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An IRS Under Siege Walks a Fine Dotted Line

By Albert B. Crenshaw
Washington Post Staff Writer
Friday, February 6, 1998; Page A01

This is the Internal Revenue Service's year of living dangerously.

Berated by Congress, resented by taxpayers and threatened by computer problems, the IRS enters this year's return-filing season facing a task that may be impossible.

Top IRS officials are promising to convert the agency into a helpful, "customer-friendly" organization that will treat taxpayers fairly and courteously while at the same time collecting more than $1.5 trillion in revenue the federal government needs to fund the military, provide health care for the elderly, secure U.S. borders and perform hundreds of other functions.

Legislation is pending on Capitol Hill, and the subject of hearings yesterday before the Senate Finance Committee, that would give agency officials some of the tools they say they need to fix many of the IRS's problems.

But any misstep by the agency -- or its new chief, Commissioner Charles O. Rossotti -- could have serious repercussions and lead to an even more sweeping overhaul. While Rossotti is grappling with huge internal problems, he's also coping with a political crusade in which Republicans have chosen the IRS as the principal boogeyman for 1998 congressional campaigns.

"Some call the IRS a 'necessary evil.' " Senate Majority Leader Trent Lott (R-Miss.) acidly noted last week. "I know I agree with the second part of that description. I have not yet made up my mind about the first part."

Those sorts of attacks don't appear to bother Rossotti, a political neophyte who cheerfully says it's up to Congress to sort out whether people should pay their taxes. "If they change the law and don't impose that obligation, that'll be something different," Rossotti said in an interview yesterday.

Instead, Rossotti says he was hired to make the general public believe the word "service" is part of the IRS's name. "I'm a business guy," he said. "I came in here because people are required to pay tax by law and they weren't getting good service. . . . My goal is to turn the situation around so [taxpayers] can get the help they need."

Rossotti noted that one of his biggest assets has been the wide acknowledgment, inside and outside the agency, that something needs to be done.

"I've gotten great support -- to my amazement almost -- from all sides," he said.

Rossotti has moved quickly to make sure that some changes have an immediate impact on individual taxpayers. He has shifted resources to such areas as taxpayer assistance and answering the telephone. The agency has set a goal of answering 70 percent of the calls it receives, up from 50 percent last year. Some of the people who now help answer phones usually work in collections, but agency officials deny the shift in personnel will impair audits.

The IRS, however, is facing an uphill battle in the court of public opinion. Senate hearings last year exposed serious abuses by some IRS employees, feeding a perception that the agency is out of control. Some leading Republicans would like nothing more than to use the agency's travails as an excuse to scrap the current tax system.

Just this week, the agency's technology guru, Arthur A. Gross, announced he is quitting, reportedly after clashing with Rossotti over the strategy to modernize the agency's aging computer system. The IRS was further embarrassed by the admission that one of its contractors had misprinted the bar code on 1 million address labels, an error that will boomerang tax returns back to taxpayers who use the labels.

The Senate is expected to vote on the legislation to restructure the IRS next month. But Senate aides indicated it will differ in key aspects from a House bill that passed last year with overwhelming bipartisan support, possibly signaling a difficult battle to meld the two versions.

If a bill is delayed or blocked, "the IRS will struggle to do things everybody wants to have done," said Sen. Bob Kerrey (D-Neb.), who co-chaired a commission that recommended changes in the IRS. "Taxpayers will have less power, and frustration . . . will continue."

The Clinton administration chose Rossotti for his technological and management expertise -- he is the founder and a former chairman of American Management Systems Inc. of Fairfax -- and a major part of his job is to oversee the modernization of the agency's archaic computers. Since taking the post last fall he has come to realize that the agency's computers are even more decrepit than he had thought.

Accomplishing the long-term goals of changing the basic ways the agency does business, while at the same time modernizing its computers and avoiding short-term disasters of the sort that could be brought on by the year 2000 computer conversion, "is a formidable task," Rossotti said.

"It's going to take time," he added. "There are going to be some setbacks. There is risk involved. Everything isn't going to go perfectly. We have a long road ahead."

