The small bronze letters on the outside of the seven-story neoclassical building on Constitution Avenue spell out the following:
ERNAL REVEN E SE VICE
Despite the missing characters, the second two words are teased out easily enough: REVENUE SERVICE. But the first word is puzzling. ETERNAL REVENUE SERVICE? PATERNAL REVENUE SERVICE? INFERNAL REVENUE SERVICE? Perhaps all of the above?
Inside, purposeful people stride down endless hallways, past frosted-glass doors with signs denoting COLLECTION, AUDITING, INFORMATION--and one that reads OFFICE OF ACCURACY AND PERFECTION, ROOM 7513. But within the empire of the largest and most successful tax and enforcement agency in history, there is nothing resembling perfection. Like the old Soviet Union, grand and powerful on the outside but an antiquated shambles within, the IRS has profound problems with outdated technology and outmoded thinking that have undermined its self-described mission: "To collect the proper amount of tax revenue at the least cost."
The agency better known for turning the thumbscrews on tax miscreants is collecting something like $150 billion a year less than the proper amount, and misspending billions doing it. The IRS's mammoth nationwide collection and processing machine is a great, clanking Rube Goldberg contraption, a computer system that has long been disastrously and inexplicably inept--so much so that the agency allowed some 5 million suspect returns to go unexamined in 1995.
Despite being tethered to hardware that was state-of-the-art when color television was a novelty, the agency harvested about $1.5 trillion from more than 200 million individual and corporate taxpayers in 1996. Over the past decade it has spent nearly $4 billion in an attempt to bring its computers up to date. But Arthur Gross, the assistant IRS commissioner who is the agency's first world-class information-systems officer, concedes that the IRS's computers "do not work in the real world."
THE CREAKY SYSTEM INVITES SCAMS
Gross describes the IRS's information network as a "stovepipe" system--vertically aligned computers that do not communicate with one another. Tracking down the records of a single taxpayer means getting access to as many as nine different computer systems. The once vaunted IRS computer system has trouble accomplishing what would seem to be the most basic of functions: reconciling Social Security numbers, W-2 forms and even the number of children in a household. Notes Gross: "Resolving taxpayer account issues often requires considerable research on multiple systems and a series of complex, time-consuming tasks to update the various databases." In English: You can't get there from here. "Dysfunctional as some of these systems may be today," Gross says, "the IRS is wholly dependent on them."
Like it or not, the IRS is the indispensable agency. With its 106,000 employees, $7 billion annual budget and 10 regional service centers, each the size of a small city, the IRS is the second largest federal agency, after the Pentagon. It handles in excess of 200 million returns a year and sorts 1.2 billion pieces of information from 1,200 financial institutions. It reviews 60,000 employee-compensation plans and checks 90,000 tax-exempt organizations.