http://216.46.238.34/articles/?a=1999/11/14/155628

The IRS and Y2K

Mike Adams

November 15, 1999

(Part One of Five)

The IRS operates one of the world's largest and most complex distributed databases. I've seen a diagram of the data pathways at the IRS, and I can assure you, it looks much, much worse than the New Jersey highway system.

The IRS has an impossible task: calculating (or verifying) the tax bill for over a hundred million people by following tax laws so confusing, no two accountants can ever agree on the amount owed. Making matters worse, the tax code is altered every year by politicians, requiring IRS programmers to essentially build a new "tax formula" every single year. But because these new tax rules aren't retroactive, they have to preserve the old tax code formulas as well. This creates, in effect, an annual "version" of the entire tax code.

Why is this important? Because it multiplies the IRS' Y2K remediation task by a factor of at least ten. They not only have to fix the code for 1999, but they have to retroactively update code for the 1998 tax year, the 1997 tax year, and so on, all the way back to the 1980's.

DON'T FORGET THE DATA

You might ask: why can't they just update the 1999 tax year code base and forget about the earlier years? Because of the Y2K status of the data. The taxpayer records must be updated to a four-digit field in order for the 1999 and 2000 tax code formulas to work. As a result, this update makes the data incompatible with earlier code formulas unless they, too, are Year 2000 remediated.

The bottom line in all this is rather disturbing: no organization has a larger Y2K software remediation task than the IRS. Is it any wonder, then, that the IRS seems to be lagging in its effort?

HIGH RISK

Last week, IRS Commissioner Charles Rossotti unleashed a shocker: the IRS had not yet completed its inventory of computers. Also, he said these incomplete records of the IRS equipment and software posed a "high risk" to its Y2K preparation efforts.

To really come to grips with the magnitude of this statement, you have to consider today's Y2K compliance claims. Nearly every government and commercial organization -- no matter what their true state of compliance -- is claiming they're ready for Y2K. And to prove it, they have actual press releases.

These claims of compliance, when investigated, turn out to be largely hype, of course. For example, when I first investigated the FAA's claims of "100% Y2K compliance" in July of this year, I asked for documentation from the SAIC -- the company the FAA claimed conducted a full audit. The SAIC told me, "We cannot confirm or deny we've done any such work for the FAA."

I also discovered, when investigating the Y2K compliance claims of electric utility companies, that the NERC (North American Electric Reliability Council) had distributed "template letters" to utility companies. These letters contained key phrases and "pre-approved language" for claiming Y2K readiness. It was no surprise, then, to find the exact same phrases appearing in electric utility press releases on July 1. Click here to see how we caught both Detroit Edison and Minnesota Power copying NERC-approved Y2K claims. Or click here for my original report on this topic.

These are just two examples, but you get the point: no matter how bad things looks for a particular organization, they will claim some sort of Y2K compliance. After all, nobody is being punished for lying about Y2K compliance. Not yet, anyway.

This makes it a real surprise when the IRS announces it is having some sort of trouble with its Y2K remediation program. For a government body to say it may not be fully Y2K compliant is, these days, a violation of politically-correct speech.

What's even more shocking is the IRS admission that it hasn't yet completed its computer inventory. The "inventory" phase of Y2K remediation represents the first 1% - 2% of the overall effort required. The other 98% is remediation, testing, and implementation. Now, of course, you can remediate some systems while waiting to inventory others - and this is what the IRS has apparently done - but it's impossible to conduct any kind of end-to-end testing unless all the systems can participate.

Rossotti sees the writing on the wall: the IRS stands a very large chance of suffering critical failures after January 1. These failures could corrupt taxpayer data, interfere with the issuing of tax refunds, result in incorrect tax bills and tie up IRS employees with large-scale data recovery tasks.

Interestingly, Rossotti has recently become more vocal about the IRS backup plan: should the IRS computers fail, the organization would manually produce up to 10,000 refunds a day using personnel from ten regional IRS centers. The first people to get refunds? Those making less than $10,000 a year. As the IRS finishes issuing refunds to the working poor, the plan says, they would work their way up through the middle class taxpayers and, someday, the high income earners. (This delay in refunds, of course, mathematically results in yet another tax increase).

As with all "back to manual" plans, this one exhibits a major oversight: how will the IRS employees determine who to write the checks to? That information, of course, is in the computers. But isn't the failure of the IRS computers the very reason they would have to go to manual in the first place?

You have four problems with this plan: 1) Knowing who to write the checks to. 2) Knowing how much to write. 3) Knowing who you've already written to. 4) Policing the check writers.

These problems are not always obvious at first glance. At first, the suggestion that the IRS can just manually write checks to everybody sounds great. But how, exactly, do you coordinate all this? Consider point #3, above: how do you know who you've already written checks to? Do you have some kind of paper-based checklist? How do you then update that taxpayer's records to show they've been refunded? What happens to data integrity in this situation?

And problem #4 is almost never mentioned. If the IRS really starts manually writing refund checks, they will obviously have to hire extra help to get the job done. At that point, the most-wanted job in the United States becomes "IRS check writer." Why? Because you can write checks to your family and friends all day long. There's no computer to verify whether these people are actually supposed to be getting checks. And by the time the IRS figures out twelve million dollars went to the wrong family, you're living on a beach in the Cayman Islands. See, these checks won't bounce. They're backed by the full faith and credit of the United States government.

