[Joint House and Senate Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
                     JOINT REVIEW OF THE STRATEGIC
                        PLANS AND BUDGET OF THE
                     INTERNAL REVENUE SERVICE, 2002
=======================================================================


                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                      COMMITTEE ON APPROPRIATIONS
                   COMMITTEE ON GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                                and the

                      COMMITTEE ON WAYS AND MEANS
                      COMMITTEE ON APPROPRIATIONS
                     COMMITTEE ON GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 14, 2002

                               __________

                                JCS-4-02

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         Printed for the use of the Joint Committee on Taxation


                                ______ 


                           U.S. GOVERNMENT PRINTING OFFICE
82-573                          WASHINGTON : 2002
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                          COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman        CHARLES E. GRASSLEY, Iowa

                      COMMITTEE ON APPROPRIATIONS

ROBERT C. BYRD, West Virginia,       TED STEVENS, Alaska
    Chairman

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

JOSEPH I. LIEBERMAN, Connecticut,    FRED THOMPSON, Tennessee
    Chairman
                                 ------                                

                      COMMITTEE ON WAYS AND MEANS

WILLIAM M. THOMAS, California,       CHARLES B. RANGEL, New York
    Chairman

                      COMMITTEE ON APPROPRIATIONS

C. W. BILL YOUNG, Florida, Chairman  DAVID R. OBEY, Wisconsin

                     COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman        HENRY A. WAXMAN, California












                            C O N T E N T S

                              ----------                              
                                                                   Page
Press Release of May 8, 2002, announcing joint review............    VI
Opening statements...............................................     1

                               WITNESSES

Internal Revenue Service, Hon. Charles O. Rossotti, Commissioner.     9
Internal Revenue Service, Hon. Larry Levitan, Chairman, IRS 
  Oversight Board................................................    66
Department of the Treasury, Hon. David C. Williams, Treasury 
  Inspector General for Tax Administration.......................    75
General Accounting Office, Mr. James R. White, Director, Tax 
  Issues.........................................................    90

                       SUBMISSIONS FOR THE RECORD

Hon. Max Baucus prepared statement...............................   142
Hon. Mary L. Landrieu questions for the record for David C. 
  Williams.......................................................   144
Hon. David C. Williams, response to submitted questions..........   145
Hon. Mary L. Landrieu questions for the record for Larry Levitan.   148
Hon. Larry Levitan, response to submitted questions..............   149









           JOINT REVIEW OF THE INTERNAL REVENUE SERVICE, 2002

                              ----------                              


                         Tuesday, May 14, 2002

    The joint review met, pursuant to notice, at 10:00 a.m., in 
room 215, Dirksen Senate Office Building, Hon. Kent Conrad 
presiding.
    [The press release announcing the hearing follows:]




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JOINT REVIEW OF THE STRATEGIC PLANS AND FISCAL YEAR 2003 BUDGET OF THE 
                        INTERNAL REVENUE SERVICE

                              ----------                              


                         TUESDAY, MAY 14, 2002

                               U.S. Senate,
                     U.S. House of Representatives,
                               Joint Committee on Taxation,
                                                    Washington, DC.
    The joint review met, pursuant to notice, at 10:00 a.m., in 
room 215, Dirksen Senate Office Building, Hon. Kent Conrad 
presiding.
    Senators present: Conrad, Grassley, Landrieu, and Reed.
    Congressmen present: Houghton, Portman, Coyne, and Horn.

  OPENING STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM 
                          NORTH DAKOTA

    Senator Conrad. The committee will come to order.
    I am not Senator Baucus. Senator Baucus, as you know, is on 
the floor with an amendment on the trade bill. We expected a 
vote around 10:45. So, Senator Baucus called me yesterday and 
asked me to chair this hearing, which I will do. We will break 
at around 10:45 for that vote.
    We appreciate very much the attendance of the witnesses, 
and Senator Grassley has joined me here. Shortly, he, too, will 
have to go to the floor because he, along with Senator Baucus, 
is managing that bill on the floor. We appreciate his being 
here for the beginning of the hearing this morning.
    It has been almost four years since Congress enacted IRS 
restructuring and reform legislation. Since then, we have seen 
a significant turnaround in this important agency. Although we 
cannot make taxpayers love the tax collector, we can eliminate 
some of the frustration taxpayers experience by ensuring that 
IRS employees conduct themselves as professionals and as public 
servants.
    Congress insisted that the IRS put a greater emphasis on 
serving the public and meeting the needs of taxpayers in order 
to restore public confidence in the IRS. It appears that we are 
beginning to succeed.
    Today, those charged with the oversight of the agency are 
presenting the annual reports that we required of them in that 
1998 law. The reports we will hear today indicate that customer 
service and general tax administration have been improved.
    Let me just go to the chart that shows tax administration 
reorganization has been completed, total returns up 5 percent, 
electronic returns filed up 110 percent, well ahead of what was 
predicted, speed of refunds up 30 percent, telephone accuracy 
up 7 percent, and public approval ratings up 35 percent. So, 
significant gains in each of those areas.
    As a common thread in previous appearances before the 
Finance Committee, we discussed with the Commissioner the 
reduction in enforcement efforts, a situation that has raised 
concerns by both Democrats and Republicans.
    Let us go to that. Enforcement revenue is down 9 percent, 
individual audits down 52 percent, small corporation audits 
down 73 percent, large corporation audits down 33 percent, 
collection liens down 21 percent, collection levies down 82 
percent, collection seizures down 98 percent, criminal 
convictions down 27 percent.
    Finally, a common thread in today's presentations is the 
continuing need for modernizing IRS's aging computer systems. 
Let me go to that chart.
    Looking at system modernization. The Y2K program has been 
completed. Management oversight. We get mixed reviews. 
Communication 2001 and CAM, completed. The CADE, the 
cornerstone project, has been delayed. Seven major system 
projects are still in development. The updated employee 
equipment, the new laptops, well under way. In fact, that has 
occurred.
    So we see progress in a number of areas. Certainly, in 
terms of the concern that we had with public reaction, a 
substantial improvement.
    Still, we have major concerns. IRS indicates that the 
compliance rate for individual taxpayers is about 83 percent, 
which means that roughly 1 in 6 individuals is non-compliant. 
The IRS estimated the individual tax gap in 1992 at $95 
billion. That is the difference between what is owed and what 
was being paid back in 1992.
    Adjusted for inflation would be $120 billion today. When 
the results of abusive shelters, offshore credit cards, and 
other current schemes and scams are added in, today's total gap 
has been estimated by some outside observers to run as high as 
$200 to $300 billion.
    Why does that matter? Well, what it says to us, if people 
were compliant and companies were complying with the tax laws 
that would exist, is we would have no budget deficit. We would 
have no increasing debt.
    Instead, we would be continuing on the path we were on, 
paying down debt and having budget surpluses. This is 
critically important when the baby boom generation is about to 
start to retire.
    Speaking as a former tax administrator, there is nothing as 
frustrating as being able to identify taxes that are due and 
owing, but which cannot be collected. The great frustration is 
for all other taxpayers and the vast majority of people, vast 
majority of companies, are paying what they legally owe.
    It is very difficult for them to accept that they are 
meeting their responsibilities and others are ducking theirs. 
That is not fair.
    Speaking as chairman of the Senate Budget Committee, 
progress in collecting some of these obligations that we know 
are out there would make it easier to put our fiscal house back 
in order without having to make a single change in the Internal 
Revenue Code.
    I do not want to conclude without calling attention to the 
fact that today's remarks by Commissioner Rossotti will mark 
his last appearance as Commissioner at this joint review.
    Mr. Commissioner, you took on one of the most difficult and 
thankless jobs in government and found yourself not merely 
running the IRS, but turning an 85-year-old bureaucracy in an 
entirely new direction.
    We will be forever grateful for your leadership. You and I 
have met many times, both publicly and privately, and I have 
enormous respect for the extraordinary energy and attention you 
have devoted to the task.
    I think you can be forever proud of your public service. 
You have set a very high standard as Commissioner, which will 
make the task of finding your successor even more difficult.
    With that, I will turn to Senator Grassley for opening 
remarks that he might make. As I understand it, the agreement 
was that all members would have a chance for an opening 
statement, then we would go to the witnesses.

 OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR 
                           FROM IOWA

    Senator Grassley. Well, first of all, I thank you for 
chairing this meeting, a meeting that we anticipated should 
take place once a year because some of the problems we found 
pre-Charles Rossotti in the IRS was that the Congress had not 
been doing a very good job of oversight of the IRS.
    And when any agency, not just the IRS, has such a long 
leash, there is an effort for people to become more dictatorial 
as they approach serving the American people.
    This hearing--and this is the fourth one of these 
hearings--was to bring all of the committees of Congress, both 
House and Senate, appropriators as well as tax writing 
committees, together in an oversight role of IRS at least once 
a year to focus on the problems at IRS. It does not relieve any 
of the various committees of our ongoing responsibility 
throughout the rest of the year to do an adequate job of 
oversight.
    And too often we in Congress think our only job is 
legislating, whereas, maybe a more important job is to make 
sure that what legislating we have already done throughout the 
decades is adequately enforced and the law is properly executed 
according to Congress' will by those who have that job to do 
it.
    So I think that this is a very good forum to go in depth in 
one environment to look at how one agency of the Federal 
Government is doing.
    With that background, I had the good fortune of serving on 
the National Commission of Restructuring the IRS with 
Congressman Portman and former Senator Kerrey of Nebraska.
    I also had involvements over a long period of time with 
former Senator Pryor of Arkansas in writing taxpayers' bills of 
rights, particularly the first one, working with him in that 
effort.
    These efforts on my part, both serving on the Commission 
and being concerned about taxpayers' rights, have been directed 
towards achieving a proper balance between service to the 
taxpayers and providing law enforcement that recognizes the 
rights of taxpayers and to have the IRS be a consumer-friendly 
organization with the motive behind that being that 
constituents would not fear the IRS any more, or in fact not 
fear the IRS at all, as you do not fear other government 
organizations when you go to them for help.
    The idea is that if the taxpayers get the proper amount of 
help and there is a proper environment, particularly for 
answering those first questions and getting a right answer to 
those questions, that is the best way to collect the money that 
Senator Conrad has pointed out may not be coming in.
    Also, to make sure that we make proper use of all of the 
tools that are there to make sure that taxpayers do comply. One 
of the things that Senator Conrad talked about was auditing, as 
a percentage of the total, being down.
    But also, what Commissioner Rossotti has put in place, that 
he has really upped the matching, technical and mechanical 
matching of information that is a non-personnel way of catching 
those who might cheat on their income tax as a way of foregoing 
or doing more efficiently a process of collecting taxes.
    Anyway, all of those things are part of an effort to bring 
a balance to the taxpayers' bill of rights, but also to make 
sure that every dollar is collected.
    Now, some believe that these twin goals cannot be achieved, 
that somehow they are mutually exclusive. That is not the case. 
I look forward to today's hearing that will discuss the 
progress made in achieving the goals of taxpayers' rights on 
the one hand, and what needs to be done about guaranteeing 
taxpayers get all their rights, and on the other hand 
collecting every dollar that is due, where we are on that, and 
what more needs to be done in regard to that.
    And then, like my chairman pro-tem, Senator Conrad, 
thanking Commissioner Rossotti for his service to the people. I 
know some view me, as a Senator, as one of your toughest 
critics. It is certainly no secret that I take strong interest 
in the works of the IRS.
    But let me say that sometimes lost in the many letters that 
I send to you, Commissioner Rossotti, is my belief that you do 
a fine job as tax commissioner.
    I was a strong advocate for having a person like you with 
business experience as the new Commissioner and not another tax 
lawyer that had been the pattern throughout the history of the 
IRS.
    I think that your tenure has shown this to be a good 
approach, in other words, a business administrator approach to 
leading the agency. I hope that the present administration 
nominates a new IRS commissioner that will have a very strong 
background in business as you did.
    So, I thank you once again for your service.
    Senator Conrad. Thank you, Senator Grassley.
    I should indicate that this is a joint hearing of the 
Senate Finance Committee, the Senate Appropriations Committee, 
the Senate Governmental Affairs Committee, and the House Ways 
and Means Committee, the House Appropriations Committee, and 
the House Government Reform Committee. This is an unusual joint 
hearing.
    Representing the House Ways and Means Committee is 
Congressman Houghton, who is next.

