| ||||
Named the 45th Commissioner of Internal Revenue in 1997, Charles O. Rossotti (MBA '64) heads the Internal Revenue Service, which has 102,000 employees, a $7.8 billion budget, and annual revenue collections totaling some $1.5 trillion. The Bulletin spoke with Rossotti in his office at IRS headquarters in Washington.
You chose to become head of one of America's least popular institutions. Why?
A number of factors had coalesced—public discontent, mounting congressional criticism, technological advances, to name a few. They created a unique situation in which conditions were ripe for a possible turnaround of this huge institution, one that affects everybody in the country. I saw it as an opportunity to bring about fundamental change at an agency that really needed it, to have an impact on a key function of government, and to make life easier for our tens of millions of taxpayer customers. To me, it seemed like a very interesting challenge.
How do you view your mandate as commissioner?
There is one overriding mandate emerging from the IRS Restructuring and Reform Act of 1998: we've got to rewin the confidence of the taxpayer and still collect the taxes. We have to pay attention to the effect we have on the people who pay the tax, as well as the tax they pay. Both are important.
What are the dimensions of this turnaround challenge?
Every system, top to bottom, has to be reengineered. Our most fundamental problem is that we don't have accurate taxpayer records. We're like a bank that can't tell you exactly how much our customers have on deposit. We have 35-year-old systems for maintaining records on tape files.
Our collection process and compliance examinations are months or years behind, largely due to antiquated systems. We collect $1.5 trillion annually with a financial management system that's held together with baling wire. It's an unacceptable situation that will require sustained attention and support over time to correct.
Tell us about your modernizing effort and its focus on improving the IRS's organizational structure, culture, and technology.
Instead of offices around the country that are responsible for the full spectrum of taxpayers within a geographic region, by the end of this year we'll have in place four units whose purview and expertise are tailored to specific groups of taxpayers. Located in or near Washington, the units will be devoted to individual taxpayers with wage and investment income; small business and self-employed taxpayers; large business taxpayers; and exempt organizations, such as nonprofits and state and local governments.
Each unit will focus on understanding, solving, and preventing taxpayer problems with efficient and timely service. Directly related to that approach are our new customer-oriented benchmarks for IRS performance: customer satisfaction, employee satisfaction, overall compliance by each tax-paying sector, and continuous improvement. [NOTE: For more on the modernization effort, see IRS Modernization on the agency's Web site.]
You've said that private-sector best practices, particularly in technology and customer relations, are models you'd like to emulate.
Technology and customer relations are keys toward helping taxpayers have confidence in us and the way we do business.
So we are looking at the private sector, particularly at companies such as credit card firms or the big package-shipping outfits. They operate call centers and computer-tracking systems that can summon up your account immediately and give you the information you need right away. That's the level of service we'd like to provide for our customers.
What's different about leading civil servants as compared with private-sector employees?
There are differences in compensation and entrepreneurship, although the employees who work on our Web site are just as creative and excited about their work as folks at any e-commerce business!
Overall, there are more similarities than differences. People respond to the opportunity to develop themselves, to make a contribution, and to work well with their peers.
What's your opinion about corporate tax shelters?
Abusive tax shelters are a major problem, and the Treasury Department has proposed new legislation to crack down on them. By abusive, I mean a transaction that may technically be within the law but has no practical business purpose. It's just sleight of hand to reduce taxes without a legitimate reason.
Typically, it's the bigger companies and multinationals that engage in this activity. People in large corporations tell me all the time that they want us to do something about it; if the competition is engaged in abusive shelters and your firm is not you may feel pressured to do something you don't want to do.
On the small business side, what are your concerns?
This sector provides a big percentage of the tax base and is an area where the IRS has plenty of opportunity for improvement. The average taxpayer has one interaction per year with us, but a small businessperson with a few employees may have to deal with us fifty times a year. If you fall behind, you can get in all sorts of tangles.
This is a good example of how our reorganization into units is going to help us—one of our four new divisions will work exclusively with small businesses. With the technology improvements that will soon be up and running, we'll be able to get to problems quickly before delays complicate things.
How have you handled Washington's political culture?
I try to think of the different constituencies as investors or financial analysts—you have to level with them so that they trust you. Because just as in business, you're going to have a rough stretch now and then, so you want to be able to keep the relationship positive.
Do you do your own taxes? Have you ever been audited?
For many years, I've had a tax preparer do my return; I'm always too busy. And yes, one of the perks of being commissioner is that they give you an audit before they let you have the position. I'm happy to report that they did a very professional job.
· · · ·
The Rossotti File
It may not be much solace at this time of year, but American taxpayers really do have a sympathetic ally running the IRS. As a businessman, Charles Rossotti finds the IRS's historically adversarial attitude and the glacial pace of its transactions baffling and counterproductive—a relic of another era, like the dinosaur bones in the Natural History Museum across the street from his office. "Sure, people don't like paying taxes, but they understand the need to," Rossotti says. "Ninety-eight percent want to comply, and our job is to help them—it's that simple."
Rossotti came to the IRS from Virginia-based American Management Systems, an international business and information technology consulting firm that he helped found in 1970. From 1965 to 1969, he was one of Robert S. McNamara's (MBA '39) fabled Defense Department "whiz kids."
The first few years of the Rossotti era at the IRS have been devoted to laying the groundwork for impending change. Rossotti says that annually for several years, starting in 2001, taxpayers will notice major improvements in service. "If we continue to get the support and resources we need," Rossotti says, "I think we'll be in good shape."
Excerpted with permission from Harvard Business School Bulletin, April 2000.