he IRS is struggling to get by on 9 percent less than the Administration sought for the agency in 1996, and 2 percent less than it got in 1995. What's more, appropriators snatched away the $405 million compliance initiative under which IRS had already hired more than 5,000 staffers. The five-year initiative was to have brought in $11 billion from an investment of approximately $2.5 billion by putting more revenue officers on the track of uncollected taxes.
Defunding the initiative "creates serious risks to the levels of tax compliance," said President Clinton as he signed the Treasury, Postal Service and General Government appropriation. "Major compliance cuts send the wrong signal and reward tax cheats."
During last summer's appropriations hearings, IRS officials heard the initiative's death knell. But even an agencywide hiring freeze begun in July couldn't make up for the double funding hit. The IRS must cut 8,000 positions by Sept. 30 and employees are awaiting word as to whether that will mean a three- to eight-day furlough.
Officials hoped a hiring freeze and an agencywide early retirement offer in place until February would net enough takers to prevent furloughs and layoffs. Indeed, as of Sept. 30, 1995, a more limited offer enticed 16 percent of those eligible, almost triple the expected rate of 6 percent.
The funding crisis also has opened more space at the management table for the National Treasury Employees Union, according to NTEU president Robert Tobias. "We're involved in areas we've never been involved in before," he says.
Unionists are doing their own sleuthing for cost savings to buy down possible furlough days. For example, the union has begun suggesting ways to ratchet back mailings to tax preparers.
Another casualty of the funding squeeze is the agency's ambitious computer systems upgrade. The General Accounting Office has called the program "chaotic" and "ad hoc" and appropriators responded by denying the IRS extra funds it sought this year.
"We had plans to roll out modernization at a much higher level," says David Mader, IRS management and administration chief. Now the agency must pick and choose pieces of its modernization plan. It wasn't designed to work piecemeal, says Tobias. "The real bang wasn't supposed to occur until all the pieces fit together."
Efforts to get taxpayers with the most simple returns to file by telephone will continue, Mader says. The agency wants to throw its remaining modernization muscle behind moving tax returns off paper and on line. "The cuts will only reemphasize the need to move faster on electronic filing," says Mader.
Most observers expect IRS will remain mired in paper for the foreseeable future. Where taxpayers could see changes is in the availability of IRS staffers to answer questions.
In January, IRS announced fewer offices will offer walk-in assistance. Later the same month the agency formally opened its World Wide Web page, which logged 220,000 visits in its first 24 hours. Mader hopes the decrease in drop-in help will force people with questions onto the agency's computerized interactive telephone system and the Web page.
Congress, meanwhile, hopes to force IRS beyond modernization toward privatization. Appropriators instructed the agency to spend $13 million in 1996 funds hiring private lawyers and debt collectors to bring in unpaid taxes. IRS never sought the funds, Mader says. "We believe the same amount of money invested in the IRS would return significantly more, probably triple," he adds.
Nevertheless, to dispel taxpayer fears of dunning by goons with baseball bats, the IRS designed a collections contract requiring staffers of the winning bidders to meet the same stringent controls and disclosure requirements as IRS collections employees. Mader promises the program won't displace current employees.
That's little comfort to managers and employees in the field reeling from the furlough threat and wondering whence to squeeze savings. "It's interesting they don't have enough money for our budget but do for what is in effect a privatization effort," says Ken McDaniels, a GS-14 group manager in New York and president of the Federal Managers Association's Manhattan chapter.