Commissioner's Oral Testimony: RRA 98 Joint Congressional Review

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Oral Testimony of Mark W. Everson, Commissioner of Internal Revenue,
Before the Annual IRS Restructuring and Reform Act of 1998 Joint Congressional Review

May 20, 2003
As written for delivery.

Mr. Chairman and Members of the Joint Review, thank you for this opportunity to testify. It’s true that I’ve only been Commissioner a relatively short time, but I would like to put this into perspective. At my confirmation hearing, Senator Baucus observed that of the five New Yorkers who previously served as Commissioner, one — Justin Winkle — served only 14 days. Mr. Chairman, I’m pleased to report this is my 15th day and I’m still on the job.

Mr. Chairman, as I testified at my confirmation hearing and more recently before our House Appropriations Subcommittee and the Ways and Means Oversight Subcommittee, I expect to focus on three areas during my tenure as Commissioner.

One, I will reinforce and build upon the reorganization begun by Commissioner Rossotti to improve customer service.

Two, I will continue to drive the information technology modernization program. Its success is critical to establishing a more efficient and effective IRS, and one which is more accessible to taxpayers.

Three, I will strengthen the integrity of our nation’s tax system through enhanced enforcement activities.

Let me expand on each of these themes. The reorganization of the service based on customer segments is working. These reforms are sound and need not be revisited. To change now would be disruptive. In fact, I recently received a memo from the American Institute of Certified Public Accounts asking that I not engage in any significant reworking of the structure as it “would only unnecessarily confuse the taxpayers and practitioners who have begun to get comfortable with the new IRS.” I agree.

Indeed, I give the IRS good marks for its improvements in key service areas. Progress has been achieved in many areas, such as telephone service and electronic tax administration. For example, taxpayers were met with 19.4 million busy signals in 1999. This filing season, the number dropped to less than 250,000. Call abandons also fell over the same time period from 8.4 million to 1.1 million. And Level of Service increased from 51 to 83 percent. E-file has also shown impressive gains. A little more than 29 million taxpayers e-filed in 1999; almost 52 million did this year. And compared to last year, e-file grew by over 12 percent and filing from home computers by almost 27 percent. The Service is doing a better job. But of course, much more remains to be done. For example, we must improve our accuracy rates in responding to taxpayers’ questions.

Let me now turn to the second theme — information technology modernization. As compared to the gains in service, the results are mixed. As the members of the Joint Review are well aware, Business Systems Modernization had a number of false starts. Nevertheless, there are a number of important accomplishments to date. The IRS has deployed the Customer Communications Project that better routes taxpayer phone calls and helped the Service cope with millions of additional phone calls resulting from last year’s tax rebate. We also expect 15 million uses this fiscal year of the Internet based, “Where’s My Refund” application. And in the next few weeks, taxpayers, practitioners and financial institutions will be able to apply for an Employee Identification Number on line.

While these programs are important, the centerpiece of the modernization effort is the replacement of the decades-old Master Files that begins this summer. In the next few months, we are scheduled to move 6 million 1040 EZ filers to a modern reliable database, called the Customer Account Data Engine, or CADE. CADE’s benefits to taxpayers are clear; such as faster refunds and daily posting of transactions and updating of accounts.

The modernization effort is a major challenge. As the GAO noted in its January assessment, modernization remains a high-risk area. It stated, “The scope and complexity of the program are growing — the challenge for the IRS is to make sure the pace of systems acquisition projects does not exceed the agency’s ability to manage them effectively.”

Given this assessment — with which I agree — and the important juncture we’ve reached with the first important deliverable for CADE, I have decided to have an outside group of experts take an independent look at the program and report back to me by the end of this summer. I haven’t yet identified who will conduct this study but I expect to do so in the next few weeks. I want to stress that no work will stop while the review is underway. But this is a good time to assess progress, project risk and whether any midcourse corrections are needed.

Before leaving IT, I want to point out that while the IRS spends nearly $2 billion each year for information technology, the modernization program itself makes up less than one-quarter of that total. Through the careful examination of our base IT activities — the remaining $1.6 billion not devoted to modernization per se — I believe we can both increase productivity and deliver meaningful service improvements to taxpayers. I will challenge our organization to do exactly this, and with a sense of urgency.

Our third area of focus is enforcement. It’s as simple as this. People should pay what they owe. In an important recognition of the need to do more in enforcement, the   President’s budget requests a real increase in resources targeted towards enforcement — new money to expand enforcement efforts with a sharper focus on high-income/high-risk taxpayers and businesses. I believe this can and must be done without compromising taxpayer rights.

The IRS has already launched a number of new enforcement initiatives, such as the Offshore Voluntary Compliance Initiative, identifying tax scams and schemes promoters and the Limited Issue Focused Examination. I will be looking at each of these and see where we can do more.

One thing is already clear to me. The IRS must bring the same focus and energy to improving enforcement’s business processes as we are to improving the service side of the IRS. It’s unacceptable that a corporate audit takes 5 years on average from the date of filing to complete. And 2 years is too long just to get ready to present a criminal case to the Department of Justice. 

In order to clarify reporting relationships in the Service and to support these three themes — reinforcement of the reorganization to improve service to taxpayers, continuation of modernization efforts and strengthening of enforcement — later this week, I will name a new Deputy Commissioner for Services and Enforcement, and a Deputy Commissioner for Operations Support. The Deputy Commissioner for Services and Enforcement will supervise the 4 business units, Criminal Investigation and the Office of Professional Responsibility. The Deputy Commissioner for Operations Support will supervise the CFO, CIO, the Chief Human Capital Officer, Agency Wide Shared Services and the Service’s IT and physical security operations.      

There are two advantages to be gained from this approach. The Deputy Commissioner for Services and Enforcement will continue to drive for better service, be able to focus on prioritization of multiple enforcement initiatives and reduce unnecessary delays in enforcement processes while continuing to respect taxpayer rights. The Deputy Commissioner for Operations Support will own the modernization program and drive productivity across the organization in order to improve service to taxpayers. 

Mr. Chairman, as we approach the fifth anniversary of the enactment of this landmark legislation, the transformation of the IRS is still very much a work in progress — and one that will require a great deal of effort if we are to realize the full potential of RRA 98. I am committed — as are the men and women of the IRS — to seeing this through to a successful conclusion. I would be happy to answer your questions.

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