 OPENING STATEMENT OF HON. AMO HOUGHTON, A U.S. REPRESENTATIVE 
                         FROM NEW YORK

    Congressman Houghton. Thank you very much, Mr. Chairman. 
Good to be here. I will make this brief.
    I want to thank you very much for having this hearing. I 
want to thank Senator Grassley. It is nice to see Senator Reed 
coming in here. We are going to be down in your State over the 
weekend with the Canadians, Jack.
    Senator Reed. I am going to be there to greet you.
    Congressman Houghton. Great. Wonderful. Wonderful.
    And then also, my associate here, Mr. Coyne. He and I work 
very closely together on the Oversight Committee of Ways and 
Means Committee. Then, of course, Steve Horn, who is 
representing the Government Reform; all wonderful members of 
Congress.
    You said wonderful things about Mr. Rossotti, and I would 
echo those. However, the true test of a man's career is really 
in the next phase: not what he has done, what he has put in 
place. I have a feeling that what you put in place is very 
good. You have got a new organization. You have a sense of what 
the auditing function should be and beefed up. You have got 
great plans for technology. The critical thing, obviously, is 
going to be who replaces you.
    So I wish the IRS well. I wish the commission well. I think 
the fact that we are working together here is extraordinary, 
and I thank you very much, Mr. Chairman.
    Senator Conrad. Thank you, Congressman Houghton, very much. 
And thank you for the contributions that you have made, with 
your background. I think it has made a real difference, and we 
appreciate it.
    It is good to have Congressman Coyne with us as well, and 
Congressman Horn.
    Congressman Coyne, welcome. Why do you not proceed?

  OPENING STATEMENT OF HON. BILL COYNE, A U.S. REPRESENTATIVE 
                       FROM PENNSYLVANIA

    Congressman Coyne. Thank you very much, Senator.
    Today's session is the fourth annual hearing on the 
Internal Revenue Service, held jointly by the House/Senate 
committees that have jurisdiction over aspects of the Internal 
Revenue Service.
    In adopting our current joint House/Senate hearing mandate, 
we hope that this proceeding and the proceedings that follow 
would clarify the voice of Congress and provide the IRS with 
clearer direction.
    I think that this process has helped to some degree in 
achieving our goals. The Ways and Means Committee recently 
approved a taxpayers' rights bill that contains a host of tax 
administration changes that will benefit taxpayers in their 
dealings with the IRS.
    Enactment of this legislation should be a priority in the 
107th Congress by both Houses. The Ways and Means Committee's 
Oversight Subcommittee has continued its tradition of holding 
hearings on the tax return filing season and the 
administration's proposed budget request.
    Based on our review, I thank the IRS for an excellent 2002 
filing season. I also hope that we can all support full funding 
for the IRS's fiscal year 2003 budget, as requested by the 
President. I am convinced that the IRS must have the tools and 
resources to do its job well.
    As we discuss the IRS's overall strategic plans and need 
for adequate staffing and funding, I want to thank Commissioner 
Rossotti and the IRS employees that he has led nationwide for 
their dedicated work and long-term commitment to excellence in 
government.
    Thank you very much, Senator.
    Senator Conrad. Thank you very much, Congressman.
    Next, we will hear from Congressman Horn, who is here 
representing the House Government Reform Committee. I know that 
just recently you had the opportunity, Mr. Commissioner, to 
spend some extended time with Congressman Horn and his 
associates on that committee. So, this will be another chance.
    Congressman Horn, it is always good to have you on this 
side.

  OPENING STATEMENT OF HON. STEVE HORN, A U.S. REPRESENTATIVE 
                        FROM CALIFORNIA

    Congressman Horn. Well, thank you very much, Chairman 
Conrad. I appreciate the opportunity to represent the House 
Committee on Government Reform at this third important meeting.
    I want to start by commending Mr. Rossotti for his 
outstanding service as Commissioner of Internal Revenue over 
the last five years.
    Commissioner Rossotti's term of office expires in November, 
and he will be sorely missed. I hope we can find a successor of 
his caliber, although that will indeed be a challenge. We need 
to seek a chief executive officer in this job.
    When Mrs. Malone, my ranking Democrat, and I talked to 
President Clinton, he saw the idea and he passed on the way to 
do it with Secretary Rubin. The next thing I knew, about six 
months or a year, I run into the IBM chief executive officer. 
He said, boy, you have sure got something for me to do. I said, 
that is right. Let us hope it is a good one.
    That is exactly what we ought to be doing this time, is 
getting a chief executive officer. I said to the President, 
look, every Republican, every Democrat, has had either tax 
accountants, tax lawyers, et cetera. I do not have anything 
against them. But when you have an organization of over 100,000 
people, we need people that are executives.
    The focus of today's hearing is on the long-term strategic 
objectives of the Internal Revenue Service and the agency's 
progress in implementing them.
    Commissioner Rossotti has developed an excellent strategic 
road map to take the Internal Revenue Service where it needs to 
go. However, the journey will not be easy, although there are 
signs of modest progress. The agency still faces daunting 
management challenges that must be overcome before its 
strategic objectives can be achieved.
    The Internal Revenue Service has chronic financial 
management weaknesses. Its financial systems simply cannot 
produce reliable and timely data to support its day-to-day 
operations. The agency's inability to make effective use of 
information technology is another chronic problem.
    The Internal Revenue Service appears to be recovering from 
past failures and has developed a sound modernization 
blueprint. It now faces the major challenge of implementing 
that blueprint.
    Computer security is yet another significant challenge for 
the Internal Revenue Service, as it is for most federal 
agencies. Until these core management challenges are overcome, 
the Internal Revenue Service will be unable to provide first 
class customer service to American taxpayers and effectively 
enforce the tax laws for the benefit of all honest taxpayers.
    As Commissioner Rossotti is well aware, I am especially 
concerned about the agency's abysmal performance in collecting 
delinquent tax debts. That is what got me into this back in 
1996, and we put on the books the way to get debts around from 
the other agencies, the cabinet agencies.
    The IRS has made no effort, though, in its own sense, to 
collect tens of billions of dollars in tax delinquencies. Back 
in 1996, it was $60 billion sitting there and nobody was doing 
anything about it, allegedly because of the inadequate staff 
resources. At the same time, however, the agency has resisted 
the idea of using private contractors to assist in its 
collection efforts.
    I understand that the Internal Revenue Service is now 
developing legislative proposals to use private sector 
collection agencies. This is long overdue. Most other federal 
agencies have been using private collection agencies for years, 
and with great success.
    There is no reason why the Internal Revenue Service cannot 
do likewise. I hope that the agency will submit its legislative 
proposal soon, and that my colleagues on the committees of 
jurisdiction will support those proposals.
    Thank you, Mr. Chairman.
    Senator Conrad. Thank you, Congressman Horn. Thank you for 
your thoughtful comments.
    Also with us today representing the Senate Appropriations 
Committee are both Senators Landrieu and Senator Reed.
    Senator Reed, you are up.

OPENING STATEMENT OF HON. JACK REED, A U.S. SENATOR FROM RHODE 
                             ISLAND

    Senator Reed. I will be extremely brief, Mr. Chairman, just 
to welcome the Commissioner and his colleagues, and thank him 
for his service.
    I think the second day on the job, you joined Senator John 
Chafee and I to brief some of our visitors from Rhode Island. 
Thank you, Mr. Commissioner.
    Amo, we look forward to your visit. All of Rhode Island is 
getting ready. We have all of our trinkets ready, so we 
encourage you to come, stay, and spend.
    Bill, it is good to see you.
    Thank you, Mr. Chairman.
    Senator Conrad. Thank you, Senator Reed.
    Senator Landrieu, also from the Appropriations Committee, 
welcome.
    Senator Landrieu. Thank you, Mr. Chairman.
    I just have a statement for the record, because I am 
interested in hearing the progress we are making on this very 
difficult challenge from the witnesses.
    Senator Conrad. The statement will be made part of the 
record.
    [The prepared statement of Senator Landrieu follows:]

OPENING STATEMENT OF HON. MARY L. LANDRIEU, A U.S. SENATOR FROM 
                           LOUISIANA

    Thank you, Mr. Chairman. It is a pleasure to be here 
representing the Appropriations Committee at this joint review 
of the Internal Revenue Service and its progress in 
implementing the reforms under the Internal Revenue Service 
Reform and Restructuring Act of 1998.
    I share some concerns about ensuring that the IRS continues 
to operate effectively, efficiently, and most importantly with 
an emphasis on putting its customers first. All Federal 
agencies should operate with these principles in mind. This is 
particularly true of the IRS because every American taxpayer 
comes in contact with the IRS in some way every year. So 
customer service must be the best.
    Commissioner Rossotti, you deserve our congratulations. 
Your five year term as Commissioner marks a turning point in 
the history of the Internal Revenue Service. You have led the 
IRS through a successful reorganization from the geographical 
structure of the past to one focused on taxpayer needs. 
According to the Roper opinion research organization customer 
satisfaction with the IRS has increased 44 percent in the last 
two years no doubt because of initiatives like the E-Filing 
program and the improvements you have brought to the telephone 
service. Forty-six million taxpayers used e-filing, six million 
more than last year. Over a four-week period in March, 74 
percent of all callers got through on the toll-free line, 
exceeding the IRS's goal of 71 percent for the year. These are 
just a few of the many accomplishments the IRS has achieved 
during your tenure, Commissioner Rossotti. Certainly there is 
room for improvement, but you and all of the people at the IRS 
have built a solid foundation upon which to achieve further 
success.
    The decline in the number of enforcement actions the agency 
has pursued concerns me, however. There was an increase this 
past year in tax levies, liens, and seizures, but the total 
number of enforcement actions are way below the number the 
agency conducted as recently as 1999. While I do not wish a tax 
audit on a disproportionate number of people and I certainly do 
not believe that they should be used in a coercive manner, 
effective enforcement actions help to maintain the integrity of 
the tax system.
    I am looking forward to hearing the testimony on how the 
IRS plans to expand its enforcement activities with the funding 
it has requested for FY '03. The budget request includes 
funding for an additional 1,179 full-time equivalent employees 
for the IRS. Enforcement activities would be increased by 1,857 
FTE. According to the IRS, 76 percent of the FTE will come 
about through the ``Re-application of efficiencies and workload 
savings'' and not necessarily the hiring of actual revenue 
officers. I would like some clarification about how all of this 
is going to work and whether it will allow the IRS to bring the 
number of audits and enforcement actions substantially closer 
to the levels we have seen in the past.
    Mr. Chairman, on the Appropriations Committee we have a 
responsibility to ensure that government agencies have the 
resources to accomplish their goals and to fulfill their 
missions. Therefore, thorough and effective tax collection is 
necessary. The IRS has set an ambitious agenda for itself in 
the enforcement area and in the areas of customer service and 
information systems management. I want to make sure that it has 
the resources to continue the progress it has made.
    Thank you again, Mr. Chairman. I look forward to hearing 
from our witnesses.
    Senator Conrad. Now we will turn to our witnesses. We have 
got four outstanding witnesses before the committee this 
morning, starting with our Commissioner, Commissioner Rossotti. 
Welcome. Please proceed.

STATEMENT OF HON. CHARLES O. ROSSOTTI, COMMISSIONER OF INTERNAL 
                    REVENUE, WASHINGTON, DC

    Commissioner Rossotti. Thank you very much, Mr. Chairman 
and members of the committee.
    First, let me just acknowledge and express my gratitude for 
all the comments you made about me in the office. Your support 
throughout this period has been tremendous and is probably the 
only reason that I have managed to make it through four and a 
half years.
    It certainly is appropriate at this point to step back, as 
the committee is doing, and see how well we are following the 
direction that we were given in the Restructuring and Reform 
Act.
    We were given a mandate in the Restructuring Act, and even 
before that, as Senator Grassley noted, by the National 
Commission on Restructuring the IRS. The Commission articulated 
both the challenges and problems that the IRS faced, as well as 
setting the stage for passage of the act itself.
    As I see it, the direction in the act and in the commission 
requires fundamental change in the entire way that the IRS 
operates and executes its mission, which includes serving 
compliant taxpayers, as well as ensuring compliance with the 
tax laws.
    I strongly agree with Senator Grassley's statement we are 
not trying to move a pendulum, as some use the metaphor, 
between taxpayers rights on the one hand and enforcement on the 
other hand.
    Instead, we are looking to improve the whole way that the 
IRS operates in all of its dimensions. This does mean radical 
change in everything about the agency, its mission, goals, the 
way we measure performance, organization structure, training, 
technology, and business practices, all of this directed 
towards improving our performance against our mission.
    While RRA did provide a mandate for this fundamental 
change, it is also important to note that the ongoing job of 
the IRS in administering the tax system did not stop, nor did 
it even slow down.
    In other words, we were being asked to modernize and change 
while still administering the world's largest, most complex, 
and constantly changing tax system.
    I think of it a little bit like driving a race car around 
the race track while the pit crew is running around alongside 
trying to figure out how to change the engine without slowing 
down the car.
    I have used that analogy a few times, so I decided in this 
hearing I would try to put some examples around it. On the 
first chart up there, I have listed some of the things that 
have been happening in the tax system as a whole over the last 
five years.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


    One important point to note is that, simply because of the 
growth in the economy, the workload of the IRS grows every 
year. In five years, that accumulates to some big increases: 12 
million more tax returns, $527 billion more in gross revenue to 
collect, and so on.
    Also, we note that the Tax Code itself is constantly 
changing. Over this period, we had 19 laws passed and 293 Tax 
Code provisions changed.
    Of course, there are always what we call ``special 
projects'' that we have to do, such as the century date change 
which occurred during this period, administering last year's 
advance tax refund program, providing administrative relief to 
the victims of the September 11th terrorist attacks, and 
responding to the anthrax threats.
    Now, that was what was going on in the background, so to 
speak, in the tax system. We have put up now a couple of other 
charts that show some of the internal changes that were taking 
place in the IRS and in the tax administration system during 
this period. There were so many we could not fit them on one 
chart, but we have got two to summarize them.


