The Turnaround at the IRS isn't Happening as Fast as

March 24, 1998

Washington Would Like Taxpayers to Believe The man charged with the task of solving the IRS's computer ills, Chief Technology Officer Arthur Gross, resigned in frustration last November and, according to FORTUNE senior writer Jeffrey Birnbaum, there is reason to believe that the job he started might never be completed. Birnbaum's article, "Unbelievable! The Mess at the IRS is Worse Than You Think" appears in the April 13, 1998 issue of FORTUNE.

Gross, who spent nearly two years drafting the latest modernization blueprint for the $7 billion agency, left the IRS after clashing with newly-appointed Commissioner Charles Rossotti, the ex-chairman of the computer consulting firm American Management Systems on the simultaneous changes that Rossotti was proposing. Gross told FORTUNE's Birnbaum that he was proud of the modernizations he had championed.

The IRS computer system consists of 80 mainframes, 1,335 minicomputers and 130,000 desktop boxes, many of which can't communicate with each other. Modernization efforts have been underway for the past 25 years, failing each time at a cost in the past decade of nearly $4 billion. The IRS's latest modernization program could take as long as 15 years, which veteran computer consultants understand to mean "probably never," writes Birnbaum.

However, Birnbaum reports, Commissioner Rossotti is planning a radical change to the current structure of the IRS, creating separate divisions for individual taxpayers, big businesses, tax-exempt entities and small businesses. Both Rossotti and the Treasury Department believe that the IRS's situation is fixable.

Problems for the IRS abound each year. In 1995 the IRS lost $150 billion because of mistakes, unreported income or improper deductions and this year, one million people received tax forms with erroneous mailing labels.

Stories of taxpayer abuse also plague Congress and the IRS each year, but none more egregious than the case of Arthur S. Flemming, who had served Presidents Roosevelt, Truman, Eisenhower and Nixon. Flemming filled out his own tax forms well into his 91st year and must have inadvertently missed a payment during the time that he was convalescing from a broken leg. Soon after his death, the federal government seized Flemming's wife's $800 bank account without warning her.

In spite of its troubles, the IRS remains the least dispensable civilian agency in Washington. It employs some 102,000 personnel, collects $1.5 trillion annually and last year refunded $107 billion to 68% of taxpayers.

According to FORTUNE's Birnbaum, Congress must share some of the blame for the IRS's problems. Every year for the past two decades, Congress has enacted some changes to the tax code, currently making it an unwieldy 9,451 pages long. Because the tax forms are so complicated, the country's 121.6 million individual taxpayers spend $8 billion a year to get help preparing their returns.

To schedule an interview with Senior Writer Jeffrey Birnbaum, call Meredith Halpern at 212-522-6724. The April 13 issue of FORTUNE is on newsstands beginning March 30. This and other stories can be accessed at

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