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Back in the 1960s, at the same time that the Beatles were wailing about the Taxman ("If you drive a car, I'll tax the street/If you try to sit, I'll tax your seat"), the men at the IRS, in their IBM white shirts and skinny ties, were at the cutting edge of computer technology. The IRS had automated its processing system, eventually gathering everything into 10 service centers, with a computer nucleus in West Virginia. For the first time, taxpayers were required to write their Social Security number on their return. Computers, it seemed, could keep track of everything.
But by the early 1970s, in the mutating world of computerization, the IRS had fallen behind. Instead of making incremental changes, the IRS spent six years formulating an overarching plan called the Tax Administration System that would cost $649 million and be in operation by the early '80s. The IRS presented the plan to Congress shortly after the final agonies of Watergate (which featured a paranoid President who used the IRS to harass his enemies). Congress was spooked by the idea of a more centralized, all-knowing, all-seeing IRS, and said no thanks. The IRS was told simply to replace worn-out machines: nothing new and nothing fancy.
The IRS burrowed away on a new plan, known innocuously enough as the Service Center Replacement System, whose deadline for start-up was 1985. Instead 1985 was the year the great meltdown almost occurred. Because of computer bugs, a backlog of unprocessed returns (in Philadelphia more than 100 unopened envelopes containing returns were found in garbage cans) almost brought the entire system to a halt. "We came as close as you can to going out of business," says Gibbs, who took over as IRS Commissioner in 1986.
Members of Congress got nervous. The lifeblood of democracy--and of their fancy offices--had almost been cut off. So Congress promptly funded IRS computer modernization. Before, the IRS had had a plan and no money; now it had money and no plan. No matter. It initiated a flood of programs (a state-of-the-art computer was necessary just to keep track of all the acronyms--ACI, AES, ALSS, AUR, FAISR, ICS, IMS). But each system was designed independently to meet specific needs within the empire. All systems would be go by the year 2001, the agency blandly assured Congress. With all the requests and funding, the final price tag for what ultimately became known as the Tax Systems Modernization plan was around $8 billion.
Modernization turned out to be a digital Tower of Babel. Treasury Deputy Secretary Lawrence Summers, charged with looking after the IRS, says, "I think modernization has gone way off track. They tried to build the Taj Mahal." Senator Bob Kerrey, co-chairman of the restructuring commission, describes tax modernization as a failure. Says Kerrey: "While the world has moved into the wireless age with home banking, atms on every corner and stock investing over the Internet, IRS technology has remained stagnant."
This year when your conventional returns go to a regional service center, tens of thousands of people, many seasonal hires at $7 an hour, will process them in much the same way as when the first Star Wars movie came out. The workers will handle the 200 million taxpayer envelopes, opening and sorting the returns into categories, coding and editing them and then laboriously tapping much of the data into an out-of-date keypunch system.