NTEU Views on the IRS FY 2003 Budget and 2002 Tax Filing Season

4/09/2002

House Committee on Ways and Means Subcommittee on Oversight

Chairman Houghton, Ranking Member Coyne, and other distinguished Members of this subcommittee, my name is Colleen Kelley and I am the National President of the National Treasury Employees Union. As you know, NTEU represents more than l50,000 federal employees across the federal government, including the men and women who work at the Internal Revenue Service. I want to thank you for giving me the opportunity to present testimony on behalf of these dedicated employees who play such a vital role in maintaining and strengthening our democracy.

The past seven months have been a very trying time for the American public. Never before has it been so clear how vulnerable our nation is to such a wide variety of attacks. And never before has the need to invest in a highly trained, highly skilled, dedicated federal workforce been so clear. If any American didn’t appreciate the national value of our federal employees before the tragic events of September 11th, then they sure recognize their work now. Our nation depends on these patriots who work for the federal government.

That is why it is incumbent upon Congress and the Administration to ensure that the dedicated employees who perform these vital functions for America day in and day out – during times of war and times of peace – have the tools and resources they need to do their jobs.

There are nearly twenty thousand fewer employees at the IRS than there were just ten years ago. But as the size of the IRS workforce has decreased, the workload has grown and become more complex. For example, in1988, 140 million tax returns were filed; in 2002 the IRS expects to receive 231 million returns. In 1999, taxpayers contacted the IRS for assistance approximately 117 million times, up from 105 million contacts in 1996.

And in 2001, IRS employees responded to new challenges, first expeditiously issuing millions of tax rebate checks and answering record numbers of phone calls related to the rebate. Then after the tragic events of September 11th, employees worked to provide administrative relief to the victims and their families, and worked to foster taxpayer giving to charitable organizations.

Yet, even as the number of total tax returns filed each year continues to increase and the tax code continues to undergo sweeping changes from Congress, the American taxpayers are receiving better service from the IRS. Unfortunately, it is no coincidence that examination coverage of tax returns has declined during this period of staffing cuts and increased workloads. Unless the downward trend in staffing levels is turned around, the IRS will not be able to increase tax compliance and enforcement activity, while continuing to deliver better services to the taxpayers.

In addition to increased staffing at the IRS, NTEU would like to make some additional recommendations to this subcommittee on how Congress can help improve the efficiency and effectiveness of the IRS workforce.

One issue in particular that has had a chilling effect on the ability of IRS employees to do their jobs is Section 1203 of the IRS Restructuring and Reform Act. As mentioned earlier, audit rates are down. One reason is the lack of staff; another is Section 1203, which I believe has also contributed to the declining rates of audits and tax compliance. IRS employees continue to work in fear of Section 1203. Commonly known as the “Ten Deadly Sins,” Section 1203 outlines ten infractions for which IRS employees must be fired. One of those infractions is the untimely filing of federal income taxes even when a refund is due.

The Administration’s FY 03 budget endorses a package of proposals that includes changing the mandatory termination provisions to allow the IRS Commissioner to provide appropriate punishment for offenses, “up to and including termination.” In its budget request, the Administration noted that an IRS employee who fails to file a refund return is subject to termination even though any other taxpayer who files a refund return late is not subject to any penalty.

NTEU is very appreciative of the efforts of Members of this subcommittee in supporting an amendment to include modifications of Section 1203 in H.R. 3991, the “Taxpayer Protection and IRS Accountability Act of 2002.” We are hopeful the full House will vote on this legislation soon, and that Members of this subcommittee will continue to press for these changes until they are signed into law.

The President, the Secretary of the Treasury, the IRS Commissioner, the IRS Oversight Board and NTEU all agree that this package of changes would make Section 1203 fairer. Violations of any of the ten offenses should be taken seriously, but mandatory termination in every instance should not be the only disciplinary action available. No other federal or congressional employee is subject to similar mandatory termination and fairness demands that IRS employees not be subject to this uniquely harsh standard.

In addition to changes to Section 1203, NTEU also seeks more funding for the IRS for staffing and modernization. Unfortunately, the Administration’s budget for FY 2003 does not provide the IRS with the resources necessary for the Service to continue to perform current operations, while simultaneously meeting its modernization goals. Because the IRS continues to redirect employees from tax compliance functions to help with customer service, including answering taxpayers’ questions, and providing walk-in assistance to taxpayers, the Administration’s budget comes up far short.

