Apr 07 2004
Senator Questions Officials on Progress of Tax Enforcement, Taxpayer Customer Service and Modernization Efforts
Good morning, I would like to welcome Internal Revenue Service Commissioner Mark Everson and Pamela Gardiner, the Acting Treasury Inspector General for Tax Administration, to this morning's hearing. I look forward to hearing each of your views on the IRS's administration and enforcement of our nation's tax code and on what can be done better.
As we all know, the April 15th tax filing season deadline is rapidly approaching. Each year, the Subcommittee requests that the IRS Commissioner appear before it in order to provide an update on how the Service is responding to the influx of questions and assistance that taxpayers need to correctly file their tax returns. This year, we have also asked TIGTA (Treasury Inspector General for Tax Administration) to participate in order to provide a different perspective on the IRS' performance.
I have taken note of the IRS' stated mission to "provide America's taxpayers with top quality service by helping them to understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all." This mission statement is appropriate, but some might question whether we're making progress toward achieving that goal.
The IRS continues to face numerous challenges in tax law enforcement, customer service, and the modernization of its computer systems. While some strides have been made in some areas, much work remains to be completed. Each one of these tasks would prove difficult to undertake individually and to tackle all three at once is daunting indeed. I look forward to discussing each of these areas with both of you.
The strength and weakness of our nation's federal income tax system is its reliance on the voluntary compliance of American taxpayers. Most Americans make every effort to comply with the law and pay their taxes. But, as with any law, there will always be some that intentionally seek to avoid compliance or engage in outright fraud.
That is why effective enforcement of our tax laws is so important. If enforcement is lax, ineffective, or uneven, it encourages more people to commit fraud. While it is uncertain whether tax fraud is on the rise, I am certain that funding for IRS tax enforcement has been, and continues to be, an important priority for the Administration and the Congress. Over the past several years, Congress has consistently increased funding for tax law enforcement, including a $265 million increase last year.
In each fiscal year since 2000, Congress has provided the IRS with additional funding to increase its enforcement staff. Inexplicably, these staffing needs were not filled and the funds were instead used for other unbudgeted expenses.
The use of these additional dollars to cover other funding shortfalls rather than increase staffing belies the priority the Service claims to place on enforcement. This diversion of funds is in direct contravention to your own statements, Mr. Commissioner, and is simply unacceptable.
The first and foremost mission of the IRS must be to ensure the full and fair compliance of all U.S. taxpayers with their tax obligations.
Yet, how can we ensure that the IRS is taking its enforcement responsibilities seriously if we continue to allow the Service to spend its funding for purposes other than that for which they have been requested and for which Congress has provided them? If there are administrative shortfalls caused by pay increases, diverting funds to other priorities, and other unbudgeted items, then the IRS should ask for funding for these expenses and not hide behind claims of underfunding of initiatives such as customer service and enforcement.
With 100,000 employees and an annual budget that exceeds $10 billion, I find it hard to believe that the IRS lacks the resources it needs to get the job done.
I look forward to hearing both of your comments and any update on how the IRS is utilizing the additional $265 million in enforcement and compliance funding appropriated for FY 2004.
In the long term, a strong enforcement capability supported by necessary funding will continue to be a key part of combating tax non-compliance. But enforcement alone will never be enough.
The IRS must provide high quality customer service to assist taxpayers. I believe that most people who fail to comply with the code do so unintentionally because of its difficulty and complexity. Accurate and timely guidance from the Service is imperative to ensuring taxpayer compliance.
The IRS is to be commended for the improvements it has made in customer service over the past few years. Helpful guidance is now much more accessible via the internet, telephone and in-person assistance. The accessibility of e-file options has eased the burden of filing tax returns for both the government and the taxpayer.
While the IRS has improved its responsiveness to taxpayer questions, the troubling fact remains that nearly one in four callers to its toll-free help line receive inaccurate guidance. The numbers are only slightly better for on-line questioners and considerably worse for those taxpayers who seek in-person assistance in an IRS-operated Taxpayer Assistance Center.
I was even more alarmed after learning of TIGTA spot audit visits to 26 different Assistance Centers throughout the country that uncovered that "IRS employees incorrectly prepared 19 of the 23 tax returns prepared" during the audits.
How can we expect taxpayers to understand and comply with the complexities of the tax code when IRS' employees themselves have so much trouble understanding and explaining it?
Our federal tax code is a large part of the problem. The code and accompanying regulations are more than 54,000 pages long - and is too complex, confusing, and costly to comply with. Comprehensive reform of the tax code itself would go along way toward reducing tax fraud by making the process simpler and the system fairer for all taxpayers.
Additionally, a less complex tax code would provide fewer opportunities for cheaters and reduce the paperwork burden for all Americans.
I continue to believe that a simple and transparent tax structure would promote taxpayer compliance and lead to increased collections for the Treasury, while also markedly reducing the huge costs of administration and enforcement of our current tax system.
Now, I'd like to focus on an area of particular concern to me: the ongoing effort to modernize the IRS computer systems, known as Business Systems Modernization (BSM).
This effort has been ongoing for a number of years now and has consistently run over schedule and over budget while also failing to achieve meaningful milestones for its development.
Mr. Commissioner, your budget request wisely seeks a decrease of $102 million for BSM. I agree that now is an appropriate time to focus on reengineering efforts to achieve the goals set for the BSM initiative is necessary. This initiative was supposed to be completed in 10 years. However, I do not believe that anyone thinks that this schedule is now achievable and schedule delays continue to be the rule - not the exception - to this ongoing effort.
By way of example, the Customer Account Data Engine (CADE), the centerpiece of the entire BSM effort, was originally scheduled to rollout in January 2002. Former Acting IRS Commissioner Wenzel last year testified that CADE would be ready in August 2003. It is now April 2004 and there is still no sign of CADE. True to form, CADE is not only late but also significantly over budget.
These schedule slippages and cost-overruns have been epidemic. In fact, the IRS is running late and is over budget on all seven core projects related to BSM.
I am very concerned that BSM is becoming the 21st century version of the Tax Systems Modernization (TSM) program, which was the IRS' prior modernization effort that was abandoned after consuming two years and $4 billion in Federal tax dollars. That effort was a complete loss.
The current BSM effort began in 1998 and has already cost $1.7 billion. This program, like TSM before it, raises more questions than answers.
As you, Commissioner Everson, stated in February of 2002: "…good intentions and good beginnings are not the measure of success. What matters in the end is completion: performance and results." Applying your own standard, Commissioner Everson, I think you will both agree that the BSM effort has woefully underperformed.
I look forward to hearing the thoughts of both witnesses as to the best approach to take to get and keep this all-important modernization effort on track.
Again, thank you both for coming before the Subcommittee this morning. I look forward to your testimony and delving into these issues further when I have a chance to pose some questions to you both.