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    RRA itself had 115 provisions requiring IRS action, and 
some of those, such as provisions for innocent spouse relief, 
collection due process, offers and compromise, and notification 
of taxpayers about third party contacts, generated, as you can 
see in those numbers, hundreds of thousands of additional 
cases, some of them very complex cases, that we had to handle 
and resolve.
    On top of that, of course, in order to implement the 
changes as noted on the chart on the righthand side there, 
major internal changes took place. Our entire organization 
structure was changed. We eliminated the old geographic 
structure and put in a new customer-focused organization.
    As part of that, nearly every senior management and 
executive job in the IRS was abolished and redefined, and in 
most cases re-competed. Of course, following Section 1204, our 
entire system of measuring performance of employees and 
organizations was abolished and reconstructed.
    So when we take together the combination of workload and 
Tax Code growth on one hand, and massive change in response to 
RRA itself, it did pose a major challenge, as any large 
institution would have seen it.
    I am pleased to report that all of the activities on both 
of these charts were executed successfully during this period 
without any major misstep, although certainly there were 
problems, setbacks, and issues that occurred along the way.
    I think what is most gratifying, is that these changes have 
already resulted in the IRS being in a better position to serve 
the public more effectively. That point has been recognized, or 
at least has begun to be recognized, by the public.
    As you can see in this next chart that is going up, there 
were two respected surveys that we used to track performance 
over time. One of them goes back to the early 1980s, and that 
is the Roper-Stark survey. It shows, as you can see, that our 
rating increased significantly in the past three years, after 
hitting an all-time low in 1998.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


    The other survey done by the University of Michigan, which 
is shown by the red line, also showed considerable increase in 
satisfaction among individual taxpayers, in fact, the largest 
favorable gain of any of the 30 federal agencies that they 
surveyed.
    Not to put too much emphasis on surveys, but I believe that 
the public's attitude towards the IRS is fundamentally 
important to the health of the tax system. I do not see how it 
can be acceptable for the government agency that affects more 
Americans than any other agency to also be the lowest rated.
    So, changing that was a mandate in RRA 1998, and we are 
beginning--although I certainly stress beginning--to deliver on 
that mandate. There are some tangible indicators that back this 
up.
    Many are in my testimony, but just to cite a few: in the 
2001 filing season, we achieved--in fact, exceeded--our goal of 
46 million electronically filed 1040 returns. Our Web site, 
irs.gov, had two billion hits.
    On the questions that taxpayers ask us on tax law and 
accounts over the telephone, our accuracy rates were up to 83 
and 89 percent respectively, which is a significant increase, 
as the Chairman noted, over where we used to be, although there 
is certainly still room for improvement.
    On the compliance side, our near-term goal was to at least 
stop the decline. We have begun to do that by stabilizing our 
activity levels, audits, and collections in other areas, while 
also--we think this is very important--putting increased focus 
on the most important areas of non-compliance, such as misuse 
of devices like offshore accounts and trusts to hide income, 
use of very complex tax avoidance transactions by corporations, 
failure to pay employment taxes, and erroneous refund claims.
    As a matter of fact, combatting what we call the actively 
promoted tax schemes is our highest compliance priority and we 
are using every strategy and every tool we have, ranging from 
taxpayer education to criminal investigations, to focus on that 
particularly important area.
    Having noted that there is progress, we believe, in 
improving service and at least in stemming the long-term 
decline in compliance, I have to say that neither aspect of the 
IRS mission is being, today, executed at what I think any of us 
would consider a satisfactory level.
    There are major gaps remaining in both our level of service 
to compliant taxpayers, and even more so, perhaps, in our 
ability to address even the important areas of non-compliance.
    For example, every year we are unable to address millions 
of specific cases involving taxpayers who we know with 
reasonable certainty are not paying all they owe. We simply 
have to put them aside for lack of capacity.
    I think these remaining deficiencies undermine the 
effectiveness and fairness of the tax system in the short run 
and continue to pose serious long-term risks to the 
government's revenue stream in the long term.
    So what is the course for the future? Well, I believe that 
the plan is actually well laid out. In fact, planning has not 
been our problem. We have had, I believe, good plans.
    Now we have some of the key building blocks in place, such 
as the new organizational structure, new management team, new 
performance measures, and new strategic planning process to 
help us put our resources where they are most needed.
    So I think, with sustained and skillful management and 
adequate resources, it is possible for performance on all 
aspects of IRS's mission to improve steadily over the years to 
come.
    One of the essential building blocks for success is our 
business systems modernization program. Last year and this 
year, the IRS plans to implement three critical pieces of this 
future system architecture: a new communications system for our 
telephone traffic, and the first new installations of a new 
security infrastructure, and a database to maintain taxpayer 
records.
    Over the long run, these systems will allow us to respond 
more accurately and promptly to taxpayers and to increase the 
productivity of all of our employees, including our compliance 
employees.
    As important as it is, however, business systems 
modernization by itself will not close the gap in our 
performance. We need, in addition, adequate, qualified staff 
resources. Over the last five years, while the increase in 
workload that we noted on those charts occurred, the number of 
IRS employees continued to decrease.
    This year and in future years, the growth in the economy 
will continue. So in order to close that gap and cope with the 
increased workload, we do need some additional staff resources.
    In the 2003 President's budget, we have asked for a net 
staff increase of 1,179, which, because of productivity gains, 
will produce about three times that much in performance.
    So let me conclude by saying, Mr. Chairman, that I think 
the course that we have laid out, and as provided for in the 
2003 budget, is the correct one. If we are given modest but 
consistent increases in operational resources, adequate funding 
of modernization, and, we hope, very good management internally 
of these resources, I believe we can close the gap and fulfill 
the mandates that you, the Congress, and the public gave us in 
the Restructuring Act.
    Senator Conrad. Thank you, Commissioner Rossotti.
    [The prepared statement of Commissioner Rossotti follows:]




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    Senator Conrad. Now we will hear from Larry Levitan, the 
chairman of the IRS Oversight Board. Welcome. Please proceed 
with your testimony.

STATEMENT OF HON. LARRY LEVITAN, CHAIRMAN, IRS OVERSIGHT BOARD, 
                         WASHINGTON, DC

    Mr. Levitan. Mr. Chairman and members of the Joint 
Committee, thank you for holding this hearing and inviting me 
to testify.
    Mr. Chairman, the IRS is far from a perfect agency, but, as 
shown in the charts that you had earlier, it is making 
significant progress in improving itself.
    The Oversight Board oversees the IRS in accordance with the 
responsibilities assigned to it in RRA 1998. These duties 
closely resemble those of a corporate board of directors, but 
are tailored to fit a public sector organization.
    Carrying out these duties requires that the Oversight Board 
focuses attention on key strategic issues that can really make 
a difference in the long term.
    Our governance efforts fall into three major categories: 
strategic planning, budgeting, and performance monitoring.
    After reviewing the IRS's strategic plan and getting 
external stakeholder comments, the Oversight Board approved the 
IRS strategic plan and believes it is an excellent plan. The 
challenge is not in the planning, but in the execution of that 
plan.
    The Board's process is more extensive than the approval of 
a formal plan. The Board is focused on establishing a strategic 
planning process and a discipline linked to critical functions 
such as budget formulation, executive evaluation, performance 
management, and operational planning. Ensuring the appropriate 
linkages and alignment among these efforts is critical to the 
successful implementation of the strategic plan.
    Probably the most critical challenge that both the IRS and 
the Board faces this year, is finding a new Commissioner as 
Charles Rossotti completes his five-year term. RRA 1998 
requires the Oversight Board to recommend candidates to the 
President for the position of IRS Commissioner.
    The Oversight Board has exercised this responsibility by 
partnering with the Treasury Department to develop a position 
and candidate specifications describing the qualifications 
needed, and hiring a search firm to identify qualified 
candidates.
    The Oversight Board believes the next Commissioner must 
have the experience and competence necessary to ensure that the 
IRS continues the transformation that was started under 
Commissioner Rossotti's leadership.
    Mr. Chairman, last year I reported that the President's 
fiscal year 2002 budget did not adequately support the IRS's 
strategic plan and failed to provide enough funding for 
technology modernization and other vital operations.
    Although much of the difference in budget requests was 
related to systems modernization, there was a difference of 
$138 million for IRS operations. This funding would have 
provided for 1,300 additional FTEs that would have directly 
impacted the IRS's ability to implement its strategy of 
immediately improving customer service and enforcement levels.
    In retrospect, I believe our judgment last year was 
correct. Neither the IRS nor the Oversight Board is satisfied 
with the state of the IRS's performance. Enforcement activity 
has fallen for many years, while at the same time several areas 
of non-compliance are troublesome and need more attention.
    My written statement includes some examples, such as K-1 
matching and offshore credit cards. The Board does not believe 
that the IRS will have adequate resources to follow up on many 
of the cases that are identified by these new programs.
    During the formulation of the fiscal year 2003 budget, the 
Board worked closely with the Department of Treasury. 
Nonetheless, the Board's recommended 2003 budget is $92 million 
higher than the administration's proposed budget.
    Because of emerging issues, the Oversight Board is now 
concerned that the administration's 2003 budget will not allow 
the IRS to make progress in enforcement activities that are 
necessary.
    Our greatest concern is a potential $70 million negative 
adjustment to the IRS budget for a 4.1 percent pay raise for 
federal civilian employees. The Board urges Congress to fund 
any pay raises over the 2.6 percent proposed in the President's 
budget.
    Collecting taxes is a thankless job, and stories of failing 
resources at the IRS seem to strike a sympathetic ear among 
taxpayers. However, the reality is much different. Honest 
taxpayers across the country--and they are in the vast 
majority--must pick up the tab for those taxpayers that cheat.
    An IRS that can enforce the tax laws fairly for all serves 
honest taxpayers by ensuring all taxpayers are paying what they 
owe in accordance with the tax laws passed by Congress.
    Let me close by also thanking Commissioner Rossotti for the 
outstanding job he has done during the past five years. We 
believe the country owes him a debt of gratitude for public 
service he has given us during this period.
    Thank you.
    Senator Conrad. Thank you, Mr. Levitan, for that very 
strong testimony. And thank you for the role that you play. 
Congress wanted this Oversight Board so that we had an 
independent look at what was occurring, and you have certainly 
provided that. For that, we are grateful.
    [The prepared statement of Mr. Levitan follows:]



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    Senator Conrad. Next, we have Mr. David Williams, who is 
the Inspector General of the Treasury Department.
    Let me indicate that a vote has started on the Senate 
floor. It just started, so we have got about 14 minutes left. 
My intention is that we will have Mr. Williams complete his 
testimony, and then those of us that have to go to the floor to 
vote will do that. Then we will continue with Mr. White.
    Mr. Williams, welcome.

