The Internal Revenue Service has shown marked improvement in its ability to assist Americans with their tax questions and problems, but the agency's enforcement capability remains badly underfunded and outmanned at a time when taxpayers are increasingly willing to cheat, according to the IRS Oversight Board.

"The bad news is deeply troubling," the board said in its annual report, released yesterday.

Roughly one in five taxpayers "now believes it's acceptable to cheat on their taxes," the board said, based on its own research, while the number of revenue agents and other enforcement workers at the IRS has declined by 36 percent since 1996.

"Most disturbing of all, the amount of money which taxpayers legitimately owe, but won't pay and goes uncollected, is a staggering $300 billion," the report said.

Board chairman Nancy Killefer, in a statement accompanying the report, repeated the board's past calls for "a realistic budget for the IRS."

She noted that budgets proposed for the IRS fail to take into account "unfunded mandates" such as regular pay increases for government workers, and as a result "projected hirings of new enforcement personnel evaporate."

"Unfortunately, history repeated itself again" this year as a House committee boosted civilian pay increases well beyond President Bush's request "and we can no longer afford to hide from the hard truth," Killefer said. The IRS "will have to make up again out of its own pockets what could easily amount to a $100 million" shortfall.

"It's no wonder that tax cheats have declared open season on the IRS," she said.

And the hole could get deeper. Last month, a House Appropriations subcommittee voted to lop $382 million off the IRS's $10.67 billion budget request for next year. But that request was already $230 million short of what the IRS actually needs, according to an Oversight Board analysis this spring.The board also pointed to "slippages . . . and cost overruns" in the agency's long-running computer modernization program but said the effort must continue if the agency is to keep up with the growing size and complexity of the economy.

The Oversight Board was set up by the IRS reform law of 1998 to map long-term goals for the tax agency.