ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Friday, January 31, 1997 TAG: 9701310070
SECTION: NATL/INTL PAGE: A-1 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: The New York Times
THAT WILL MEAN YEARS of frustration for taxpayers who get into a dispute with the IRS, especially one that involves records kept on two or more of its computer systems.
The IRS, conceding that it had spent $4 billion developing modern computer systems that a top official said ``do not work in the real world,'' proposed Thursday contracting out the processing of paper tax returns filed by individuals. That would allow nongovernment workers to see confidential information about the incomes of individual Americans.
Arthur Gross, an assistant commissioner of internal revenue who was appointed 10 months ago to rescue the agency's efforts, said customer service representatives must use as many as nine different computer terminals, each of which connects to several different databases, to resolve problems.
``Dysfunctional as some of these systems may be today,'' Gross said, the IRS ``is wholly dependent on them'' to bring in the $1.4 billion of taxes that finance the government. He expressed doubt that the agency was capable of developing modern computer systems, saying it lacked the ``intellectual capital'' for the job.
The proposal to contract out the processing of paper tax returns would save little money, as it costs only $34 million for clerks to extract information from 200 million paper tax returns and enter into IRS computers. But such a move is sure to arouse protests from taxpayers concerned about who can see how much money they make and how much they pay in income taxes.
The Government Accounting Office has sharply criticized the IRS for its administration of the modernization project, and the agency has previously acknowledged problems with the effort. But Gross' comments marked the first time that it said it would have to scrap the project altogether and start over.
Gross' admission that the Tax Systems Modernization effort has failed came in testimony before the National Commission on Restructuring the IRS, a bipartisan panel created by Congress to examine the agency's operations.
The panel is expected to press for a different approach to developing modern computer systems and to recommend innovative ways to persuade more Americans to file their tax returns electronically.
Gross said the IRS had already killed one modernization project, a plan to turn paper tax returns into electronic images, after paying $284 million to Lockheed Martin, the nation's largest defense contractor.
A spokesman for the commission said the cost of shutting down the project ``will be astronomical.'' He said 12 other systems were under review to determine if they should also be killed.
The IRS said it did not have an estimate of what it might cost to cancel those projects.
``We are making a systematic effort to review every major system under development to determine if it is worthwhile,'' Gross said. ``And if it is not, in our judgment, a prudent investment, we will recognize that and stop development.''
The failure of the modernization effort will mean years of frustration for taxpayers who get into a dispute with the IRS, especially one that involves records kept on two or more of its computer systems.
Gross said that for the foreseeable future, the IRS must continue to work with dozens of antiquated computer systems that cannot trade information with one another.
As the IRS starts over, Gross said, it must abandon the ``big bang'' theory of integrating all of its computers at once, and instead improve operations piecemeal. ``We have to move and build off what exists today,'' he said.
The proposal to have private contractors process individual income tax returns drew sharp questioning from Robert Tobias, president of the National Treasury Employees Union. He said that at a cost of $34 million, there was not much savings in the plan.
John Dalyrymple, the IRS official who made the proposal, said that just setting up a pilot program would take the agency at least 4 1/2 years, and added, ``We are fully cognizant of the risk inherent in turning such a critical system over to an outside processor.''
Several witnesses criticized the IRS for not actively marketing the filing of tax returns electronically. Last year, only 180,000 people filed their returns through intermediaries after preparing them with software on personal computers, and overall only 10 percent of tax returns were filed electronically or by telephone. In Australia, 70 percent of tax returns are filed electronically.
Tax returns prepared with commercial software and then filed electronically are virtually error-free, the commission was told. In contrast, when IRS clerks extract data from paper tax returns and enter the information into the agency's computers, the error rate is 22 percent, with the clerks causing half the errors.
The IRS, worried that hackers will get into its computers, requires that all electronic returns be filed through approved intermediaries, who charge as much as $25 per return for the service.
The policy on intermediaries discourages poor taxpayers from using the service and favors software companies that develop tax preparation programs, said Joseph Lane, a tax preparer in Menlo Park, Calif., who represented the National Association of Enrolled Agents, a preparer organization.
LENGTH: Medium: 95 linesby CNB