Internal Revenue Service officials knew last October of a foul-up in their Philadelphia office resulting in mistaken delinquency notices to 26,000 corporate taxpayers, even though the taxpayers weren't notified of the mistake until February, IRS officials said yesterday.
By then, many of the businesses, located in the mid-Atlantic, were receiving threats to attach their property, and five had had their assets improperly impounded. IRS Commissioner Roscoe L. Egger Jr. told a subcommittee that although the problem arose from a faulty computer tape, it mushroomed because the people who knew didn't tell the people who needed to know.
Rep. J. J. "Jake" Pickle (D-Tex.) called the communications failure a "comedy of errors."
"The problem was not that the computer broke down. The problem was that the computer worked," Egger told the House Ways and Means oversight subcommittee. "Unfortunately, the individuals involved did not see or give consideration to the scope of the effects" of the snafu.
The snag developed over $300 million in payments for taxes withheld from employes' paychecks for the third quarter of 1984. The fact that the payments had been made didn't get recorded by the IRS' National Computer Center at Martinsburg, W. Va., because the computer tape sent by Philadelphia in early October included faulty coding.
According to a chronology prepared by the subcommittee staff with IRS information, employes in Martinsburg asked the Philadelphia office for a corrected tape almost immediately. A replacement tape wasn't produced until December and, because of problems with the duplication, it again failed to record that the taxes had been paid. Meanwhile, the accounting branch in Philadelphia had begun the automatic process of sending collection notices to the companies.
Letters of apology didn't go out to the companies until after the foul-up was disclosed Jan. 30, and a few firms were still getting deficiency notices as late as Feb. 15. Impoundments of property weren't lifted until Feb. 7, Egger said.
Pickle, worrying about recurrences, said the backlog of "problem" cases in the IRS' inventory has tripled, from 338,000 in February 1984 to 995,000 a year later. The backlog in the Philadelphia office, at 172,300, is the second-highest in the nation.