Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, April 12, 1990 TAG: 9004120791
SECTION: NATIONAL/INTERNATIONAL PAGE: A/1 EDITION: EVENING
SOURCE: ALBERT CRENSHAW and WILLIE SCHATZ THE WASHINGTON POST
DATELINE: LENGTH: Long
But while the IRS sleuths were tracking down this dime, they had on their books some $30 billion to $40 billion in unpaid taxes that they hadn't gotten around to collecting, plus a roughly equal amount they had assessed but figured they would never collect.
In North Carolina two years ago, Kay Council came home to find her husband, Alex, had killed himself after five years of battling the IRS. The issue: a $300,000 bill levied on the Councils, most of which was penalties and interest after they failed to respond to a notice that the agency had sent to the wrong address. Ultimately, Kay Council won her case in court - only because her husband's life insurance policy gave her enough money to pay her lawyers.
But at the same time, a thriving underground economy would yield $80 billion to $100 billion a year to the government if the tax collectors could corral it.
As millions of Americans hunker down over files and forms and canceled checks to try to beat the Monday income-tax filing deadline, a growing number is wondering whether the giant agency can be relied upon to do its job fairly and effectively.
The agency, according to critics, leans hard on small taxpayers who are least able to defend themselves, while it misses non-filers and crooks and allows large taxpayers represented by high-priced legal and accounting talent to pay less than they should.
Meanwhile, struggling to keep afloat amid unpredictable budgets and steadily rising costs, it has let its computers become obsolete, cut audits to a rate of less than 1 percent annually and neglected internal controls needed to deal with such crucial issues as abuse and corruption within the agency.
These concerns are shared on Capitol Hill, where oversight subcommittees are looking into complaints ranging from dishonesty to inefficiency to stupidity.
The General Accounting Office, Congress' investigative arm, has issued a series of reports criticizing IRS efforts to improve its technological capability - a project that ultimately will cost billions of dollars.
And the worries reach to the highest level of the IRS itself, where Commissioner Fred Goldberg places the agency, along with the nation's entire tax policy, "at a crossroads."
But Goldberg, who took over as commissioner last July, says that many of the difficulties the IRS encountered during the 1980s were created by rapid-fire, not always well-thought-out, acts of Congress, and by abrupt budgetary changes that whipsawed agency plans. These conditions are changing, he said.
Five years ago, he said, as tax shelters and tax protesters reached epidemic proportions, the nation's tax system was "truly threatened."
Today things are better, he said in an interview recently. Tax-law changes snuffed out the tax-shelter industry, and energetic enforcement has the protesters in retreat.
Goldberg said he thinks the IRS, given a few years of budget stability and no wholesale overhaul of the tax laws, can solve its problems to the satisfaction of both itself and taxpayers.
"I think that as you look at the '90s, the most important challenge we have to the system is to make it more workable for the average taxpayer," he said. His goal, he said, is to reduce "the frustration factor . . . the hassle factor" that causes the long-term erosion of confidence and compliance in the system.
It won't be easy.
This year the IRS expects corporate and individual taxpayers will file 190 million returns, and the agency will process 1.2 billion information documents - from W-2 forms on which employers report employee earnings to forms for mortgage-interest payments to forms to report donations of goods to charity.
The load has been steadily rising. The number of returns filed is up 20 percent over the past decade, the number of information documents is up 200 percent. During the 1980s, Congress tinkered with 2,381 different sections of the tax code, forcing modification of all IRS forms and instructions and creation of 81 entirely new forms.
Current law is so complex that IRS telephone assisters must ask as many as 42 questions to determine whether a taxpayer qualifies as a head of household.
Although the agency apparently has been able to avoid a repeat of the situation of 1985, when employees at the Philadelphia service center were throwing returns into the trash, and appears to be getting through this filing season with a minimum of glitches, long-term fundamental problems remain.
Today the IRS still has:
Overworked, underpaid people working with
An obsolete, unreliable computer system to implement
A rapidly changing, ever-more-complicated tax code to fund
A deficit-plagued government that is desperate for revenue.
The problems did not appear overnight but were the product of a long, slow erosion.
It is "a whole confluence of longstanding problems," said Goldberg's predecessor, Lawrence Gibbs. But Gibbs also says the situation is getting better.
Goldberg, who doesn't try to minimize his task, is given high marks by both congressional and outside critics for his approach.
"Mr. Goldberg has taken a very realistic view of the status of IRS, on ethics as well as operations," said Rep. Doug Barnard, D-Ga., chairman of a House Government Operations subcommittee that monitors the agency and has been looking into charges of corruption.