While the Administration’s $10.4 billion request for IRS operations may appear to be slightly higher than last year’s funding level, the funding is essentially flat in “real” dollar terms because of a budget gimmick suggested by the Administration, that would, for the first time, require agencies to pre-fund future retiree health and retirement costs from current appropriations. Fortunately, both the House and Senate Budget Committees rejected the Administration’s proposal. Furthermore, the budget ignores the need to hire enough additional employees to stop the decline in audits and enforcement activities. And the budget fails to provide enough funds for additional equipment and better training for the employees.

Improving customer service, enhancing tax return processing, and increasing tax compliance can only happen if the Administration and Congress support increased funding for staffing, more advanced technology and equipment, and better training. Employees at the IRS have responded to the mandates from Congress 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.

Next, NTEU urges this subcommittee to take steps to reject the Administration’s “competitive sourcing” initiative which sets arbitrary quotas for the IRS and other agencies to open up thousands of federal employee jobs to the private sector. The Office of Management and Budget has directed every department and agency to open up to the private sector in fiscal year 2002 the work of five percent of the federal jobs on their FAIR Act inventories and an additional ten percent in FY 2003. The Administration will be directing agencies and departments to ultimately open up to the private sector fifty percent – more than 425,000 – of these federal jobs considered commercial in nature.

The arbitrary privatization quotas will significantly disrupt operations at the IRS, which, as you know, is in the middle of its sweeping reorganization plan. The one-size-fits-all quotas give no consideration whatsoever to unique circumstances at the IRS or other agencies. And we know this directive is already having a negative impact on the morale of the IRS workforce.

Contracting out government work does not, in and of itself, improve government operations. In fact, NTEU believes that in most cases, the taxpayers lose when government work is contracted out. For example, last year we learned that Mellon Bank, a contractor hired by the IRS, lost, shredded, and removed 70,000 taxpayer checks worth $1.2 billion in revenues for the government. Fortunately, the IRS eventually terminated the contract and is conducting an investigation to determine the level of criminal wrongdoing. However, this issue begs the question, “how could we let this fraud go on for so long – 70,000 lost checks – before we realized there was a problem?” The answer is quite simply that Congress and the Administration have never put in place reliable government-wide systems or provided adequate staffing to track the work of contractors. There is nowhere near the same level of transparency and accountability of the work performed by contractors as there is of the work performed by federal employees.

NTEU believes the Administration’s contracting out quotas will lead to more contractor waste at the IRS and other agencies. We urge this subcommittee to reject the use of these arbitrary quotas so that the IRS can focus on achieving its mission in the most reliable, cost effective, and efficient manner.

Finally, NTEU urges this subcommittee to take steps to correct an issue affecting estate and gift tax attorneys at the IRS. All of the attorneys who work on estate and gift tax returns at the IRS are in the “excepted service.” Regular competitive civil service hiring procedures do not cover positions in the excepted service. As a result, estate tax attorneys are not eligible to be transferred to other competitive service jobs, even within the IRS. So even though they have the expertise and qualifications to work on trusts, partnerships, or countless other jobs at the IRS, because of their “excepted service” status, if their jobs are eliminated they will be treated as any other outside job seeker.

Recent changes in the estate and gift tax laws will lead to fewer estate and gift tax returns filed each year, which will mean that most of the estate and gift tax attorney jobs at the IRS will be eliminated over the next ten years. These employees bring a wealth of experience to the IRS and are real assets to the federal government. NTEU urges you to provide competitive status for estate and gift tax attorneys so that these valuable employees are given fair opportunities to transfer to other jobs in the federal government.

In closing, I have outlined just some of the areas where I believe Congress can help to make improvements at the IRS. IRS employees are committed to delivering first-class customer service to the taxpayers and they are committed to enforcing the tax code in a fair manner. But without some changes, they will continue to have a difficult time meeting these goals. The full benefits of a more efficient, more effective and higher performing IRS workforce will not be realized unless Congress and the Administration provide more funding and more staffing, and remove many of the barriers to improving morale and productivity at the IRS.

I thank you for holding this important hearing today, and I would be happy to answer any questions you may have.