a new district office in California was fun because everyone was new to the job. There was a real feeling of comradery and pride in setting up a Central Valley district, separate and apart from the dominant San Francisco and Oakland posts of duty.

I never had a bad or unpleasant job with the Office of Chief Counsel in my 30 years with the IRS, but my new position as District Counsel was one of the best jobs anyone in the government could have. Opening up a new District in a beautiful part of the country with a new DD and a bright energetic staff was really exciting for a government lawyer in the middle of his career, especially a Jersey boy who grew up in an industrial town between the Garden State Parkway and the New Jersey Turnpike. The new District was made up of plenty of local Northern California IRS folks, National Office people who wanted to see how the “real world” worked, new hires, and people from all over the country who were willing to move to California and leave their hometowns to take part in a new venture.

“You want us to do what now?” I went from the innards of the National Office where orders and protocols were devised and issued, to a field office three thousand miles away where the actual work of the Internal Revenue Service was done: audits, collections, criminal investigations and Tax Court litigation. Sometimes the latest management directives from the National Office were viewed by the troops as just another “flavor of the month” order where the first reaction to what they were asking for was, “You want us to do what now?!” A good example was the so-called Quality Initiative we were forced to endure in the eighties and early nineties where even our leaders “in Region” could barely keep from bursting out in laughter when they tried at tremendous expense, to coax us into doing some of the silly things which were part of a program to sensitize us to the subtleties of the art of managing people.

It’s not part of the Internal Revenue Manual, but one of the unwritten rules on “how to be a good IRS District Director” is  “at all times, keep the turkeys off the roof.” A skillful DD knew how to respectfully serve up the National Office, worthless ground glass without letting them know that that was what they were asking for.

It’s an “East Coast/West Coast” thing, but Easterners who move to California or other parts of the West soon come to learn that “buttoned down” Washington will never get why  geography and life styles out here matter so much. The new Sacramento District was comprised of thirty one California counties, the entire northern third of the State, an area bigger than many entire states.  At the time, there were close to a dozen posts of duty throughout, including a one person post of duty in Yreka near the Oregon border. Some of the offices were staffed with five or less people but there were large ones too with hundreds of people in Walnut Creek and Sacramento. The Sacramento District was urban, suburban, vast expanses of farmland, nature preserves, rugged mountains and wilderness, and plain old empty space which probably will never fall victim to human excess in our lifetime simply because it is so  big.

Mr. Spillman had people out there in the posts of duty who were the public face of the most feared and hated institution in the land. Coming up through the ranks, he knew how important it was to personally visit each post of duty at least every other year. Because he was friendly and truly enjoyed a good “meet and greet” he would kibbutz with the front liners and let them ask any question which popped into their heads. “Any word on the hiring freeze?” “Is there any plan at all, to get us some training on the new law?” “Will we ever be able to communicate with taxpayers by email?” “Doesn’t Congress realize that adequately funding the IRS allows us to do our jobs without one hand tied behind our backs? “Will there be any new jobs opening at Headquarters in Sacramento which could lead to a management position perhaps at another post of duty?”

The point is, the District was like a family and we looked out for each other and the DD embodied leadership. On site leadership. The DD staff meetings I referred to in my last blog were “good government” happening right in front of you. The areas of enforcement focus were generally set forth annually by the National Office in what was then known as a Program Letter for Exam, Collections and CID, but Ray Spillman was the quarterback, team captain and cheerleader all in one, and he saw his job as doing whatever he had to do so that his troops could do their jobs. This was often in spite of the sometimes distracting demands of the Region and the National Office.

Needless to say, when we all found out in Sacramento in 1998 that we had new bosses who weren’t even going to be working regularly on site, we were devastated. What’s more, our dear new Sacramento District which we painstakingly put together just fourteen years ago was to be abolished. We were truly heart broken. Never in a million years would we have ever thought that our Sacramento District 10th Anniversary commemorative t-shirts were soon to become a collector’s item. A District-wide contest to design a Sacramento District logo when we first opened for business produced a snazzy art work depicting 49ers panning for gold on the North Fork of the American River and a likeness of the State Capitol building [2].

Today under “Stove Top,” there is not even a chain of command or any line authority for an upper-level manager to order a mid-level manager to visit a post of duty. They wouldn’t know whom to visit.  And assuming someone from the prestigious Large Business Division had time to pull himself away from Washington, to visit for example, the friendly little office in Eureka in the far northwestern corner of the State, do they just ignore the lowly revenue agents working there from the Mom and Pop/Homeless Taxpayers Division (Read: Small Business/Self-Employed Division) simply because they were part of another Division?

The District Director’s Job Was to Keep His Eye on the Ball.

Apart from fending off Region and the National Office, the key to being a good DD was to have in place a system of open communication and accountably where he or she knew what was going on and knew when, or if, it was time to get personally involved in a substantive issue or personnel matter. This was so, especially in matters which, if done clumsily, could embarrass the Service. Mr. Spillman knew that his mission was to keep the public’s perception of the integrity of the organization in high esteem. (In fact its integrity remains at the highest levels ever, but perception is everything.)

After all, the American tax system was founded on the principle that in a truly enlightened democratic society, the people will voluntarily tell their government what was going on tax-wise during the previous year. What a downer for “voluntarily compliance” when the people think they can’t  trust the tax collector. What a shame on us as a people where tax administration is scorned as if it were being run like the rackets by Washington insiders and cliques.

The “Stove Top” Model Needs to be Revisited: As explained by Frank Wolpe in his White Paper, when applied to our district in Sacramento, under the “stove pipe” concoction, the old chain of command was cut off two levels below the chiefs who were firmly under the “line management” of the District Director. Under Stove Top, the division chiefs and branch managers were no longer even there!

The Taxation Section of the American Bar Association is saying, “Pay attention to this!”

The digital age has given us more information than we can even absorb, especially from people who insist on telling us what they really think of the IRS. That said, as an attorney and professional in the field of taxation, I try to pay attention to things the ABA says. Mr. Wolpe’s White Paper should change the whole debate about the IRS.  What he and the ABA are telling us is, “The Emperor seriously has no clothes.” The fact that the vaunted Tax Section of the ABA has offered up Mr. Wolpe’s paper for our consideration should make this issue a game changer for the “let’s-go-kick-around-the IRS” crowd. Unfortunately, the smart money is not on action very soon. And remember it took four years for this huge tanker to change course and sadly, it almost had to come to a full stop before it did so.

Finally, no one of good will takes any comfort in the fact that some people who work for the IRS are not feeling that great about their jobs. Good morale amongst the troops is as vital to effective tax administration as is having the right systems in place to get the job done.

[1] Professor Wolpe’s paper can be read here.
[2] For those who have never seen the California Capitol building, it is easy to see why so many people think it is architecturally and aesthetically more beautiful than the Capitol in Washington.