Goldberg is a graduate of Yale and Yale law school, was IRS chief counsel in the mid-1980s and practiced law with the firm of Skadden, Arps, Slate, Meagher & Flom before taking his current job. But even with his skill and experience, many veteran IRS-watchers wonder how much he can do.
"What I am concerned with is, is there a will to do this in IRS?" said Sen. David Pryor, D-Ark., chairman of the Senate Finance Committee's IRS oversight subcommittee. "I think at the very top there is the will - Commissioner Goldberg has the will - but does this filter down to the service center, to the collection officer . . .?"
Service centers, where returns are processed, "are still a black hole," Pryor said. New computers are "still desperately needed," and "we can't get the service to be honest with us" about those needs, he said.
Because the IRS is so large and its computer needs so huge, one oversight staff member likened their modernization to a Pentagon project. "We are really worried about their ability to purchase such sophisticated equipment," he said.
And unlike intercontinental missiles or Star Wars weapons, it will be immediately obvious if the IRS' computers don't work. Indeed, they are the key to Goldberg's vision of the agency's future.
Considering that the IRS is at heart an information-processing organization, computer technology at the agency is stunningly antiquated. Such computers as the IRS has cannot always link up with one another, data must be laboriously entered by hand and communication between its central data bank in Martinsburg, W.Va., and offices in the field requires physical transfer of computer tapes via truck or plane.
In the next three to five years, the system will reach its ultimate capacity, and unless something is done, no one knows what will happen then.
"Goldberg is sitting on a time bomb," said David Burnham, author of a new book on the agency, "A Law Unto Itself: Power, Politics and the IRS."
The IRS has grandiose plans to rectify the situation. Its "tax-system modernization" program is supposed to create a fully automated, modernized tax-processing system that will prepare the agency for the 21st century.
The goal is to make the entire system electronic, so that IRS workers will have immediate access to all information on a taxpayer whenever they deal with his or her return - much as a credit-card firm can do when a customer calls to question a bill. But so far the modernization program remains mostly just a plan and one that is frequently changed at that.
According to the General Accounting Office, the IRS has spent about $120 million since the plan's inception in 1986 and expects to spend several billion dollars more to complete it.
But the completion date remains an open question. Realizing how outdated its technology was, IRS first set out in 1968 to redesign its entire system. That effort was abandoned in 1978. Another was begun in 1982, but three different approaches to modernization failed to make it past the planning stage, and the effort was dropped in 1986. The third effort started later that year.
By March 1988, the agency had approved a management plan that was intended as a basis for modernization. That plan was updated in March 1989.
But it hasn't fared much better than its predecessors. GAO said the current approach is surrounded by uncertainty and that the program is "a collection of independent modernization projects, most of which are intended to upgrade existing systems to provide additional computer capacity." GAO said the IRS must clarify how the various systems will fit together into an integrated system that will meet the agency's needs into the next century.
That means meeting taxpayers' needs as well. Neither the service nor the public is served particularly well when computer operators in the collection division in the Philadelphia Service Center must move between two terminals because the machines can't share information.
These ills may be alleviated by the modernization plan. But according to the GAO, the IRS won't have the plan completed until late this year. Then the agency must implement it, which may prove far more difficult than putting it on paper.
Although the agency is still working on the specific equipment for the project, it surely will require buying larger and more powerful mainframe computers, desktop terminals that can share data with several other machines, and software that will allow the machines to communicate with each other as fast as possible.
In the interim, the agency's employees continue to do the best they can with what they've got.
What they've got is a system that still depends, much as taxpayers do, on pencil and paper.
What they've got is a laboriously long paper trail that makes an observer wonder why the agency doesn't lose more returns.
The Cincinnati service center, one of 10 nationwide, handles 12.5 million returns. When a taxpayer mails the return, it goes to the composite mail-processing system, where a machine reads the bar codes on the envelope and opens envelopes.
After some machine-based sorting and manual examinations, basic information from the return is manually entered onto magnetic tape and sent to the master center in Martinsburg.
But this is the outer limit of automation today. When auditors or problem solvers want to refer to the computerized data, they must get the tape physically carted in from Martinsburg.
But what is on tape is only a fraction of the data on a complicated return. If a question arises concerning the more complicated data, the taxpayer's return itself must be retrieved - a time-consuming process that slows response and often causes maddening, computer-generated dunning notices to go out long after the taxpayer thought he or she had dealt with a problem.
Meanwhile, workers continue to struggle.
"I'm happy and proud of what we're doing with our computer system," said Bud Betz, a 23-year IRS employee and chief of the computer-services division in the Philadelphia center. "While the IRS in Washington is thinking long-term, I'm worried about today. We don't have much tolerance for `It's not my problem.' We just want to solve our customer's problem.
by CNB