ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, September 8, 1996 TAG: 9609090092
SECTION: BUSINESS PAGE: 1 EDITION: METRO
DATELINE: NEW YORK
SOURCE: JANE BRYANT QUINN WASHINGTON POST WRITERS GROUP
You may think it's dandy to cut the funds that support the Internal Revenue Service, as Congress recently proposed. The Senate would chop 6.4 percent from its fiscal '97 budget; the House wants 9.1 percent. Adjusted for inflation, the cuts are even deeper than that.
Hardest hit is the IRS's disappointing program for modernizing its computers.
But there's also a slice off the budget for tax processing, taxpayer assistance and law enforcement. Fewer cases will be worked. Less delinquent tax will be corralled.
Hooray, say the tax-haters. Beat those revenooers down. But only the cheaters have cause to cheer. Honest taxpayers may find it harder to get booklets and forms, harder to get a question answered, harder to resolve a dispute.
Even now, the IRS isn't delivering as much service as it used to, says tax lawyer Karen Field of the consulting firm, KPMG Peat Marwick. Whether it's a request for a private letter ruling or a compliance issue, ``things that used to take six months now take a year,'' she says.
The delays are holding up business transactions, such as acquisitions and mergers. When the deal can't wait, the parties have to guess what the IRS will rule. If they're wrong, it could cost them millions of dollars.
Tom Ochsenschlager, a partner at the accounting firm Grant Thornton, has a client who needs a tax ruling on a new financial product. The IRS' national office told him it will take a year to find out. ``The cuts that Congress has already made are slowing down commerce,'' Ochsenschlager says.
Like all other government agencies, the IRS has been streamlining operations - consolidating offices, centralizing telephone service and reducing staff. Its objective: to move more people into audits and collections, in order to bring more money in.
For example, it has been moving faster to collect delinquent tax. In 1992, it beefed up the number of field agents who investigate business returns. Cash businesses appear to pay an average of only 70 percent of their tax, compared with more than 95 percent for people subject to tax withholding.
The plan has been working. The rate of collections has increased.
In 1995, Congress appropriated $400 million, for what was intended to be a special, five-year compliance effort. The IRS hired 5,000 new agents and collection officers. Result: an extra $800 million in taxes captured for the Treasury in the first year, says IRS spokesman Frank Keith.
Did some of that money come from taxophobic constituents of powerful people? For whatever reason, Congress reneged on its promise of long-term support. Funding for the effort stopped. All this year, the IRS has been cutting personnel, by attrition and early retirements. Total average employment is down to 106,000 this year, from 116,700 in 1992.
Early next year, the IRS may face its first mass layoff ever. Some 4,800 jobs are going to have to go, Keith says. The service has been doing its best to chop staff and clerical support while leaving compliance people in place. But if Congress does indeed cut the fiscal '97 budget, compliance will also be reduced--and the government will collect less tax.
In many ways, this story is an object lesson in why it's so hard to get government to downsize. The IRS cut its management costs, to be able to spend more money on tax collections and taxpayer services. But by slashing its budgets, Congress took the savings away and scotched the service's plan.
Would businesses bother to run a leaner operation if they weren't allowed to profit from the money they saved?
If you hate the tax law, the IRS shouldn't even be your target. Congress writes all those torturous clauses and exceptions. Odd, that politicians get credit for IRS-bashing, when the IRS is merely enforcing what the Congress wants.
A touch of good news: the new Taxpayer Bill of Rights should make disputes a little easier to solve. Some key provisions, according to Mark Ely, a partner at KPMG Peat Marwick:
* You'll be able to send a last-minute tax return by certain private delivery services, and have their time stamps count as proof that you filed before the deadline. The IRS will have to approve the services; they'll be companies like Airborne and Federal Express.
* If the IRS sues you and loses, you have a better shot at recovering your legal fees.
* Your interest payments might be canceled on back taxes due, if your tax case dragged on solely because of IRS errors and delays.
* The ombudsman's office has been granted more powers and recast as the Office of the Taxpayer Advocate. If you have a problem, ask your district office to put you in touch.
LENGTH: Medium: 85 linesby CNB