But he said: "If I didn't think that it was doable or possible, I wouldn't have taken this job."

Just getting through the next 12 months is a challenge. During that time, the agency must reprogram its old systems so they will recognize the year 2000 -- rewriting millions of lines of computer code -- and it must rewrite large numbers of forms and publications to accommodate the sweeping tax-law changes enacted by Congress last summer.

The IRS's burden is enormous. With more than 100,000 employees and its elderly computers, the agency this year is expected to handle 123 million tax returns, 34 million telephone calls, and several billion other documents, such as W-2 and 1099 forms. Last year it sent about 10 million letters and 111 million notices to taxpayers.

As an example of the risks, Rossotti said, there are 90,000 computer programs that must be rewritten. The agency has already redone 60,000 to 65,000, has tested them and is using them this filing season. But computer programs are notoriously unpredictable, and it is possible an error could go undetected in the testing and cause the program to "blow up" in the middle of the IRS's busiest time.

At the same time, the agency must deal with the political problem generated by Senate Finance Committee hearings last fall that showed the agency had abused some taxpayers. The hearings depicted an insensitive and arrogant institution more intent on meeting internal quotas for revenue collection than on providing fair and honest treatment of the taxpayer.

Although IRS defenders noted that the committee's witnesses represented only a minuscule fraction of the roughly 120 million taxpayers who file every year and that polls show more people are unhappy with the complex tax laws than with the IRS itself, the hearings struck a chord with many taxpayers and with members of Congress.

Despite a deal reached with Democrats on Tuesday to hold a Senate vote on an IRS bill by the end of next month, many Republicans want to hold on to the IRS issue as long as possible and are in no hurry to wrap things up. Senate Finance Committee Chairman William V. Roth Jr. (R-Del.) also feels strongly that the House bill does not go far enough in some areas, and he wants changes.

For example, Roth thinks the oversight board needs at least some access to taxpayer returns -- now forbidden by privacy laws -- and he wants stronger protections for "innocent spouses" held liable for the other spouse's tax liability, and additional taxpayer protections on penalties and interest charges.

In the meantime, this winter and spring, the IRS and taxpayers will continue to do things the old way, but with some improvements.

Among them:

Telephones. The IRS, which only answered 20 percent of the calls it received in 1996, has reorganized its much-criticized telephone answering system. The agency has beefed up the hours for calling -- IRS employees will be on duty 16 hours a day, six days a week.

The agency has also tried to match its staffing to periods of high demand, and it has additional employees on call should there be an unexpected surge. So far, despite some "hiccups" involving staffing, more than 80 percent of calls are getting through, said Deborah Reilly, director of IRS telephone operations.

Electronic filing. For several years, taxpayers have been able to have their returns filed electronically by a professional preparer, and more recently the agency has added the option of filing via a home computer. But the IRS's software does not match that of home computers, so now some makers of home tax-preparation software are adding special transmission features, which IRS officials say will boost electronic filing.

"There is actually a tremendous groundswell this season around electronic filing," said Bob Barr, assistant IRS commissioner for electronic filing. The accuracy, speed -- especially of receiving refunds -- and ease of electronic filing are beginning to click with taxpayers, he said. Barr believes this form of filing will grow 10 percent from last year's total, which was around 19 million taxpayers.

The agency is also expanding its TeleFile program, which allows taxpayers with simple returns to file via a push-button telephone. Nearly 5 million people used this system last year, and improvements, such as opening it to taxpayers who have moved in the past year, will expand it further, Barr said. Taxpayers still have to mail in a signature form, however -- a requirement the agency is working to eliminate.

The IRS Web site. The agency is continuing to widen the services it offers online. Taxpayers can get forms, publications and other material via home computer from the IRS's World Wide Web site (http://www. irs.ustreas.gov).

The agency is striving to simplify things as well. For example, this year taxpayers will be able to call up 65 of the IRS's most popular publications and read them on their computer screens without having to download the entire document. In the past -- and it still remains the case for some publications -- it was necessary to have Adobe Acrobat software (available from the site) and then download the entire publication even if the taxpayer needed only a page or two.

© Copyright 1998 The Washington Post Company

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