STATEMENT OF HON. DAVID C. WILLIAMS, TREASURY INSPECTOR GENERAL 
             FOR TAX ADMINISTRATION, WASHINGTON, DC

    Mr. Williams. Thank you, Mr. Chairman and members of the 
committees. I appreciate the opportunity to appear before you 
today to discuss the changes and reforms that have taken place 
at the IRS since the passage of the IRS Restructuring and 
Reform Act of 1998.
    In 1998, the IRS undertook a course of dramatic change. 
These changes were prompted both by issues that the Congress 
identified in a series of hearings, and through opportunities 
imagined by the new Commissioner and the Secretary of Treasury, 
who worked closely with key congressional committees.
    The changes consisted of reforms, fundamental 
organizational design alterations, and a desperately needed 
modernization plan for the IRS's outmoded computer systems.
    The organizational design plan would take the IRS from an 
old line governmental hierarchy to a modern, customer-focused 
organization. The forms were designed to address taxpayers 
rights and to strike at abuses. The modernization effort was to 
catch up with technology to support the emerging organization 
in an imaginative fashion.
    These important and fundamental changes faced serious 
challenges. The culture of the organization for good and bad 
reasons, was very resistant to sudden change. Second, these 
decisive changes needed to occur within an organization that 
was nearly blinded by a lack of management information systems, 
meaningful research capacity, and performance metrics.
    Thus far, the early course of the reforms have had 
successes: a comprehensive strategy for the future was 
constructed and a broad-fronted implementation plan was set in 
motion.
    Through this effort, problems were honestly identified and 
solutions constructed. Also, I believe that credibility was 
restored and a positive, constructive relationship was 
established between the agency and the Congress, largely as a 
result of the efforts and leadership of the Commissioner.
    During his tenure, the IRS succeeded in achieving an 
unbroken record of successful filing seasons, despite a growing 
workload. However, some of the change initiatives stalled and 
others have occurred at an agonizingly slow pace.
    For example, enforcement actions against individuals and 
businesses that purposefully conceal tax liabilities, or even 
refuse to submit tax returns, have fallen dramatically, despite 
concerns that tax cheating remains at high levels. Also, 
customer service, especially in the area of tax law guidance, 
needs major improvement.
    The IRS has made progress in modernization of its 
information technology systems and some benefits to taxpayers 
have been delivered, such as improvements in the capacity to 
handle and route taxpayer telephone calls.
    However, most modernization projects have experienced cost 
and schedule overruns and have delivered less than expected. 
These setbacks are particularly threatening in light of the 
fact that so many other reforms are dependent on modernization 
of the computer systems.
    In addition, computer security has often taken a back seat 
to other priorities and has left the quest for adequate 
security levels a distant one.
    TIGTA's audits and investigations indicate that, despite 
some impressive recent progress, the IRS is still vulnerable to 
outside hackers and internal abuse.
    For example, TIGTA has identified significant weaknesses in 
controls over external access to Internet gateways and 
weaknesses to the IRS network operating systems.
    In addition, during fiscal year 2001, TIGTA conducted 446 
investigations of IRS employees improperly accessing 
confidential tax information.
    In regard to the reform efforts outlined in RRA 1998, there 
were 71 provisions that impacted taxpayer rights. TIGTA 
auditors have assessed the IRS's compliance with 22 taxpayer 
rights provisions and found that the IRS has fully implemented 
3 provisions, and is generally compliant with 2 additional 
provisions.
    Notable RRA 1998 provisions that have not been fully 
implemented include informing taxpayers of their rights when 
liens or levies are planned; providing notices of tax 
liabilities to each spouse noted in a joint return; and 
ensuring that collection statute extensions are only obtained 
with an installment agreement or levy release.
    These issues were among those that served as the impetus 
for reform legislation, and TIGTA believes the taxpayer rights 
provisions are important and will continue to oversee the IRS's 
efforts to comply. Encouragingly, allegations of 1203 
violations have dropped significantly.
    In closing, I would like to say that the IRS is now 
entering a very challenging period. Much of the IRS's progress 
and credibility and unwavering march toward reform is 
attributed to the leadership of the Commissioner, whose term 
will expire in November.
    It is particularly essential that his replacement continue 
his legacy and possess outstanding qualifications as a change 
manager and reformer.
    Thank you.
    Senator Conrad. Thank you very much for that excellent 
testimony.
    [The prepared statement of Mr. Williams follows:]


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    Senator Conrad. We are going to go now to vote, as we have 
seven and a half minutes remaining.
    I am going to ask Congressman Coyne to assume the gavel. 
Mr. White, if you would proceed with your testimony, then we 
will go to questions. We will return as promptly as we can.
    Congressman Coyne. Mr. White, you can proceed.

STATEMENT OF JAMES R. WHITE, DIRECTOR, TAX ISSUES, U.S. GENERAL 
   ACCOUNTING OFFICE, WASHINGTON, DC, ACCOMPANIED BY STEVEN 
                  SEBASTIAN, ACTING DIRECTOR, 
                   GENERAL ACCOUNTING OFFICE

    Mr. White. Thank you.
    Mr. Chairman and members of the committees, we are pleased 
to participate in this joint review of IRS's progress since the 
passage of the IRS Restructuring and Reform Act.
    As requested, our statement includes a series of figures 
giving an overview of IRS's recent performance. The figures are 
in the appendix.
    In the interest of time, I will briefly summarize what the 
figures illustrate.
    Since 1995, as has already been discussed, IRS's workload, 
measured by tax returns filed, has increased, while staffing 
has decreased.
    At the same time, IRS reallocated these shrinking resources 
with a disproportionate decline in compliance and collection 
staffing and more emphasis on both service to taxpayers and 
information systems' operations and investment.
    The reallocation of resources shows some signs of beginning 
to improve taxpayer service and accuracy of telephone 
assistance has improved, but the compliance and collection 
programs have seen large and pervasive declines. For example, 
in audit rates, collection cases closed, uses of liens and 
levies, and raw productivity without adjusting for quality.
    Mr. Chairman, IRS is at a critical juncture. Commissioner 
Rossotti has said he will be stepping down in November, about 
halfway through the 10 years he estimated would be necessary to 
modernize IRS.
    During his tenure, IRS has made important progress at 
laying the management foundation for a more modern agency, able 
to respond to taxpayer needs faster, more accurately, and at 
lower cost.
    Progress includes the transition to a new organizational 
structure and a new strategic planning, budgeting, and 
performance management process which IRS used to identify 2,300 
positions for reallocation to higher priorities.
    Progress also includes a new employee evaluation system 
aligned with the mission of the agency. In addition, IRS has 
made progress developing a sorely-needed measure of voluntary 
compliance, establishing the system's infrastructure, 
delivering systems applications, and establishing the controls 
and capabilities needed to effectively acquire and deploy 
modernized systems.
    I said earlier that IRS is at a critical juncture. While 
progress has been made, the foundation for a modernized agency 
is not complete, and neither is the structure to be built on 
top, the reengineered business processes that would deliver 
better service.
    To continue modernizing, IRS must successfully manage some 
significant risks that threaten progress. One area of risk is 
IRS's compliance and collection programs which, as noted, have 
declined, sometimes dramatically, since 1996.
    Many view these programs as critical for maintaining the 
public's confidence in our tax system. If honest taxpayers 
believe that large numbers of their neighbors or business 
competitors are not paying their fair share, then voluntary 
compliance could be adversely affected.
    A decline in voluntary compliance would undermine IRS's 
modernization efforts, and the commissioner has emphasized the 
need to reverse these trends.
    Another risk area is systems acquisition and deployment. 
Since 1999, Congress has provided almost $1 billion for 
investment in IRS's business systems. Despite the progress in 
building management capacity, IRS is not where it needs to be 
in implementing management controls and capabilities, which 
increases the risk of not delivering systems capabilities on 
time and within budget.
    Timing is critical. As IRS goes forward, the risk of not 
having all these controls grows because systems 
interdependencies and complexity increase dramatically during 
the later stages of projects. That is, during detailed system 
design, development, and implementation. IRS is now in this 
stage on several large projects.
    Certain aspects of performance management are another risk 
area. IRS needs to have comparable performance measures over 
time and a date suitable for assessing performance. IRS needs 
to more routinely conduct evaluations of its programs.
    IRS needs to better link performance and resource use. 
Current inadequacies and missed opportunities limit IRS's 
understanding of the reasons for its performance and ability to 
identify cost-effective improvements.
    A final risk area is financial management. While IRS has 
received unqualified audit opinions, it has not been able to 
generate financial management information in a timely manner. 
This leaves management less informed in making decisions about 
how to improve performance.
    Mr. Chairman, IRS is partway through what is intended to be 
a major reorganizational transformation. Real progress has been 
made laying a foundation. To avoid delays, realizing the 
promise of modernization for improved service to taxpayers 
while ensuring compliance with tax laws, the new Commissioner 
should be willing to work within the existing general framework 
for modernization and will also have to successfully manage the 
risks I have outlined.
    This concludes my statement. I would be happy to answer any 
questions.
    [The prepared statement of Mr. White follows:]


