IRS to Congress: No more cuts, please

IRS Commissioner Charles O. Rossotti acknowledged Tuesday that the agency has been "diverting resources from on-going programs such as compliance" to jump-start reforms demanded by Congress and the public.

Testifying before a special congressional panel of House and Senate members from several oversight committees, Rossotti noted that the service's workforce has been shrinking while its workload has grown. Further cuts would make reform impossible, he said.

The number of full-time equivalent IRS employees has shrunk by 13.7 percent since 1993, Rossotti said, while the economy grew 20.1 percent and the number of individual tax returns with incomes over $100,000 increased by 56 percent. "We can do the job with a limited workforce, even while the economy grows, if we make the necessary investments" in technology, training and organizational improvements, he said.

House Ways and Means Committee Chairman Bill Archer, R-Texas, who presided over the hearing, and other members indicated they would cut Rossotti some slack because they recognize the difficulty of the task he has undertaken. But Sen. Charles Grassley, R-Iowa, and others on the panel questioned Rossotti about recent reports that the agency had backed off on efforts to enforce tax laws.

Press reports this month quoted IRS employees as saying they had become less aggressive in seeking to collect back taxes because of provisions in last year's IRS Reform and Restructuring Act that call for firing employees who willfully violate taxpayers' rights.

"These are issues which have certainly caused significant confusion and concern in our workforce," Rossotti said. But he blamed the dropoff in enforcement activity on a diminished workforce, the need to implement 1,260 tax code changes enacted in the last two years and a push to get on with 161 near-term customer service improvements, half of them mandated by law.

Nearly every one of the IRS's 100,000 employees is receiving training in the tax code changes, customer service procedures and other key issues, Rossotti reported. That adds up to 2.5 million hours of training so far. He also noted that the dropoff in collections activity probably would mean a tax revenue reduction of only about one-tenth of 1 percent.

The wide-ranging hearing, called to review IRS' progress in implementing the reform act, also revealed:

• Rossotti is confident that IRS computer systems will be ready for the century change, even though the agency got a late start on its repairs.
• He soon will ask Congress for $35 million as an initial payment for information systems upgrades. The modernization money has been appropriated, but the agency must ask Congress to release it as needed. The old systems "present an ongoing risk of even being able to stay in business," the commissioner said. Nonetheless, the processing of this year's tax returns has gone smoothly, he said.
• Rossotti wants to undertake new studies of taxpayer compliance in order to understand where collection resources should be focused, but he said he will need about a year to develop a plan for the studies.
• Online filing of tax returns is up 161 percent over last year, and 80 percent of all federal tax payments were made electronically this year. "We are only beginning to discover the potential of the Internet to transact business," Rossotti said.