IRS Strategic Plan and FY 2002 Budget Recommendation

3/20/2001

IRS Oversight Board

Chairman Levitan, Members of the Board, and other distinguished panelists, my name is Colleen Kelley and I am the National President of the National Treasury Employees Union. As you know, NTEU represents more than l55,000 federal employees across the federal government, including the employees who work at the Internal Revenue Service. I want to thank you for holding this important hearing today and for giving me the opportunity to present testimony on behalf of the dedicated men and women who work at the IRS.

Let me begin my remarks by reiterating my views on how important this Board is to ensuring the IRS gets the resources it needs to carry out its mission. I am particularly pleased that my predecessor, Bob Tobias, serves on the Board as the IRS employee representative. Having an employee representative with hands-on experience with the men and women of the IRS gives the Board a perspective necessary to analyze and project how budget plans will affect the Service’s workload, employee morale, efficiency and effectiveness.

Between 1993 and 1999, staffing levels at the IRS decreased by 17,000. The number of revenue agents declined by more than twenty percent between 1995 and 2000. Notwithstanding these staffing decreases, during the past decade, Congress made hundreds of changes to the tax code (801 changes in the Taxpayer Relief Act of 1997 alone), our nation experienced unprecedented economic growth, which led to the filing of more complex tax returns, and the total number of tax returns processed by the IRS increased by 8%. Simultaneously, IRS toll free phone services and web-based services for taxpayers were expanded and improved, taxpayers can visit IRS officials at more convenient locations during longer hours of operation, and taxpayers have more options for filing their returns. IRS employees have successfully done more with less over the last decade. But without increased resources, the IRS will not be able to respond to the demands of the 21st century economy.

I believe that the Oversight Board’s Strategic Plan and FY 2002 Budget Recommendation – if fully funded – would ensure that the IRS would succeed in meeting its modernization goals in a timely manner. The Oversight Board’s budget recommendation takes into account tax compliance staffing shortfalls due to the shifting of many IRS examination staff, revenue agents, compliance officers, auditors and others to help improve customer service, answer taxpayers’ questions, and provide walk-in assistance to taxpayers. The Board’s blueprint also recognizes the requirements necessary to bring IRS information technology systems into the 21st century.

Unfortunately, President Bush’s budget proposal for the IRS indicates that this Administration is not willing to make the long-term commitment necessary to modernize the IRS, and is not willing to provide the Service with even a reasonable fraction of what the Board says is required.

The Bush Administration and Congress need to do more than merely fund band-aid repairs to address immediate needs at the IRS. The IRS needs adequate funding for day-to-day operations and maintenance, but it also needs a commitment from President Bush and Congress to invest in long-term improvements that will modernize tax compliance and customer service to meet the demands of the American taxpayers. Improving customer service, enhancing tax return processing, and increasing tax compliance can only happen if President Bush and Congress support increased funding for staffing, more advanced technology and equipment, training and innovation. Employees at the IRS have responded to the mandates from Congress contained in the IRS Restructuring and Reform Act and are making tremendous progress. However, the current IRS workforce can only do so much with its limited resources. Further progress in making the IRS more efficient and more effective will only be achieved if President Bush and Congress make a commitment to more funding.

The IRS needs to maintain current staffing levels, hire new staff and be able to pay their salaries after their first year, and completely modernize outdated IRS technology and equipment. Without a commitment to provide adequate funding, the IRS will be forced to shuffle resources from one account to another, with the end result being a less responsive IRS.

While President Bush has still failed to release many of the specifics of his budget for the IRS, the few details he has released fall far short of what the IRS and what the IRS Oversight Board have recommended.

For example, the President’s budget will include funding for the IRS Staffing Tax Administration for Balance and Equity (STABLE) initiative. The STABLE initiative was first proposed by the previous Administration and funded in the current year’s budget. If fully implemented, the original initiative would enable the IRS to hire nearly 4,000 new employees to help increase compliance and improve customer service.

Unfortunately, NTEU does not believe that the amount of funding provided for this initiative in President Bush’s budget would in fact enable the IRS to “complete” the hiring of the 4,000 new employees. Because the Bush budget fails to provide funding to account for inflation and routine pay increases for the IRS to maintain its current workforce, the IRS will be forced to cut back on its plans to hire additional employees. This is simple math: if we want to maintain the current levels of staffing and hire additional employees, the IRS needs enough money to pay those currently working at the IRS and the IRS needs enough money to recruit additional qualified individuals. Both cannot be funded under the proposed budget.

The President’s budget will provide $400 million in investments to modernize IRS's outdated computer systems. As you know, this is less than half of the Oversight Board’s recommendation of $1 billion for systems modernization. NTEU supports the Board’s recommended funding allocation so that IRS employees will have the systems infrastructure they need to more efficiently process, store, analyze, and manage taxpayer records, and so that taxpayers can be assured that their taxpayer information is secure and kept confidential.

While NTEU supports an increased budget for more advanced information technology systems and better equipment, we do not believe that these improvements have to come at the expense of reduced funding for staffing.

As you know, audit rates are down. One reason is the lack of staff; another is an issue which has had a chilling effect on employees, and I believe has contributed to the declining rates of audits and tax compliance. IRS employees continue to work in fear of section 1203 of the IRS Restructuring and Reform Act, which sets out ten infractions, known as the “Ten Deadly Sins,” for which IRS employees face mandatory dismissal. One of those infractions is the untimely filing of federal income taxes.

IRS employees violating the IRS Rules of Conduct have always been subjected to discipline, including dismissal, and rightly so. However, RRA’s requirement for mandatory dismissal of employees who violate these infractions, is unduly harsh, especially in light of the fact that many IRS employees are being terminated for filing of returns late, even when they have refunds due. Section 1203 is having a negative effect on collections and morale at the IRS, and must be repealed or modified.

In an interview in April of 2000, IRS Commissioner Charles Rossotti stated, “There is one overriding mandate emerging from the IRS Restructuring and Reform Act of 1998: we've got to rewin the confidence of the taxpayer and still collect the taxes. We have to pay attention to the effect we have on the people who pay the tax, as well as the tax they pay. Both are important.”

I agree with Commissioner Rossotti’s statement and I think he, along with the men and women who work at the IRS, are doing an outstanding job of fulfilling this mandate. I would add to Mr. Rossotti’s statement that “we’ve got to rewin the confidence of the IRS workforce and we need to pay attention to the effect we have on the people who collect the tax, as well as the tax they also pay.” If we want the American taxpayers to have confidence in the IRS, then we need to make sure employees at the IRS have the tools they need to have confidence in the work they’re doing.

The President and Congress cannot expect the IRS to enforce our tax laws and provide the American taxpayers with first-class customer service if adequate funding is not provided to retain the current workforce, recruit additional employees, and give these employees the equipment and training they need to improve the efficiency of their work.

I thank you for holding this important hearing today, and I stand here ready and willing to assist the Board in any way possible in its efforts to secure the resources necessary for the IRS to effectively and efficiently carry out is mission.