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    Congressman Coyne. Well, I would like to thank all of the 
panelists for their testimony here today, and yield to Mr. 
Houghton for any questions he might have.
    Congressman Houghton. Thank you, Mr. Chairman.
    While all these wonderful comments have been made about 
you, Mr. Rossotti, I would sort of capsulate this in saying 
that you are the most successful tax official since St. Paul. 
[Laughter.]
    Now, I wonder, if St. Paul had had a $10 billion budget and 
100,000 employees, whether he would ever have written his 
epistles. But, anyway, we are delighted to be with you, and Mr. 
Levitan, Mr. Williams, and Mr. White. Thank you very much.
    I want to talk about money a little bit because you have 
suggested approximately $500 million to $1 billion increase 
this year in your budget. That goes from $9.9 to $10.4 billion. 
You have got a lot on the plate. Obviously, you have put in 
process some of the things which will continue after you have 
left.
    But in order to help us, can you tell us a little bit about 
what you see as your swan song as you move off, and what some 
of the money needs are going to be? I mean, you are talking 
about moving to 80 percent electronic filing by 2007.
    Is that going to cost money, is it going to save money? In 
terms of increasing your auditing, is that going to cost money 
or is it going to save money? The difficult thing is, there 
will be a new person in your chair that will not have the 
confidence, the associations, and the background that you have 
had, and it is going to be difficult when you look ahead.
    So rather than just going on a year-to-year basis, maybe 
you can take a look over the next hill and share with us some 
of your thoughts.
    Commissioner Rossotti. Yes. I think that is an excellent 
question and it is one that the Oversight Board has asked and 
we have tried to answer as best as we can. I think we are 
getting some better answers.
    I think, while it gets to be very complicated in the 
budgeting and so forth, you can really boil it down to two 
things that are going to be needed on a consistent basis. I am 
going to refer to this chart in minute, but let me just 
summarize them.
    What we need is some modest, on the order of 1 to 2 percent 
a year, real growth in our operational resources, which is 
primarily our staff. It could be, in some cases, contracts, as 
Mr. Horn has noted. But whichever way it is, it is about a 1 to 
2 percent increase in resources.
    The other piece, is the funds to modernize the technology 
which will produce productivity gains. The combination of those 
two will allow us to both meet the increasing workload and, I 
believe, close the gap to increased productivity.
    If you look at this chart, you can see what we have 
proposed in 2003 in the President's budget. At the top, you 
notice that there is a requirement for 3,452 full time 
equivalent personnel at a cost of $259 million, which we will 
apply, if we get those, directly to the top priority tax 
administration programs, predominantly in compliance, but some 
of them to meet customer service needs.
    However, we are also projecting in this budget a net 
savings, if you will, or a reapplication, a productivity gain 
equivalent to about 2,287 personnel, which are the result of 
our internal management and modernization improvements. So, we 
are really only asking for a net increase that would be funded 
by the Congress of 1,165.
    Another way to put it is, with a funding increase that pays 
for 1,165, we get about a three times multiple in terms of 
effective delivery of services.
    If we can continue to do that year after year, which is an 
aggressive assumption because that involves significant 
productivity growth higher, by our calculations than what the 
private sector and the financial world has accomplished. But if 
we can continue to do that for year after year, we believe that 
we can eventually close the gap.
    Now, the other piece of it, which is not in here, is 
funding the modernization itself because that is what 
generates, for the most part, the growth in productivity.
    So if you put those two pieces together and you do them 
consistently means that you are successful in your internal 
management, on the one hand, and on the other hand we achieve 
some relatively limited net growth in our operational 
resources, I believe we can succeed.
    Now, let me just say that I think there is a problem here 
with this, not in the planning and not in our ability to carry 
it out, but in what actually happens in some cases.
    Even though we propose this and it is in the President's 
budget and it appears to be funded, in actuality it turns out 
not to be funded, at least not the way that it appears to be. 
The best example I have about this is the pay raise.
    Last year, the Congress passed a pay raise--this is in 
2002--that was one percentage point higher than what was in the 
President's budget. It was in order to make civilian pay equal 
to military pay, which is a fine thing to do, but there were no 
funds provided for that. Therefore funding the pay raise was 
equivalent to basically putting the money into one pocket and 
taking the money out of the other pocket. For any one year, you 
might be able to do that, but now there is a potential for even 
a bigger difference, 1.5 percent, this year.
    Should that happen, that would be a total of 2.5 percent. 
That is $115 million a year. That basically offsets the net 
increase that we were proposing, and we end up essentially 
treading water and not going anywhere.
    Also, in the President's budget there were some legislative 
proposals that would help us to achieve productivity gain. Some 
of those were passed by the House, but they have not yet been 
acted on.
    We are basically banking on very aggressive productivity 
gains, as you can see here, very successful implementation of 
new systems, however the margin is very thin.
    So if things happen that undermine even that thin margin, 
what we end up with, is basically making some progress, but 
really not closing the gap that we have. That is where I think 
the biggest risk is.
    Congressman Houghton. Can I just follow up, just for a 
minute?
    Congressman Coyne. Sure.
    Congressman Houghton. Well, in other words, you are saying 
that you will be asking maybe for 1,000 people a year for the 
next few years.
    Commissioner Rossotti. Yes, 1,000 to 2,000.
    Congressman Houghton. And that will take care of not only 
what you need in terms of your internal organization, but also 
increasing the auditing.
    Commissioner Rossotti. Right. I mean, most of those people 
would go to compliance, which is auditing and collections. The 
people that we would save would be from things like electronic 
filing, reducing the submissions processing, the back office, 
or just leveraging the productivity of the people in auditing.
    Congressman Houghton. And the investment for electronic 
filing and the efficiencies will sort of take care of itself. 
But you are worried about these other things coming in, where 
the ideas are great but the funding is a little shallow.
    Commissioner Rossotti. Well, I think that what we end up 
with in the 2003 budget that is sort of summarized in this 
chart, if that funding were truly provided that would enable us 
to do the things there, hire the 1,165 people and also get 
enough money for the modernization, if that were really done 
and if we were very successful--and I do not disagree with Mr. 
White--these challenges in making these things happen and 
making these systems actually go in and getting these 
productivity gains are not a small thing. They are very, very 
hard.
    But if you could achieve those things, and if you did it 
consistently year after year, you would be able, I believe, to 
cope with the increasing workload and gradually close the gap, 
which we have a very, very large gap right now in our 
compliance, in our enforcement, and to some degree in our 
customer service.
    So I think there is a formula there. There is a plan that 
could work, but it does not have a lot of leeway in it. In 
fact, it has a lot of risk in it. But it is at least a feasible 
plan.
    I think part of the risk is internally what we have to 
manage, but part of it is external because, when we get the 
money assigned for these activities, but then you get things 
like unfunded pay raises, you are blocked.
    Congressman Houghton. Thank you very much.
    Congressman Coyne. Thank you, Mr. Houghton.
    Commissioner, can the IRS improve customer service, while 
at the same time adequately enforcing the tax law?
    Commissioner Rossotti. Mr. Coyne, I, after four and a half 
years here, absolutely believe that not only can it do that, 
but it has to do that if we want to have a successful tax 
administration system.
    I think that the basic fundamental point about the American 
tax system is that most of the money comes in from people who 
are honest people paying their taxes voluntarily. Even if we 
do, as we do, estimate that there is $200 billion-plus that is 
not being paid, that still leaves $2 trillion that is being 
paid by people who are paying voluntarily.
    It is only reasonable that they should be treated properly 
and get the rights that they are entitled to, and if they need 
help, that they should be able to get it. They also, I believe, 
are well served by our using our enforcement powers to make 
sure that those people who are the minority that are not paying 
are not allowed to get away with that.
    So I think the charts that I showed earlier, and the 
response to the public, show that the public will not always 
hate the tax collector. I think that if you treat people 
properly, they have reasonable expectations and they will 
respond.
    The only conflict, if there is a conflict, is in resources. 
It does take some resources to answer phones and it takes some 
resources to do audits. So, to some degree, you have a conflict 
in terms of resources.
    But even there, if you are efficient in serving your 
compliant taxpayers, you may reduce the number of cases of 
people getting behind, and even reduce the load on your 
compliance resources.
    So as a matter of good public policy, as well as a matter 
of efficient management of the tax system, I am one who 
believes that there is no way that you can effectively, over 
the long run, run a tax system that depends on voluntary 
compliance when you have 78 percent of the public, as they said 
in 1998, basically not having any respect for the agency. I do 
not think that can be acceptable.
    So my answer is, unequivocally, you not only can, but I 
think you have to. The only qualification I make on it, is it 
does pose a need for having adequate resources to cover both 
ends of the mission.
    Congressman Coyne. As you prepare to end your tenure, and 
very successful tenure, as Commissioner, what two or three main 
points do you plan to share with the new Commissioner to ensure 
that the IRS stays on the course that you have so successfully 
set during your time?
    Commissioner Rossotti. Well, I would mention a couple of 
things right off the top of my head.
    One, is the question you just asked, and which Senator 
Grassley teed up in his comment, really is a fundamental point. 
There are people who believe that people will always hate the 
tax collector, and that is inevitable.
    I think if you accept that, you have lost the battle before 
you start. You really then cannot even respond to people's 
complaints properly because you can dismiss any complaint as 
being just driven by the fact that people will always hate the 
tax collector.
    I think you have to set a goal, which is proper in any 
business organization, to keep your customers happy, your good, 
paying customers, collect your receivables, and do both halves 
of the mission. So, that is a basic point. If you lose sight of 
that dual objective, that, I think is a mistake.
    The other thing, on a more tangible level, is having a 
strategy that determines how you get out of the hole that we 
are in, because we are most certainly in a hole in terms of 
inability to fully execute our compliance, and even our 
service, mission.
    The plan that we have come up with that has been endorsed 
by the Oversight Board and was endorsed in the President's 
budget, is not asking for massive increases in the size of the 
agency, but asking for modest increases and trying to do most 
of it through internal productivity.
    That is a basic strategy. I believe it will work, but that 
is a difficult strategy to pull off. It is a real challenge for 
the Commissioner and the whole leadership of the agency. 
Certainly it requires some budgetary support on a sustained, 
ongoing basis.
    I think those are two very important strategic points that 
are very uppermost in my mind.
    Congressman Coyne. Thank you very much.
    Mr. Horn?
    Congressman Horn. Thank you, Mr. Chairman.
    I would like all of the witnesses to answer this. As you 
know, the audits and the other tax law enforcement activities 
have declined dramatically in recent years. What does the IRS 
need to do to improve tax law enforcement? Let us start with 
Mr. White down there. Has GAO got a feeling on this?
    Mr. White. I agree with the Commissioner's emphasis on 
productivity. One of the problems in the area of compliance and 
collections has been a decline in raw productivity. That is 
measured by cases closed per unit of staff time, per staff 
hour, per staff year, without adjusting for the quality, the 
length of time it takes to work cases.
    The Restructuring Act imposed some additional requirements, 
but IRS has not done a quantitative analysis to get a good 
handle on what is behind these declines in raw productivity. So 
one step is understanding what is behind this decline in raw 
productivity and turning that around.
    Congressman Horn. Mr. Williams.
    Mr. Williams. The small business and self-employed element 
of the organization is conducting a reengineering effort right 
now of exam and collection effort. I think it is important to 
look at reengineering.
    Certainly, there has been an incremental fall in 
productivity of each employee and of the cases, and that needs 
to be better understood. If reengineering can help, that would 
be great.
    I think also consideration of focusing on issues rather 
than entire returns would have a huge payoff, focusing on a 
certain line in the 1040 rather than on a group of people's 
1040s.
    Research. There is some real hope that we have for the 
National Research Program, that it will provide the kind of 
intelligence that will allow us to target lawbreakers in big 
payoff areas.
    The IRS has done a good job, CI particularly, of 
publicizing successes. That is important. Many enforcement 
initiatives are dependent on computer programs. There are 
things that we can do right now, to write computer programs 
that will cause violators to just fall out of the sky, but the 
big payoff is coming when the modernization completes itself.
    Congressman Horn. Mr. Levitan.
    Mr. Levitan. At the risk of repeating some of the points, I 
think they are right on target. First, we need to send a 
message. We need to send a message that the IRS is following 
up, that we are successfully prosecuting many cases and that 
needs to be publicized so the public does hear that.
    We need to do a better job of identifying where to put the 
limited resources that we have, and there the National Research 
Program is going to provide valuable information. We strongly 
support that.
    New initiatives in high-priority areas such as foreign 
credit cards and K-1 matching should provide significant 
information.
    Modernization over the long term--and I emphasize long 
term, unfortunately--is going to help significantly. So there 
are many things that the IRS can do. I think, though, as I have 
said before, to some extent that is playing around the edges. 
None of that is going to make a material difference unless the 
administration and Congress does some important things.
    There are two things I think that are critically important. 
Number one, is the complexity of the Tax Code. The complexity 
of the Tax Code invites errors. Errors take significant 
resources from the IRS that then cannot be used for 
enforcement.
    I think also complexity invites cheating. If we can 
simplify the Code, we can make a major impact in both of those 
areas.
    Finally, you have heard this over and over again, I think, 
from all of the panelists here, we need to have adequate 
resources to accomplish our task.
    Congressman Horn. Commissioner Rossotti, you have heard 
your colleagues. What does the Internal Revenue Service still 
need to do to improve tax law enforcement?
    Commissioner Rossotti. Well, I think that all of the 
comments that have been made by my colleagues here are correct 
and they reiterate a lot of the things that we are doing to 
focus resources, increase productivity, make sure that we are 
working the right cases and the right issues as opposed to just 
diluting our resources. So, those are all part of our 
strategies.
    I do want to recap, though, by pointing out that none of 
this, by itself, will work, will solve the gap without some 
level of increase in qualified staff. I mean, when we have 
thousands of cases of taxpayers who are high income taxpayers 
who are hiding substantial amounts of income in offshore 
accounts, we are now getting the information that is telling us 
who they are.
    There is not any way that we can effectively deal with 
those taxpayers without having a very skilled person with a 
considerable amount of training go out and deal with that 
taxpayer or the representative, or a special agent if it is a 
criminal case. We need those skilled people. We really have a 
very, very thin line right now in the enforcement area of those 
people.
    Just to quantify one example. I will give this to quantify 
how big this gap is. If we only take individual taxpayers with 
incomes over $100,000 a year, and these are taxpayers who have 
reported, never mind those who did not file or did not report, 
but if we take those that are over $100,000 income, there about 
9 million of those returns.
    Well, we know of about 1.2 million of those returns which, 
with reasonable degree of accuracy, we believe, have a 
sufficiently understated tax, that they should be audited by a 
field auditor--not by document matching, but a field auditor. 
So there are 1.2 million that we know of of high-income 
taxpayers that should be audited.
    Our capacity today to do those is 54,000. That is 54,000 
out of 1.2 million, not total, but of those that we know of. 
That leaves 1,150,000 that should be audited that we are simply 
putting aside for lack of resources every year. That is a big 
gap. That is before we ever get to special programs like 
offshore credit cards. We have a long way to go to have 
adequate resources to deal with those cases.
    Congressman Horn. I will wait until the Chairman sits. We 
will have another round. I just got my five minutes over, but I 
take it we will have another round.
    Senator Conrad. We will. Congressman Portman has arrived, I 
am told.
    Congressman, if you would like to make an opening 
statement, it would certainly be appropriate, or if you would 
like to proceed with questioning, whichever you prefer.

