Restructuring the Internal Revenue Service

Donald F. Kettl
Donald Kettl
Donald F. Kettl Donald F. Kettl is a Nonresident Senior Fellow at the Brookings Institution as well as Professor Emeritus and former Dean of the University of Maryland School of Public Policy

September 16, 1997

Don Kettl submitted to the Committee on Ways and Means for the printed record his Policy Brief titled “Taxing Reforms: Assessing the Plans to Reform the IRS.” Following is a supplemental statement that was the basis for his oral remarks delivered to the Committee on Ways and Means and submitted for the record.

In the course of the Committee’s September 16 hearing, many questions arose about the proper role and function of the board proposed to improve IRS governance. Let me explain which functions are, in my opinion, appropriate and which are not for such a board.


The hearing featured extensive debate on whether the proposed board was a management, oversight, advisory, or some other kind of board. H.R. 2292 christens it “the Internal Revenue Service Oversight Board” [Sec. 101(a)]. The title, of course, does not really matter at all. The critical issue is the board’s function; “by their works ye shall know them” is the applicable adage. The debate before the Committee therefore has meaning only in terms of what the board would do.


The hearing revealed widespread agreement on the need for at least one external board. Indeed, the proposal by Rep. Charles Rangel would create two boards. However, the hearing also revealed broad disagreement on which functions such a board could properly exercise.

H.R. 2292 stipulates that “The Board shall have no responsibilities or authority” to deal with “the development and formulation of tax policy” or “specific law enforcement activities of the Internal Revenue Service” [Sec. 7802(c)(2), as contained in Sec. 101 of the bill]. Nevertheless, H.R. 2292 gives the board authority to:

  • Review and approve the IRS’s strategic plans
  • Review the operational functioning of the IRS
  • Select, appoint, and remove the IRS commissioner
  • Review and approve the IRS’s budget.

Such functions might be labeled in many different ways, but one point is unarguable: Any entity exercising these functions would have clear authority over the IRS and its operations. Moreover, although many supporters of H.R. 2292 have contended that the bill separates tax policy from its administration, in reality tax policy is its administration. Who gets audited for which provisions of the tax code, how IRS runs its computer-based tax return review system, and how many telephone service operators are made available inevitably defines the very fiber of tax policy.

Thus, the board as defined in H.R. 2292 would unquestionably exercise authority over the IRS, and this authority would shape the IRS’s implementation of tax policy. No matter how this role is labeled, the function is clear. The Secretary of the Treasury might be responsible for submitting the IRS budget to OMB and to the Congress. But in all cases the board would like directly in the IRS chain of command, between the president and the Secretary of the Treasury. Its authority is clear and unmistakable.

Putting such public authority into the hands of a board dominated by private citizens, as I noted in my testimony, is unprecedented, unwise, and fundamentally flawed. Quite simply, no private board should be allowed to exercise such public authority, for the reasons I outlined in my testimony: inevitably conflicts of interest, weak leverage by part-time board members, and a fatal lack of accountability.

What Functions Might Properly Be Given to a Private Board?

There is near-universal agreement on the need for a non-governmental board to improve the management of the IRS. What functions could such a board properly exercise?

A private board could provide invaluable guidance to the IRS on its operations and political support for making needed changes. Experienced private officials could supply, from their experience, ideas about focusing IRS’s strategic planning. They could sharpen the IRS’s functioning and provide guidance about transforming the agency’s organization culture. They could identify leading candidates for high IRS positions. They could review and make recommendations about the agency’s budget. All of these functions would be invaluable. The IRS’s troubles, moreover, have demonstrated just how badly additional guidance is needed.

However, no private board should ever be allowed to enter into the IRS chain of command. A board could review the IRS strategic plan, but it should not be allowed to approve it. A board could review the operational functioning of the IRS and make recommendations for improvement, but it should not be allowed to set managerial policy. A board could recommend candidates for IRS commissioner, but it certainly ought not select, appoint, or remove the commissioner. A board could review and make recommendations on the IRS budget, but it should not be allowed to approve it.

There is a clear and bright line between the proper and non-proper functions such a board can play. It can—and should—advise the IRS on its operations. It cannot—and should not—exercise authority over those operations. By both constitutional practice and good management practice, there must be a clear line of authority from the Secretary of the Treasury through the IRS Commissioner to the IRS’s front-line workers. The creation of such a private board with some, but not all, management authority over the IRS is bad law because it confuses and diffuses accountability. It is bad management because it muddies the question of just who is in charge of what.

H.R. 2292 ought to be amended to change the board’s function from “review and approve” the IRS’s strategic plans and budget to “review.” It ought to be amended to change the board’s function from “the selection and appointment, evaluation, and removal of the Commissioner of Internal Revenue” to “recommend candidates for” and “evaluate the performance of” the Commissioner.

The Case for the Board

A new advisory board ought to be created to bring the IRS strong ideas from private sector experience. The functions of such a board, however, ought to be crystal-clear: The board ought to play an advisory role and ought not to exercise any authority over IRS operations.

The arguments against the board proposed in H.R. 2292 does not rest on an inability to find experienced public-service-minded members. The composition of the National Commission on Restructuring the IRS provides ample evidence of the rich supply of potential board members. Rather, the arguments against such a board depend solely on its functions—on the need to retain public authority in public hands, and on the need to provide clear and unambiguous management direction to a troubled agency.

Creating a new private-sector advisory board would prove an invaluable first step in helping the IRS turn around. I enthusiastically support the creation of such a board—with clear advisory functions, not with authority over the IRS.