IRS reform legislation bolsters modernization effort

Tucked inside the Internal Revenue Service reform legislation approved by the Senate last week are provisions aimed at keeping the agency on track to modernize its computer systems.

The measure, the most sweeping reform of the tax collection agency since 1952, focuses mainly on revamping the IRS to make it more taxpayer-friendly and curb abuses by aggressive agents, as described in high-profile hearings. Lawmakers want it to be easier for the majority of taxpayers, who voluntarily pay what they owe, to deal with the agency.

Underpinning the measure, which President Clinton is expected to sign, is a broad consensus among administration officials, legislators and tax professionals that the agency's antiquated computing infrastructure is a central obstacle to improving how it treats taxpayers.

"Congress sent a pretty clear message that the IRS will become more customer-friendly than in the past,'' said Olga Grkavac, senior vice president of the Information Technology Association of America. "The information systems are essential for meeting those goals.''

Tax professionals, IT vendors and others who have followed the legislation said the impact the bill has on IRS modernization depends on the steps the agency takes to carry it out. For example, Bob Weinberger, vice president of government relations with H&R Block, said the bill "says electronic filing makes sense and we ought to encourage it'' but does not mandate the IRS to do anything different.

The bill sets a goal for the IRS to receive 80 percent of tax returns from individuals in electronic form by 2007. To do so, it allows the agency to waive a legal requirement that taxpayers sign a paper form even when they file online while the agency develops digital signature capabilities, which would allow the agency to electronically verify who sent the tax return. But the measure leaves it to the agency to market electronic filing, which is voluntary, to tax preparers and taxpayers.

A spokesman for tax preparation software maker Intuit Inc., who asked not to be identified, said the IRS will have to work closely with industries to make electronic filing work.

This year about 24 million taxpayers filed electronic returns with the IRS, out of about 100 million income tax filers.

Also among the provisions of the bill is authority for the IRS to offer higher salaries to attract employees with special technical and professional skills. The agency is expected to use this authority to recruit a new chief information officer and up to 40 workers, promising them better than standard federal pay.

Robert Tobias, president of the National Treasury Employees Union and a member of a congressional commission that recommended many of the reforms last year, said existing policies that allow the IRS to pay retention bonuses to IT professionals have slowed departures by current employees to the private sector. He said the agency also needs to bring private-sector expertise in house, in part to help manage the contractors that will build the next-generation tax systems.

Another aspect of the bill that could affect IRS modernization plans is the establishment of a nine-member oversight board. One of its responsibilities is to advise the IRS "what kinds of computer systems and software systems are going to be in place,'' said Sen. Robert Kerrey (D-Neb.), a primary Senate sponsor of the measure, during the final debate last week.

It was unclear, however, the extent to which the board, which is supposed to be appointed by winter, would weigh in on plans the IRS already has developed.

The IRS did not respond Friday to requests for comment on the legislation.

-- Brad Bass contributed to this report.