 OPENING STATEMENT OF HON. ROB PORTMAN, A U.S. REPRESENTATIVE 
                           FROM OHIO

    Congressman Portman. Thank you, Senator. I think I will do 
a little of both. First of all, thank you very much for 
chairing the joint hearing. This is very important, and is done 
every year since the Restructuring and Reform Act was enacted.
    In fact, it was almost five years ago to the day that the 
report was issued by the Commission on Restructuring and 
Reforming the IRS, and many veterans are here with us in the 
room today. We were in this very chamber many times during the 
Commission's deliberations, having hearings and talking to some 
of the same people.
    I think we have made considerable progress since that time 
five years ago, and since four years ago when we passed the 
Restructuring Reform Act, which was largely based on the 
Commission's work. I do think we have a number of challenges. I 
think those have been identified today.
    The primary challenge, of course, is in the area of 
compliance, enforcement, audits. We have seen the rate drop 
off. I think what we have heard today is a list of at least a 
half dozen different things that the IRS is currently doing to 
address that. Those are all appropriate.
    I could not agree more that it is not mutually exclusive to 
have good enforcement and good taxpayer service. In fact, the 
theory behind the Commission's report, and I still believe it 
even with the evidence of the drop-off, is through good 
taxpayer service, we can increase compliance.
    This has been the experience of all of the service 
organizations in America over the last couple of decades and it 
can be the experience of the IRS, but we do need to devote more 
technology, more resources, and among other things, have better 
data and better analysis.
    Mr. White talked about the fact that we do not have good 
analysis currently of what is going on. It is true. TCMP was 
discontinued after 1988. So when the Commissioner talks about 
$200 billion that we know is not being collected, we do not 
know that number. I am very supportive of moving ahead for that 
reason with the NRP, despite some of the risks.
    And those 50,000 taxpayers--I hope I am not one--who have 
to undergo that will have a much less obtrusive experience with 
the IRS than we had with TCMP. But it is necessary to get that 
data to begin to address what I view is the largest challenge 
facing the IRS.
    I have a couple of questions, if I might, Mr. Chairman.
    First, to Mr. Levitan and if the Commissioner would be 
willing to chime in as well, that would be helpful. The purpose 
of setting up the Oversight Board was really threefold: one, to 
bring expertise that you bring, Mr. Levitan, from the private 
sector and others on your board; second, was to provide for 
more accountability so that you had a body that actually was 
accountable for the reforms or lack of reforms; but third was 
continuity.
    This is significant, with the Commissioner's departure at 
the end of the year. As you know, we have five-year staggered 
terms. Although it took us a while to get the Board up and 
going, the Board has now been intimately involved in the 
reengineering and restructuring of the IRS.
    Do you believe that the continuity is there for us to have 
a smooth transition to the next Commissioner, and could you 
give us a status report on your process that I know you are 
undergoing to select a list of candidates which you will then 
provide to the President and to the Treasury Department?
    Mr. Levitan. Yes. First, let me talk about where we stand 
with finding a new Commissioner. The Board worked very closely 
with the Treasury Department, first, to put together a set of 
specifications for the position. So everybody--the Board, the 
Treasury Department, the Secretary of the Treasury and the 
White House--were all in agreement with what we were looking 
for.
    From the comments I heard from each of the members earlier, 
I think you would be very pleased with what that statement said 
and the kind of capability and experiences that we expect the 
next Commissioner to have.
    We then hired a search firm. The search firm brought to us 
a number of candidates who met qualifications and have 
expressed some interest in the position. The Board did some 
further work in vetting those individuals, and then we have 
sent to the President a number of candidates that the Board 
believes are both qualified and interested to serve in this 
position.
    The ball is now in the President's court. I know the 
Secretary of the Treasury is very much involved to make a final 
selection to nominate an individual.
    Congressman Portman. And just to clarify for a moment, that 
list of candidates you sent forward is to be considered by the 
administration, but they may go outside that list, I 
understand, to choose a Commissioner.
    Mr. Levitan. Yes, that is exactly correct. It is a 
Presidential appointment, therefore, it is up to the President 
to make that decision.
    However, I am encouraged in that I think the most important 
thing we may have done is develop, and then have agreement, on 
the specifications because we can now all turn to that and say, 
does the individual meet those specifications.
    Second, I think the Board will be very involved as a new 
Commissioner is both nominated and approved by the Senate. We 
will work with that individual to help provide that continuity.
    Most importantly, I think it is the processes that have 
been put in place at the IRS under the Commissioner's 
leadership that will provide, really, the mechanism to help 
ensure that we do have continuity.
    The question was asked of the Commissioner of what advice 
he would give to the next Commissioner. The advice I would 
give, and will give, is really, stay the course. We have an 
excellent plan in place. It is very well documented. We have a 
good team. We just need to execute that plan ferociously and 
make it work.
    Congressman Portman. Commissioner.
    Commissioner Rossotti. Well, I think that what Larry said 
is excellent. I mean, they have fulfilled the mission that was 
given to them, as far as I can see from serving on it to assist 
in identifying a new Commissioner.
    It was very carefully thought through in terms of the 
specifications. They made complete sense to me. Obviously, 
there is still more to do. You have got the Secretary, the 
President, and the Congress that have to actually make a 
selection. But I think, as it was envisioned by your Commission 
and legislation, it seems to me that it is working pretty well.
    Congressman Portman. One other question, quickly, Mr. 
Chairman, if I might, that has to do with the overall direction 
of the IRS. As you know, we were strongly supportive in the 
Commission of a reengineering and restructuring of the IRS 
along taxpayer lines with some pain and some dislocation that 
has now occurred.
    There has been discussion recently about some of the 
frustrations that have resulted, not just with employees 
learning to live with the new system, but also the fact that 
some taxpayers would fall in different categories. For 
instance, a corporate taxpayer that also has individual tax 
issues.
    Looking back, Mr. Commissioner--and Mr. White and Mr. 
Williams, you may want to comment on this as well--do you think 
it was a good idea to undertake the restructuring of the IRS 
along taxpayer lines? Do you think it is something that ought 
to be continued, and how do you think it can be improved?
    Commissioner Rossotti. Well, obviously, I do think it was. 
I think some of the, we call them growing pains, that you are 
talking about are inevitable when you make that much of a 
change. Actually, a lot of those have actually settled down 
already in the last year. I think what you are left with, is a 
structure that really will allow a Commissioner to, first of 
all, have people who are really accountable and for dealing 
with major blocks of the performance of the agency.
    One of the things that amazed me when I started to look 
into it, was everything came together at the Commissioner and 
the Deputy Commissioner. It was essentially everything coming 
together through many, many layers of management. It did work, 
because for years people had gotten used to it, but it was not 
something any business organization would have really 
countenanced.
    Now, the transition to get there was quite difficult, but 
we are basically behind that now and we are into fine tuning. 
So, I think that it will work. I do not think anybody is 
saying, go back to an old structure.
    It is one of the building blocks that I think the new 
Commissioner is not going to have to worry about, other than in 
any organization, no matter what you do to divide an 
organization that is very large into pieces, you then have the 
issue of how you coordinate across the pieces. I do not care 
what you do, you would have that issue.
    But I think, as a way of dealing with accountability 
internally and customer focus externally, it is a good 
situation to leave to the new Commissioner.
    Congressman Portman. Mr. White or Mr. Williams, quickly, 
any comments?
    Mr. White. GAO believes that it was very appropriate to try 
to achieve a better balance between service to taxpayers and 
enforcement. We think that the plan--and we have said this for 
years--there is, as the Commissioner said, a well-laid plan. 
One of the advantages, one of the strengths of this plan, is 
that it integrates a number of different aspects of tax 
administration.
    So it is an integration of performance management, 
performance measures, better information systems, the 
organizational structure of IRS. The fact that it is attempting 
to integrate all of this is a strength of the plan. It also 
makes it more difficult to implement. Any one of those aspects 
of the plan would be very difficult alone. Trying to do it all 
in a coordinated fashion is more difficult.
    IRS, as I said in my statement, has made real progress over 
the last four and a half years in implementing the plan, 
beginning to implement it and developing the plan.
    There are a number of risks going forward: the decline in 
compliance and collection programs, putting in place the 
capabilities to better manage systems' investment, performance 
management including financial management issues that a new 
Commissioner is going to have to deal with, and deal with soon.
    Congressman Portman. But you would say, stay the course 
with regard to the restructuring, with a caveat that, on the 
compliance side, you have a list of initiatives.
    Mr. White. Absolutely. Yes. If you do not stay the course, 
if a new Commissioner does not stay the course, there is a real 
strong likelihood that that would significantly delay realizing 
the benefits of modernization.
    Congressman Portman. Mr. Williams.
    Mr. Williams. I think there is always a lag time between 
the time you make an investment and the time you begin to 
experience the payoff. Certainly, IRS felt that. When the ship 
first began to turn, there was a degree of chaos and not much 
return for a huge investment. That really has turned around, 
and I feel very confident in the decision that was made and the 
course that was taken.
    If I was concerned at this moment, it would be that, 
because of some unforeseen investments that had to be made, the 
units are not being able to complete staffing up. There was the 
pay raise. I am hearkening back to some of the things Larry 
said.
    There was also the shift of resources that were required 
post-9/11. The paradigm for a security threat completely 
changed from an insider or one or two people to an organized, 
sophisticated assault that could close us down in collecting 
the several trillion that it takes to operate the government. 
That left the IRS short and it left completion of RRA '98 a bit 
short.
    Congressman Portman. You were generous to leave out tax law 
changes in there.
    Mr. Williams. That is a really good point as well.
    Congressman Portman. Thank you, Mr. Chairman.
    Senator Conrad. I would like to ask each member of the 
panel, what is your single greatest concern about the Revenue 
Service going forward, and what should be done to address that 
concern?
    I will start with you, Commissioner.
    Commissioner Rossotti. Well, I think that the huge gap that 
we have that I think we all acknowledge between what we know we 
should be doing, especially in the compliance area but it is 
also there in the service area, that gap, together with the 
fact that the workload compounds, if that situation continues, 
if we do not make progress in closing that gap, and the only 
way we could do that is some combination of increased resources 
and increased productivity, if we do not close that, I really 
think we have a serious threat to the tax system.
    I always look at the glass being half full, and I do think 
it is half full because we have made progress and we know how 
to fix it. But if you just kind of stayed where we are, let the 
workload grow as it has been growing over the last five years, 
that we are not able to close the gap that we have in 
compliance, that we just get bigger, at some point people begin 
to, lose confidence, and the whole confidence that the tax 
system is based on is threatened.
    So I think that, while we know how to fix it and I think we 
can fix it, the other side to it is, it is not in a stable 
situation. I mean, it just simply is not in a stable situation.
    If we kind of keep where we are, stay where we are from a 
funding and productivity standpoint and continue to add all the 
things that we added over the last five years, at some point 
you are going to have a real breakdown.
    Senator Conrad. What would be the single most important 
indicator that you would look to to determine whether or not 
serious progress was being made?
    Commissioner Rossotti. Whether serious progress is being 
made? Well, I think that on a day-to-day basis you can look and 
see whether the effectiveness of our operational indicators, 
whether we are doing the day-to-day things that need to be 
done--processing returns, answering phones, getting better 
accuracy, auditing the people that should be audited, which is 
not only how many we do, but doing the right ones, collecting 
the overdue debts, which Congressman Horn always reminds me of 
every time I see him--those things, we can measure. I think, if 
they are going in the right direction, at least on a trend, 
then ultimately I think we are making some progress in closing 
the gap.
    I do think that our compliance study, our National Research 
Program which Congressman Portman mentioned, we will get in 
about two years from now. That will give us a very important 
point of measurement as to the degree of compliance and where 
the non-compliance is.
    So we will have the measurements, I think. Some of them are 
more current on a day-to-day basis and some of them come 
periodically, like the NRP. We will know. But I think if what 
happens is that we continue to have even more and more cases 
that we know of that people are not paying their taxes and we 
cannot do anything about it, we still are not able to fully 
satisfy even the people who we are sending notices and letters 
to, and we cannot even answer them, I think that you have a 
real deterioration of the basic revenue stream of the country.
    Senator Conrad. Let me ask Mr. Levitan the same question. 
What is your greatest concern?
    Mr. Levitan. While I am very concerned about the status of 
enforcement, as the Commissioner has talked about, I think the 
thing that I am focused on now is the execution and 
implementation of the modernization program. The IRS has to be 
modernized. It is not a question of, should it be, will it be. 
It has to be.
    Senator Conrad. And what is your assessment of where we are 
with the modernization?
    Mr. Levitan. We have an excellent plan in place. We have 
been working at that plan now for about three years. 
Performance of that execution has been mixed, at best. We have 
accomplished a lot, but we have missed target dates, we have 
been over budget, we do not have all of the capabilities.
    Our prime contractor performance has been disappointing. We 
need to get better at executing and making modernization work. 
The IRS has to get a lot better in managing the process. I 
think GAO has done a superb job in laying out exactly what they 
need to do, and we support that entirely.
    The prime contractor has got to get a lot better at meeting 
their targets, at delivering quality results on budget and on 
schedule. We need to improve our capability to accomplish that.
    Senator Conrad. Mr. Williams, what would you say? What is 
your greatest concern for the Revenue Service going forward, 
and what needs to be done about it?
    Mr. Williams. I would also say, Senator, the business 
systems modernization concerns. There are so many reforms and 
so many abilities to contain costs that are dependent upon the 
success of that, that no matter what its status, it becomes 
very important.
    It is troubled. We are now three years into it. We have 
spent $1 billion. I think there are some legitimate doubts that 
we have $1 billion in value as a result of that investment.
    We have checked eight projects through the development 
phase. They have been, on average, 89 percent more costly than 
was projected and one year behind in the schedule. The customer 
communications project, which is great--it took us out of the 
human router business--was 31 percent over cost and 9 months 
behind. The IRS needs to develop a project management process 
that is repeatable and is much better at estimation of both 
costs and time. The prime contractor was hired primarily to 
help us, to help the IRS strengthen in those areas where we had 
been traditionally weak. They did not deliver. They are not 
good at estimating time and cost, and we are having to jettison 
functionality as the projects come onstream. That worries me a 
lot.
    As far as a fix, I think we need to slow down, do a few 
projects well. I think there is agreement that that is to be 
done.
    With regard to prime, there has already been a shoot-out 
with regard to CADE failures. A very strong warning shot was 
sent off by the Commissioner and the CIO to the prime to try to 
understand IRS better, to try to understand the core business 
processes.
    Senator Conrad. When you talk about CADE, there are people 
listening who have no idea what that means. That is the 
Customer Account Data Engine. Is that not what that stands for?
    Mr. Williams. It is, Senator. That is going to contain 
everyone's account.
    Senator Conrad. Information. That is the single most 
important piece of modernization, is it not?
    Mr. Williams. It is. A second one is STIR, and those are 
two important ones to watch.
    Senator Conrad. And STIR stands for?
    Mr. Williams. I can better tell you what it is for. It is 
to provide the infrastructure, and especially the security, for 
the entire operation to go forward with. If those stumble, so 
many of the good reforms and initiatives are held up and we 
will have to just continue to invest in manpower.
    Senator Conrad. Let me go back to the Commissioner. The 
Customer Account Data Engine was supposed to start Phase 1 of 5 
last fall, but the project has been delayed twice. Why was it 
delayed, and will that have a ripple effect on other projects? 
When do you believe it will be completed?
    Commissioner Rossotti. Actually, the original schedule when 
we passed the design milestone last June, was that it was 
supposed to be delivered in a pilot phase in February, and then 
in a live phase in July. Basically, compared to that, we are 
six months behind.
    Our current target is to put a pilot phase in the third 
quarter, in the July-August timeframe, and to actually go live 
with the next filing season in January. But it did lose six 
months.
    I do note that with the renegotiation we have with the 
prime, that they did agree to absorb essentially all of the 
cost increase of that delay. So, that was an important thing 
that we were able to work out.
    As to why it was delayed, the design phase of this requires 
not only designing a new database, but figuring out how to 
integrate it into the old system, and we have two of these co-
existing at the same time. Frankly, that is the harder part. 
Designing the new database is hard, but it is a question of how 
you make it work with the old one.
    I think that the biggest single thing that caused the delay 
was just a slower than expected understanding--and this is not 
an easy thing to do--on the part of the project team of some of 
the intricate details of how they were going to make the new 
system work with the old system.
    So when we got into the design phase, there were some 
holes, there were some things that were missing, and there were 
just some complexities that were overlooked.
    Senator Conrad. Are you confident that the new schedule 
will hold?
    Commissioner Rossotti. Well, having been in the systems 
business for 28 years and having usually been on the other side 
and being asked that question, I always add a little bit of 
qualification.
    Will they deliver this system, will we get it into 
operation, will it be the first building block of CADE, I think 
there is nothing about this that says that is not going to 
happen. Will it hit the precise milestones there on the target 
now? I would not want to stand up and guarantee that that is 
going to happen month by month.
    But the two big things that Mr. Williams noted that really 
are the two key building blocks that we are trying to put in 
place here, one is the security infrastructure, the other the 
customer database, those are really the foundational elements 
of this whole thing.
    Getting them in the first time is really quite tough. I was 
in the business myself for 28 years. My former CIO, who was 
there for the first two and a half years, was in it about 25 
years. I have got a very experienced CIO now, and some other 
people who have come in from the outside.
    We all look at this and say, this is really hard. It pushes 
