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House cuts IRS modernization funding; practitioners and clients could feel the effects.

The House Appropriations Committee approved legislation that would cut fiscal 1997 funding for the Internal Revenue Service and its tax systems modernization (TSM) program. The committee allocated the TSM program only $424.5 million in 1997, a $270.5 million drop from the 1996 budget. Overall, the IRS would receive $6.6 billion in 1997, a $774 million drop from 1996 levels.

The IRS instituted the modernization program to update its computer filing and refund systems, alleviate the paper burden and make information readily available to IRS employees so they could more effectively update taxpayer accounts and respond to taxpayer inquiries. But the program has received harsh criticism from members of Congress, Treasury Department officials and the General Accounting Office, who have cited serious mismanagement and technical weaknesses. A recent GAO report, Tax Systems Modernization: Actions Underway But IRS Has Not Yet Corrected Management Arid Technical Weaknesses, noted that recent IRS efforts to rethink, scale back and change the direction of the TSM program have not been enough and that the hundreds of millions of dollars invested in the program may have been wasted.

Congressman Jim Lightfoot (R-Iowa), chairman of the House Appropriations Subcommittee on Treasury, Postal Service and General Government, said the cuts were not meant to destroy the TSM program but, rather, to save it by forcing the IRS to use outside contractors to implement the it. "We must take the IRS out of the business of designing and building its own computer system and put it in the hands of folks who know how to get the job done," said Lightfoot. "It's clear that after eight years and almost $4 billion spent, the IRS cannot handle the job."

Are the cuts too much?

Treasury Secretary' Robert E. Rubin told the Senate Appropriations Sub-committee on Treasury, Postal Service and General Government that the IRS had recognized and was committed to solving problems associated with the TSM program but that the cuts were too deep and would deny the IRS the information systems personnel necessary to continue with the necessary modernization. "If one relies heavily on outside contractors, it is critical to have them managed internally by adequate numbers of knowledgeable people," said Rubin. He said the House efforts to "fence off" TSM funding would put its ongoing programs, such as electronic filing programs and the IRS World Wide Web page, in jeopardy.

A poorly managed program

Alan Einhorn, a partner of Hoffman, Morrison & Fitzgerald in Bethesda, Maryland, told the Journal that the IRS did not manage the modernization program well from the beginning. Einhorn served on the IRS Commissioner's Advisory Group in 1989, during the early stages of the TSM program. "The IRS did not have any contingency plans if the TSM budget was cut," said Einhorn. "The service didn't expect it to happen."

Einhorn said he was concerned about the deep funding cuts and how they could affect the profession. For example, Einhorn said recommendations by the American Institute of CPAs and other professional associations to improve IRS notices had been dismissed for years by IRS officials who said the modernization program would solve their problems. "The IRS will not be able to improve their notices now because they will not have the money to put the new systems in place," said Einhorn. Some of those recommendations include using less technical jargon to enhance understandability, clearly stating the taxpayer error, calculating in detail the interest estimates and providing proper background information on subsequent notices. "The whole one-stop-shopping initiative is now on hold as well," said Einhorn. "Different IRS departments, such as collection or examination, do not effectively communicate with each other because they don't have the computer power," said Einhorn.

The IRS told the GAO it planned to use a primary contractor and increase use of software development contractors to develop TSM, but with so much congressional attention focused on improving the IRS, such as the National Commission on Restructuring of the IRS created by Senator J. Robert Kerrey (D-Neb.), it is uncertain how much control the IRS will have over its own tax systems modernization program.


ID Numbers for Resident Aliens

The Internal Revenue Service issued final regulations that require certain resident aliens who cannot obtain Social Security numbers to get IRS individual taxpayer identification numbers (ITINs).

Beginning January 1, 1997, each such resident must use an ITIN for any U.S. tax return or refund claim, including

* Joint returns with a U.S. citizen.

* When the alien is claimed as an exemption or dependent on a U.S. return.

The IRS, which began taking ITIN applications in July, will issue a new form W-7 to IRS form and distribution centers. Form W-7 can be downloaded from http:\\, the IRS home page.
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Publication:Journal of Accountancy
Date:Sep 1, 1996
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