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NATIONAL ISSUE IS THE IRS READY FOR YEAR 2000? Agency's Troubled Record Worries Y2K Analysts Date: 10/27/99 Author: John Berlau Is the taxman ready for the Year 2000?
Such questions have grown increasingly common in recent weeks as the end-of-the-millennium frenzy begins.
The question is more than moot. A computer meltdown at the nation's tax collector could result in financial chaos.
Lost records and mangled data could take years to recover and restore, costing the nation's taxpayers billions of dollars in lost time and effort - and the government potentially billions of dollars in taxes.
But in a speech Tuesday, IRS Commissioner Charles Rossotti tried to allay such fears. He told his audience that the agency would indeed have all its computers up and running in time for the switchover.
''In that area which is clearly critical to our whole economy, the tax system will continue to function, notwithstanding Y2K. . . . The most serious risk is behind us,'' he said.
''We will probably have some strange looking notices, that come out here and there, but we will be prepared to react to those very quickly,'' he added.
But others aren't sure the IRS is out of the woods, at least not completely.
''They have made a lot of progress, but there's still some changes they need to work through,'' said Sherrie Russ, an assistant director of the tax policy issue at Congress' General Accounting Office.
Russ notes that some testing of the IRS' software and hardware will not be completed until late 1999 - just before the switchover.
Also, the IRS only recently began taking inventory of all systems. According to Russ, the massive agency may have missed some items in its inventory.
An IRS spokeswoman says that 94% of it mission-critical systems are compliant.
But a Treasury Department status report in September noted that at least four IRS ''mission critical'' systems have not yet been completed or are not year-2000 compliant.
These include systems that track estate taxes, electronic filing extracts, and taxpayer appeals.
And in reports to Congress in 1997, the Treasury Department criticized IRS' failure to address the problem and said it was dragging down the overall performance of the department.
In both reports the IRS responded that it agreed with the recommendations and is working to correct them.
However, it did not give IBD answers on progress to the reports' specific concerns by presstime.
''They're in pretty good shape on the major systems that process tax returns . . . If there are concerns, I think the concerns are going to be at some of the local third-tier system,'' said Phil Brand, a national partner at KPMG LP and a former assistant commissioner of the IRS.
Brand said he's not ''anticipating any particular problems with the basic function of processing tax returns and issuing refunds and notices. But what's going to happen is still obviously a concern.''
To be sure, some in the agency have had long-standing concerns about the issue.
John Yost, director of IRS' Year-2000 office, told Insight Magazine in 1997: ''I can't imagine we will have no problems in the year 2000 . . . we will certainly have some problems associated with this.
''What we're trying to do is get to the level where we contain them the way we normally contain problems within our system - correct them as they occur.''
Still, the IRS track record doesn't inspire confidence.
It had massive problems with its computer systems in the past, including a $4 billion, 10-year failed attempt at modernization in the 1980s and 1990s.
Some are worried that, despite the agency's confidence, it could still be a problem spot.
They argue that the IRS' Year-2000 issues can't be separated from the fact that many of its computer systems are stand-alone, stove pipes that have trouble communicating with the main system.
A full IRS modernization program has begun, but is scheduled to take about a decade to complete.
''This is a challenged organization,'' said Ed Yardeni, chief econonomist at Deutsche Banc Alex. Brown. ''They've got lots of problems other than Y2K. Y2K's just another major problem they have to deal with while they're dealing with modernization.''
Yardeni has predicted that the Year 2000 problem in general could cause severe economic problems - even recession.
So why worry? Compared with other agencies, the IRS got a relatively late star on its Y2K work.
The Social Security Administration, for instance, began planning as early as 1989. But the IRS had a ''lack of focus and commitment'' and didn't even begin a preliminary analysis until 1996, according to the Treasury report.
The House Government Reform and Oversight Subcommittee on Government Maangement, Information and Technology called the IRS a ''serious year 2000 trouble spot'' in 1997.
Recent government reports acknowledge the agency has made progress. But they also suggest that the picture may not be a rosy as the IRS has been painting it.
A General Accounting Office report in September said the IRS' contingency plans for refunds and receiving paper submissions ''were inconsistent and incomplete.''
''Neither plan specified the completion dates for the mitigating actions,'' the report said.
The report concluded that ''these weaknesses raise questions about whether these two plans provide sufficient assurance that IRS has taken all necessary steps to reduce the impact of a potential Year 2000 failure.''
A Report by the Treasury Department's Inspector General, also filed in September, was equally stinging.
It also found that ''certain IRS computer components identified as retired within the Information Systems function were not accurately classified.''
It added, ''As a result, retired components that are not Y2K compliant may be inadvertently used at a later date.''
The report found that nearly 20% of the agency's sample components were mislabeled.
''If these areas are not addressed the IRS may not have sufficient time to remedy unforseen causes of delays,'' it said.
KPMG's Brand suggested that in case of problems taxpayers make paper copies of their completed tax returns.
They should also send the IRS their returns through certified mail, he said.
But others note that, should a major malfunction occur - and it's by no means clear it will - all bets are off.
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-- Roland (email@example.com), October 27, 1999
-- Roland (firstname.lastname@example.org), October 27, 1999.
**** Also, the IRS only recently began taking inventory of all systems. According to Russ, the massive agency may have missed some items in its inventory. ****
-- STFrancis (STFrancis@heaven.com), October 27, 1999.
Thats why I will wait till April 15th next year to pay, instead of quaterly. Thats wright I will have to pay a small fine, thats my Y2K IRS insurance policy. All my credit cards are maxied, my Y2K bank insurance policy..IRS is toast as many who visit this forum understand. Unfortunately the banks internationally and in this country may-be in the same boat, the Titanic that is...---...
-- Les (email@example.com), October 27, 1999.
Well, I think the IRS is the "Cockroach" of .gov...you can't kill it, they won't go away, and they will be here on 01/01/2000 in one form or another...
-- Uncle Bob (UNCLB0B@Y2KOK.ORG), October 27, 1999.
I find the contrast between the IRS and the Social Security administrtion facinating. The SS administration started on y2k remediation 10 years ago and just recently claimed compliance. The IRS has adressed the problem for about 1 year and now claims nearly 100% compliance. Now is the SSA that slow and incompetent and the IRS that efficient? If thats the case the managers at SSA should be fired. OR is the IRS being shall we say "Clintonesque" in its portrayal of the facts?
-- kozak (firstname.lastname@example.org), October 27, 1999.
Yeah, 2 years ago they were too busy buying guns. I remember seeing a report on GN site that they bought loads of guns. Anyone else remember this report?
-- Debi (LongTimeLurker@shy.com), October 27, 1999.