the boundaries of a lot of things, not so much in the fact that 
a taxpayer database is such an extraordinary thing, but as in 
the scale that we deal with, and most particularly----
    Senator Conrad. Interaction.
    Commissioner Rossotti [continuing]. Really tangled system 
that we are coming with from the past. You put those things 
together, and that is where we are having our problems. We are 
not having our problems designing the new system.
    Now, the good news to this, and I guess I am sometimes 
criticized as being an eternal optimist, and maybe that is a 
good thing or I would have never taken this job in the first 
place. [Laughter]. But the one thing about this, is getting 
these two pieces in place for the first release is awfully 
tough, and we have had some delays.
    I will say, when we get done with those--and we will get 
through them. We do have people working. They do provide a 
tremendous amount of learning that has never been available in 
the past.
    I mean, we can say CADE is six months late, or we can say 
it is 25 and a half years late. It was really in the late 
1970s--and this is not exaggeration--that the first designs and 
proposals were put in place to replace what was then already in 
the late 1970s a more than 10-year-old system.
    Ten years is pretty long in the computer business. So, 25 
years ago we had a 10-year-old system that we were proposing to 
replace. Now we are 25 years past that, and that is basically 
where we are.
    I think what is going to happen, is that we are going to 
slog our way through. That is really the word I would use. We 
are going to slog our way through to getting these first 
releases up. We absolutely are following the lessons that we 
have learned from doing this.
    We have slowed down our plans numerous times and readjusted 
them when we needed to. We will do that again, and we will take 
advantage of that to improve some of the things that we need to 
in internal management. GAO has been excellent in identifying 
those.
    I will say, we have made some improvements. The Enterprise 
architecture, which was the real blueprint of how the whole 
thing fits together, was a critical component that was not easy 
to do. GAO noted that many times. That is in really good shape. 
We have that in place now.
    The release planning that coordinates different pieces that 
go in together is improved. The scheduling cost estimating, 
that area, and some of the contracting certainly needs more 
work.
    So, bottom line, it is a tough, high-risk area. You would 
never take on this project unless you absolutely had to. But 
the IRS is 30 years behind, and there is not much I know of you 
can do except make it work.
    Senator Conrad. Let me just say, as a former tax 
administrator, I think I have some understanding of the 
extraordinary complexity of migrating from the system that was 
to what is going to be. When one looks at the extraordinary 
complexity, frankly, I was never too concerned about the design 
of a new system, new database management system for going 
forward.
    The concern I always had was the migration. For anybody 
that knows, the systems that were in place trying to go from 
that to what is being fashioned is absolutely an extraordinary 
undertaking. I think all of us are concerned about meeting 
these deadlines, but more than that, of having a system that 
functions and functions efficiently. The jury is still out.
    I think that would be the fair thing to say. But all of us 
have got a high interest in making certain that this functions 
for the taxpayers of the country and maintains the revenue 
system of this country. That is at the heart of the ability to 
defend this Nation. It is at the heart of the ability to 
improve homeland security, improve the education of our people, 
and all of the other things that the Federal Government has a 
responsibility for.
    So, we understand the importance of this. This is not just 
a matter of some computer system, this is a matter of the 
functioning of the government to do the things that the people 
of this country want done.
    Commissioner Rossotti. I agree, Senator. Could I just 
finish up with one point that maybe I think is important going 
forward for Congress, as well as our oversight group?
    Senator Conrad. Yes.
    Commissioner Rossotti. There are a lot of different kind of 
mistakes you can make in the systems business, and I probably 
made most of them in the 28 years that I was in the business. 
But there is one mistake that, as Yogi Berra used to say, is 
the wrong mistake.
    The wrong mistake is to say, if we do not make this 
schedule, we are going to lose credibility and we are going to 
lose our money, or we are going to be fired, or whatever people 
are worried about, so we are going to make this schedule come 
hell or high water.
    Usually what happens, is you end up with hell or high water 
when you do that. When you are dealing with these complex 
things, the most important thing that you always have to keep 
in mind is that, if you do not deliver something that is 
actually a quality product, you have really lost completely.
    So if you are behind schedule, which you frequently become 
in this business, the thing that the top management has got to 
give as direction is, all right, we do not like that, we are 
going to figure out how to get better schedules in the future, 
but we have got to focus on quality and make sure we actually 
deliver what needs to be delivered.
    As long as I have been here and the people who have worked 
with me, we have taken that approach. I think it is extremely 
important that everybody involved recognize that nobody likes 
to have a project that is behind schedule or an over-cost, and 
you try to avoid that in every way. But there is an even worse 
thing than that, which is to put in something that does not 
work at all or that is not really solving the problem.
    Senator Conrad. I could not agree more.
    Congressman Horn?
    Congressman Horn. Thank you, Mr. Chairman.
    Mr. White, does the General Accounting Office have a figure 
for the uncollected taxes that are in the Internal Revenue 
Service?
    Mr. White. We do. I can have Steve Sebastian, who is from 
our financial management group, come up and answer that 
question.
    Congressman Horn. I would just like a fast answer as to how 
many billion is uncollected, then I will let everybody else get 
into it. But that has to be the base.
    Mr. Sebastian. I will try and make this as quick as 
possible. As of the end of fiscal year 2001, the IRS had $239 
billion in unpaid taxes, penalties and interest. About $20 
billion of that is estimated to be collectible.
    Congressman Horn. You say how many?
    Mr. Sebastian. Twenty billion.
    Congressman Horn. Twenty billion. In the predecessor to 
Commissioner Rossotti, the figures that I saw then were that 
there were $60 billion. Then when the Commissioner noted that, 
oh, yes, we also have $110 billion, I said that I think it is a 
scandal, as far as I am concerned. That is what led me to put 
the debt collection bit in there. We are doing that now 
throughout the executive branch, and we need to do it and make 
it more effective in the Internal Revenue Service.
    Now, Commissioner Rossotti and I have gone over that for 
five years together, and you are doing a great job. But why is 
it that we cannot use private collectors and get the job done?
    If I was sitting out there listening to this now on C-SPAN, 
I would say, good heavens. I do my taxes. Why are we not doing 
those people that have $20 billion, $239 billion? We are 
looking for dollars everywhere we have. We have a war going on 
and we cannot find all the money for all the appropriations, 
and so forth, and so on.
    I just think I would say, what are they trying to do, just 
let their cronies that are middle class and up get away with 
murder? I think it is outrageous. I could not understand why 
Ways and Means and Finance did not do that years ago. What are 
they hiding?
    I think, gentlemen, for those of you that are on Finance 
and Ways and Means, you ought to get the private collectors in 
to get the taxes. That is my last point on this.
    Senator Conrad. Thank you, Congressman Horn.
    Let me just say, that is a deep concern. I will tell you my 
foremost concern going forward, aside from the systems 
questions. Those are fundamental management questions. That is 
obviously a key to any operation.
    But my overriding concern is, we have got $200 to $300 
billion of taxes that are owed and due that are not being 
collected. At least, that is the best estimate. We do not have 
a clear idea of how big it is, but we know it is big. That goes 
right at the heart of the fairness and the credibility of the 
system, because the vast majority of taxpayers, individuals and 
companies, are paying what they legitimately owe.
    It is unacceptable that others skate by. It is unacceptable 
that people are engaged in tax scams, tax avoidance, tax fraud, 
these offshore operations, to shove the tax burden onto the 
honest people.
    We have got an obligation to go after those that are 
dishonest, whether they are individuals or corporations, and 
insist that they pay their fair share of this tax burden. Now, 
that is a fundamental requirement of government.
    Mr. Rossotti, what needs to be done to assure the vast 
majority of taxpayers that they are not being played for 
chumps?
    Commissioner Rossotti. Well, I think that what we are 
trying to do in the short term, within the limits of our 
resources, is to make sure we apply our resources where they 
will do the most good. We really do not have the resources to 
go after every case or to collect every receivable. We just do 
not. So what we are focusing on, with, I think, better 
information than we used to have and more that we're 
collecting, is the top priority areas.
    Of the top priority areas, the number one category, are 
what we call the promoted tax schemes. This is deliberate, 
systematic tax evasion. It covers the wide spectrum of the tax 
system. This includes use of these devices like offshore credit 
cards and trusts to hide income. It does include the 
manipulation of the corporate tax code to defer or eliminate 
income, but it also includes people that are just filing 
erroneous refund claims.
    Senator Conrad. Where do you think the biggest problem is? 
In these things that you have mentioned, if you had to 
prioritize these five things that you have mentioned, what is 
the biggest?
    Commissioner Rossotti. The biggest one, in dollars, is the 
use of the devices to hide income. It is not all offshore. Some 
of it is offshore. These are trusts, credit cards, things of 
that kind. We have enough information now to say that, in terms 
of the promoted tax schemes, the systematic, deliberate tax 
evasion, that is the biggest one. I would say that the 
corporate-type shelters are the second biggest one.
    Senator Conrad. All right.
    And what is being done? What is being done to go after 
these things?
    Commissioner Rossotti. Well, that is where we are focusing 
our efforts within the limits of our resources.
    Senator Conrad. Do you need more resources to do these 
things?
    Commissioner Rossotti. Well, let me just put it this way. 
In the very short term, since this is our top priority, we are 
simply devoting our resources to it. What that does, is 
undermines our ability to handle every other kind of compliance 
problem, such as collecting overdue debts, such as auditing 
even $100,000-a-year income taxpayers.
    So the answer is, yes, we do need more resources in order 
not to undermine other aspects of compliance, but for the 
moment, for this particular area, we are handling this by 
simply reallocating our resources to it. As I mentioned, we 
have a whole strategy for each one of these that basically 
boils down to, first of all, systematically identifying both 
the promoters and the taxpayers.
    Our top priority in enforcement is with the promoters. I 
have the numbers here. We have gotten much more active in doing 
injunctions, together with the Justice Department, against 
promoters. Prior to 2001, I think there had only been one 
injunction against a promoter for years. Now I think the number 
is 14 that we have done in the last year or so, and several 
more that are actually pending.
    The other thing we are doing, in addition to the 
injunctions, is working with the Justice Department to figure 
out a way to pursue, in some cases, both criminal and civil 
activity at the same time. This is a great problem that we 
always had, because as soon as something appeared that had 
criminal potential, it put a freeze on doing everything else, 
and it can take two or three years to do criminal proceedings. 
So, now we are doing parallel investigations.
    With respect to the participants, we have been using 
devices such as audits of the promoter records, as well as 
subpoenas--or summonses, as they are called--from other parties 
like the credit card companies to get data regarding who the 
participants are in these schemes. Then we are farming the 
information out to both our criminal and civil people.
    Now, we are also using a lot of communication devices to 
try to warn people off from these schemes. What we want to try 
to do, is not only go after the people that are doing them, but 
try to prevent more people from coming in. There are a certain 
set of people who are sort of willing to be sucked----
    Senator Conrad. Persuaded.
    Commissioner Rossotti. Persuaded. That is right. And we are 
working with a lot of industry groups and business groups to do 
that. So, we are definitely on the case here. We are also using 
certain disclosure initiatives.
    The Treasury has recently come forward with a package of 
proposed disclosure initiatives, some of which are legislative 
and some of which are regulatory, for forcing promoters and 
taxpayers to disclose some of the more complex corporate 
returns.
    Our basic philosophy that we have, is if people are 
claiming they are engaging in ``legitimate'' tax planning, then 
they should not have any objection to disclosing it to us so we 
can take a look at it and see if we agree that it is legitimate 
tax planning. So, we think disclosure is a very important 
thing. I know there are some legislative considerations in the 
Senate Finance Committee about that.
    Senator Conrad. Thank you. I am going to have to go.
    Congressman Portman has an additional question or two. I am 
going to turn it over to Congressman Houghton. First of all, I 
want to thank him very much for being here throughout the 
hearing. We appreciated very much your being here.
    Congressman Portman, thank you very much for coming over as 
well, and for all the work you have done in this area. We 
appreciate it.
    I want to thank all of the witnesses. We very much 
appreciate your contribution to the work of the committee and 
the Congress in this area.
    Finally, to Commissioner Rossotti, thank you for your 
public service. I know very well it would have been much easier 
for you to stay in your very successful business and to 
continue in all of the things that you were involved with in 
the community as well. You rose to the challenge. You came at 
perhaps the single most difficult moment for the Revenue 
Service, and I think everybody here owes you a debt of 
gratitude for taking this challenge on. We appreciate it.
    Congressman Houghton?
    Congressman Houghton. Thanks very much.
    Congressman Portman?
    Congressman Portman. Thank you, Chairman Houghton, and 
thank you, Senator Conrad, for holding this hearing and for 
bringing focus to these issues. These hearings are supposed to 
be an opportunity for the Senate and the House to come 
together, which is rare, on a bicameral basis, but also for the 
nine different committees and subcommittees to come together 
with their staffs--staffs are still represented here in the 
room--to be able to make sure that we are within the 
congressional oversight function, communicating and 
coordinating well with each other. I think these hearings have 
been extremely helpful in doing that and, again, bringing focus 
to some of these very tough issues we face at the IRS.
    So, I thank the organizers, and I thank the panel for being 
willing to come before us. This is at least one where you can 
deal with a lot of different committees and subcommittees at 
once, which I know is a frustration for you as well. This came 
out of the restructuring legislation, as well as the five-year 
term for the Commissioner. In the past, there had not been a 
specified term. There was a concern that the turnover at the 
IRS, both at the level of Commissioner, the Deputy Secretary, 
and the Secretary, where many reforms were begun but not 
completed, was one of the problems at the IRS. There was not 
that continuity of reform.
    We appreciate the fact, Commissioner Rossotti, that you 
were willing to step up to the plate four and a half years ago, 
now, and take on this very difficult task, and that you were 
willing to fill out your entire five-year term. I told Chairman 
Houghton, I think we should have made it a seven-year term. We 
could always pass legislation along those lines. [Laughter.] We 
cannot do it today.
    But when you look back, we really began this seven years 
ago. We are five years into the legislation. I have heard it 
said that it is really a 10-year process. Many of us hoped it 
would be more like a five-year process. Are we halfway there? 
Probably. But I do not think we are seeing the fruits yet of 
the work.
    I think the marginal fruit increase from the burdens placed 
on the system and from the changes, I think, will begin to be 
seen over the next several years, only if we keep our eye on 
the ball.
    In hearing some of the concerns today raised about the 
challenges we face, particularly on the compliance side, we do 
need to redouble our efforts in terms of enforcement, auditing, 
being sure that the proper amount is coming in to the IRS.
    On modernization, it is worse than we said it was. Seven 
years ago, many of us were making the statement that we had 
spent $3 billion in the previous decade on modernization for 
little or no result.
    In a sense, we underestimated the challenge, because we are 
really not talking about a problem that existed seven years 
ago, but one that dated back really to the 1960s, with 1970s 
technology. So, we are paying the price now of years and years 
of neglect.
    Again, we need to be sure that we are keeping the pressure 
on. Chairman Levitan brings very important experience to bear 
on this, and I appreciate his unwavering commitment to this.
    I know he is going to serve his entire five-year term, and 
I hope to continue that continuity, as well as your other board 
members. But this is something where you have got to keep our 
feet to the fire here in Congress and at the IRS.
    The final comment I want to make, is with regard to all 
these issues, the modernization, but of course the performance 
measurements, I think they are very important. We did not get a 
chance to get into those as much today as I wish we had. But 
this is a sea change at the IRS and a culture shift.
    You need to be sure that you are keeping their feet to the 
fire, Mr. White, on your comments on performance measurements 
that are seen over the years. The Commissioner has started 
something very unique in the Federal Government where, instead 
of measuring how much money an enforcement person brings in, 
you are measuring competence, professionalism, and courtesy to 
the taxpayers, and other measures of performance that are more 
like business measures.
    In terms of electronic filing, we set, on a task, to have 
80 percent electronic filing. As you know, we are at about 50 
percent now, I understand, maybe the high 40s, but we seem to 
have a lag there and we seem not to be making the marginal 
gains. So, we need to look at some changes there. Chairman 
Houghton has focused some on that with our recent legislation.
    There are other issues that you need to come to us on. The 
deadly sins, for instance. The House passed legislation, H.R. 
386, recently which adjusted the deadly sins to give the 
Commissioner some more discretion, and added one for browsing. 
We did that on the recommendation of the IRS to try to improve 
morale and to try to improve enforcement and collections.
    With regard to tax complexity, Mr. Levitan wisely raised 
that as an issue. It always gets unsaid at these hearings, yet 
in the Commission's report we ended up, as Mr. Houghton will 
remember, making that one of the strong recommendations, even 
though it was really outside of our ambit.
    We pushed the envelope and said, here are 60 specific 
changes. We have not done those. In fact, we have increased the 
complexity of the Code during the last five years rather than 
making it easier for the IRS. So, you need to keep our feet to 
the fire on that.
    Mr. Rossotti, I know you are leaving at the end of the 
year. But the other three gentlemen here, and I hope you in 
your private sector capacity, will continue to come to us and 
tell us what we need to do to refine the Restructuring and 
Reform Act from 1998 and to look at the underlying Code, 
particularly on the complexity side, and with regard to 
specific problems that you face, because Congress sometimes 
tends to focus on a problem and then forget about it and to 
leave it behind.
    I will tell you that Mr. Houghton, myself, Mr. Conrad, and 
others, will not leave this behind. We will keep at it, despite 
other distractions that come up. The latest concern and the 
latest issue, we are absolutely committed to making this work. 
And whether it takes 8 years, 10 years, or 12 years, we need 
your continued input and we appreciate your giving us that 
today.
    Thank you, Mr. Chairman.
    Congressman Houghton. Well, thank you very much. Thank you 
for all you have done in setting up the Commission, the board, 
and all your interest in the whole structure here.
    So, Mr. White, Mr. Williams, Mr. Levitan, and particularly 
you, Mr. Rossotti, thank you very much. Unless there are any 
other questions, the hearing is adjourned.

