Rise in uncollected taxes concerns lawmakers

WASHINGTON — The Internal Revenue Service told a Senate panel Wednesday that a hefty $66 billion in taxes went assessed but uncollected in 1989 — up from $24 billion seven years ago — leaving lawmakers like Sen. William S. Cohen depressed and concerned about the future of the tax system.

“As I listen to your testimony, I grow increasingly depressed,” said Sen. William S. Cohen. “We’re inviting a scandalous nonpayment of taxes.”

“Most of us grew up learning we had to pay our taxes, that it wasn’t a question of volunteering to pay them. And if you don’t, from Al Capone to Leona Helmsley, you get punished for not doing it,” said Sen. Joseph Leiberman, D-Conn.

Facing the prospect of increasing taxes and cutting popular programs this year, lawmakers were upset that money the government was expecting was not being paid.

“I am given the job of cutting $1.5 billion, and I have to cut a hundred thousand people out of the armed services to hit that,” said Sen. John Glenn, D-Ohio, who serves as chairman of the manpower committee on armed services. “Maybe 185,000 people are going to be booted out of their careers for just that tiny amount of money.”

While the IRS collected more than 62 percent of the accounts receivable in 1983, today it collects less than 40 percent.

“This rapid, out of control growth in unpaid taxes threatens to overwhelm the IRS and is absolutely unacceptable at a time when the administration and Congress are grappling with painful revenue and spending choices,” Glenn said.

As the IRS commissioner struggled to explain to a Senate panel Wednesday why his agency can’t collect billions in revenues from tax delinquents, he spoke from the heart about an agency which has mastered the art of inspiring frustration.

“Our systems are so outdated that every year we send out six to seven million notices that we don’t need to send out, but we can’t get that data tied together in our system fast enough,” IRS Commissioner Fred T. Goldberg Jr. told a Senate panel Wednesday.

The cost of postage alone for this error is at least a million dollars. The cost of the hours wasted by citizens who seek to correct the dubious notices is not known.

“In today’s day and age, the citizens of this nation have a right to demand that … when they have a problem with their taxes, they can pick up the phone, call, have a person on the other end of the line answer the phone and resolve the issue,” Goldberg said. “We can’t do that.”

Goldberg said his agency is addressing this deficiency by beefing up its collections team with more than a thousand additional agents next year, but he urged the panel to recognize the revenue not collected was less than 2 percent of the $5 trillion in revenue the agency brought in during the same period.

IRS Director of Public Affairs Ellen Murphy blamed errors like incorrect tax demands — which could be a collections letter or a question about a social security number — on the IRS’s ancient computer system. In an age when networking is taken for granted, the IRS computers still do not communicate with each other, said Murphy.

Each week the 10 IRS service centers around the country must send their computer tapes by airfreight to Washington’s National Airport where they are loaded on a truck and driven to the master file location in West Virginia. One consequence of this routing is that tax demands become false alarms.

“Many people think we are working with computers held together with spit and bailing wire,” said Murphy, who explained the 30-year-old design was paper intensive. “It prohibits us from giving the taxpayers the kind of service they expect from any other financial institution.”

Twenty percent of the $6.2 billion IRS budget request is dedicated to automation initiatives to modernize the agency’s information systems.

In April, the IRS formalized a $6 billion contract with the National Academy of Sciences to improve the IRS information processing system. The academy will pick two dozen computer experts from academia and private industry to design what Murphy called one of “the largest and most complicated information processing projects in the world.”