Major Overhaul Proposed For Irs Billions Spent To Modernize, But ‘Intellectual Capital’ Lacking

The most sweeping reorganization of the IRS since 1952, when it was a patronage agency riddled with corruption, was proposed Friday by the co-chairmen of a bipartisan panel investigating the agency’s bungled effort to modernize its computers.

The co-chairmen, Sen. Bob Kerrey, D-Neb., and Rep. Rob Portman, R-Ohio, said that a board of directors should be installed to oversee the IRS and that the agency’s next commissioner should have a strong management background or a senior aide with such experience.

Both men spoke during the second day of hearings by the panel, the National Commission on Restructuring the IRS, into how the service spent $4 billion over the last several years on computer systems that often cannot communicate with each other.

The IRS has killed one new imaging system that did not work, after spending $284 million, and may cancel 12 more contracts.

“We have failure on our hands with tax system modernization,” Kerrey said in an interview.

The core of the problems is not with “the pipeline,” the operation in which data from paper tax returns are entered into computers. The IRS said the most difficult problems occur after refunds are made, because the information necessary to resolve taxpayers’ problems is often on separate computer systems.

The IRS had publicly defended its management of computer modernization until Thursday, when Arthur A. Gross, who was hired last year as an assistant commissioner of the agency to rescue the effort, told the commission that the new systems “do not work in the real world.”

Gross also said the IRS lacked the “intellectual capital” to modernize.

Kerrey said the government would have a hard time hiring the necessary talent to manage the project.

“The market is bidding up the price for people who have these skills, and we just can’t dole out big salaries,” he said.

The last major change in the federal tax agency’s structure took place in January 1952, when President Harry S. Truman replaced hundreds of patronage positions in management and tax collection with Civil Service jobs.

Hundreds of people were fired in the scandal, and a number of officials went to prison.