    [Whereupon, at 12:02 the hearing was concluded.]
    [The prepared statement of Senator Baucus follows:]


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   Questions for the Record Submitted by Senator Landrieu for David 
      Williams, Treasury Inspector General for Tax Administration

Coordination with Homeland Security Office
    Mr. Williams's written statement notes the security challenges the 
IRS faces in the wake of the terrorist attacks of September 11. I am 
pleased with the cooperation between TIGTA and the FBI. You apparently 
meet with them on a daily basis. What is less clear is the extent to 
which TIGTA and the IRS works with the Office of Homeland Security, 
headed by Governor Ridge. Could you describe the role the Office of 
Homeland Security has played in TIGTA's security planning?
Compliance and Enforcement Activities
    Every witness at the Joint Review discussed their concerns with the 
declines in enforcement actions by the IRS. From FY '96 to FY '01, the 
number of face to face audits have declined 72 percent, correspondence 
audits have declined by 56 percent, liens have declined by 43 percent, 
levies by 86 percent, and seizures by 98 percent. Mr. Williams's 
written statement attributes this overall decline to a long-term 
reduction in enforcement staffing, the redirection of resources to 
customer service functions, and fear of section 1203 allegations.
    Has the IRS established criteria for how many audits it needs to 
conduct to have reasonable confidence in the integrity of the tax 
system? How many additional enforcement personnel does TIGTA believe 
the IRS needs in order to conduct enough enforcement actions to ensure 
the integrity of the tax system?
    I understand that the IRS has requested an additional 1,179 Full 
Time Equivalent positions for FY '03 for the entire agency, but will 
add 1,857 FTE for compliance and enforcement activities. According to 
material my office received from the IRS, about 76 percent of these 
1,857 FTE will come about through the ``Re-application of Efficiencies 
and Workload Savings.'' Does TIGTA believe that the administrative and 
management savings in other areas of IRS will actually result in more 
enforcement actions? If so, how many more enforcement actions will be 
conducted?


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   Questions for the Record Submitted by Senator Landrieu for Larry 
                 Levitan, Chairman, IRS Oversight Board

Enforcement Actions
    Every witness at the Joint Review discussed their concerns with the 
declines in enforcement actions by the IRS. From FY '96 to FY '01, the 
number of face to face audits have declined 72 percent, correspondence 
audits have declined by 56 percent, liens have declined by 43 percent, 
levies by 86 percent, and seizures by 98 percent.
    You note in your testimony that the enforcement work the IRS does 
is extremely labor intensive. The Administration has proposed 
increasing the staffing for enforcement actions by 1,857 FTE, largely 
through the re-application of resources. Does the Oversight Board 
believe that the Administration's budget plan to increase the FTE for 
IRS enforcement actions by re-applying resources will actually result 
in an increase in the number of enforcement actions?


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