IRS chief says Y2K fixes must come before reform

IRS Commissioner Charles Rossotti told a House subcommittee Wednesday that the agency's most important short-term task is to prepare its computer systems for the year 2000.

Rossotti said the IRS could run the risk of failing to collect taxes and process refunds if year 2000 upgrades are not successfully in place by January 1999 and tested during next year's tax season.

"We just can't let that happen," Rossotti told the House Government Reform Government Management, Information and Technology Subcommittee.

Rossotti reiterated to reporters afterward his concern that taxpayer protections, which could be implemented this year through pending IRS reform legislation, could seriously interfere with Y2K activities. "It is not only a question of money," Rossotti said, "it is also a question of management resources."

He pointed out that General Motors could need $350 million to $500 million to prepare its computers for the disruption expected with the date change, which is just 20 months away. Rossotti said he expects the IRS to need twice that amount, and noted GM has "a deeper bench of expert managers" than the IRS to handle the task.

Rossotti also offered an upbeat assessment of an IRS reform bill approved two weeks ago by the Senate Finance Committee. He explained that an independent oversight board in the bill which had been the focal point of controversy between Congress and the Clinton administration "strikes the right balance. ... I hope it can be passed as soon as possible."

Rossotti conceded the transfer of many inspector general duties from the IRS to the Treasury Department outlined in the bill is a "big change," but added: "I think that can work. I think we can live with that."

Rossotti told House Government Reform Government Management, Information and Technology Subcommittee Chairman Steve Horn, R-Calif., that he had not given much thought to an American Bar Association proposal that could make the IRS general counsel less accountable to the commissioner, because he viewed general counsel operations as working well.

In a speech at the National Press Club Wednesday afternoon, Rossotti cited a Harris Poll that says most Americans feel they are fairly treated by the IRS. According to that nationwide poll of 1,012 adults taken between March 31 and April 3, Rossotti said 76 percent of Americans said they feel they have been fairly treated by the IRS, compared to only 21 percent who felt they had not.

Rossotti also said a proposal included in the IRS reform bill to lift the cap on IRS executives' pay would greatly help the agency solve its technology problems. The cap on federal executives' pay is $125,900.

"Particularly in fields that are related to technology, where the demand is very, very great, and where the salaries in the private sector have gone up very greatly, this is a very, very significant problem," said Rossotti.

Meanwhile, Reps. Rob Portman, R-Ohio, and Benjamin Cardin, D-Md., yesterday called for speedy Senate action on legislation to overhaul the IRS.

Cardin expressed regret that a reform measure has not become law by yesterday--as he had expected when the House passed a bill on a 426-4 vote five months ago. He said failure to pass the legislation not only denies taxpayers relief from management shortcomings at the agency, but also delays the larger task of reforming the tax code itself.

Portman, who last year chaired a national commission to reform the IRS, warned that errors by the IRS will force some 2.5 million taxpayers who will file paper returns this year into a frustrating battle to rectify their tax records.

Portman applauded some of the changes the Senate Finance Committee made to the House-passed bill. However, at a news conference, Portman said he would seek to restore House provisions that would compel Congress to consider the administrative complexity of any changes it makes to the tax code and to confer with the IRS on the impact of such changes.