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A Pot of Gold Waits

May 13, 1985

The Internal Revenue Service may not be the most loved of federal agencies, but it's an indispensable one, and when the IRS has problems that affect the government's revenue-raising capabilities all Americans become losers. The IRS is in trouble right now, largely because it lacks the resources that it ought to have to collect taxes legitimately due. Underfunding of the IRS has among other things reduced its effectiveness in enforcing tax laws. That's one reason tens of billions of dollars owed the government are going uncollected.

A lot of taxpayers awaiting their 1984 refunds are already aware of how overburdened the IRS has become. Typically refunds are sent out four to six weeks after tax returns are processed. This year, in some cases, it's taking as long as 12 weeks to get the checks into the mail. Delays can be costly. Refunds that are not sent by June 1 draw interest. Last year the IRS had to pay more than $200 million in such interest.

Taxpayers who are incorrectly billed or who receive erroneous delinquency notices often face long delays when they try to communicate with the IRS by mail or phone. In some regional offices, in fact, mail has apparently been deliberately destroyed in a frustrated response to what has become a mountainous backlog. All this, as former IRS Commissioner Donald Alexander warns, helps diminish respect for the service and encourages additional non-compliance with tax laws.

Non-compliance is bad enough already. In 1980, according to IRS estimates, unreported income and overstated deductions led to a $62-billion revenue loss for the government. By next year this tax gap is expected to rise to $92 billion. If those taxes could be collected they would erase half the federal budget deficit.

The IRS is trying to do its work with fewer employees than it had in 1980, and next year, under a projected budget freeze, it will have fewer still. A few years ago IRS Commissioner Roscoe Egger gave assurances that he could get along with a reduced staff. Events have proved him wrong. By next year the number of tax returns processed by the service is expected to be 25% higher than in 1980. The result is that a smaller percentage of returns will get the kind of close scrutiny that often produces larger tax payments.

Increased computerization has led to faster processing of some returns and improved the IRS' ability to detect some unreported income. But computer glitches this year have also led to costly processing delays and errors. The service expects its computer problems to be resolved by next year. Its personnel problems are another matter.

Understaffing dictated by budget considerations is not cost-effective. Egger has cited studies showing that every extra dollar that the IRS spends to audit suspect returns produces up to $16 in additional income. The Office of Management and Budget insists that the IRS will have to make do with what it has. Yet billions in evaded taxes are waiting to be collected. It's dumb to allow budgetary inflexibility to stand in the way of going after that pot of gold.

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