So you have quite a number of problems that are not being mentioned by the mainstream media. They shout, "Back to manual!" as if it's some sort of magic pill solution. But they never explain to Americans the near-impossibility of these back-to-manual solutions.

THE FAILURE OF THE IRS

So what happens, really, if the IRS collapses? Even though I agree with most Americans that the IRS represents a highly-inefficient way to fund government, none of us should wish for an outright collapse of our government's tax system. The economic aftershocks would be devastating. (Consider, for example, how the dollar would plummet on world currency exchanges, doubling or tripling the price of imported goods...)

But we may not have a choice. Y2K may, indeed, put the IRS out of business. So what then? How do we move on as a nation?

It's simple, really: have a backup tax system ready to go. That means talking about the flat tax or the national retail sales tax (my personal favorite). The national sales tax plan eliminates the need for the IRS altogether, so it's a natural backup plan for a Y2K-damaged IRS.

We aren't the only ones thinking about this, by the way. I have been told from an inside source that the United States Treasury Dept. is, indeed, discussing a backup tax system in case things go wrong at the IRS. After all, they can't let the whole tax collection system collapse outright. That would threaten the United States of America as a whole. They have to have a reasonable backup plan ready to roll.

Some economists have predicted Y2K would result in a "dividend." In this way, they might be right: a collapse of the IRS, replaced by the passage of a national retail sales tax (and the repeal of the 16th Amendment) would result in unprecedented economic and personal freedom. With no more taxes on personal savings, the savings rate (and, therefore, investment) would skyrocket. Hundreds of billions of dollars in offshore funds - sent there by the ultra-wealthy in an effort to avoid U.S. taxation - would come flooding back to the USA, ready to be invested in new businesses, new schools, and new ideas.

Furthermore, the one million people employed by the "tax industry" would be set free to devote their energies to more productive tasks, and nearly all tax compliance costs, carried by the U.S. taxpayer, would vanish. More importantly, the overall level of stress in the United States would drop sharply as people no longer fear they are being targeted for audits. April 15th would be relabeled "Freedom Day!"

Clearly, this is one Y2K disruption that can actually help the country instead of harming it.

Mike Adams is the editor of Y2K Newswire

-- Uncle Bob (UNCLB0B@Tminus46&counting.down), November 15, 1999

Answers

Uncle Bob,

And if IRS tax problems aren't enough, local taxes looked to be really messed up too:

http://cnniw.newsreal.com/cgi-bin/NewsService? osform_template=pages/cnniwStory&ID=cnniw&storypath=News/Story_1999_11 _13.NRdb@2@23@3@114

"Tax-processing equipment not ready for 2000" Source: St. Petersburg Times

"Despite 18 months of preparation, Hillsborough Tax Collector Doug Belden will not have of all his tax-processing equipment ready for the new millennium when the calendar rolls over to 2000. A high- speed remittance processor, a $150,000 refrigerator-sized machine that handles tax bills and payments, is not yet ready to deal with the 2000 computer bug problem. Now it's too late to fix it before the end of the year. With the flood of tax payments that begin each November, tax collection officials can't afford to take the device out of commission to upgrade it. The hope is that the processor can be taken off-line and get the required $67,000 upgrade in January, when the volume of mailed tax payments dwindles."

"The computer bug problem, also known as Y2K, is the term applied to the problem posed by computers that recognize yearly dates in two digits, such as "99." In the year 2000, or Y2K, such computers will be unable to differentiate the year 2000 from 1900."

"Several county government agencies have been meeting jointly to share information about the challenge. Hillsborough Property Appraiser Rob Turner decided to buy a new $2.8-million computer system to help prepare for the millennium bug. The Hillsborough Sheriff's Office budgeted an additional $200,000 for computer programmers' overtime to deal with the problem. But Belden's office decided not to share information with the Y2K task force. "We asked them to participate to see how they were coming along with the Y2K situation," said Pete Watkins, the Y2K coordinator for the County Commission. "I think they came to our first meeting, but we never got anything from them." Belden's officials maintain, however, that tax collections are not falling behind and that no unnecessary overtime is being paid to deal with unmet computer bug problems. "We are operational and everything looks good as far as Y2K," said Preston Trigg, Belden's director of administration. "We've been working on this for over a year and a half. We've finished the major stuff. We're left with the remittance processor and the smaller stuff. "At no time has any of the tax collection process been threatened."

"Asked about the cost of making the office's IBM mainframe computer Y2K-compliant, Trigg estimated the expense at $1-million. But Phil Ashley, Belden's director of information services, corrected that number, saying the mainframe upgrade was done as part of the normal maintenance contract, and cost about $25,000. Trigg said occasional night and weekend duty for tax collection employees has been normal this month and not caused by millennium bug problems. Total office overtime last year added up to about $10,400 every two weeks, according to Al Castano, Belden's accounting manager. Castano said he would not know until Monday whether overtime for office employees is higher so far this November than in previous years."

"Friday, Belden's officials were wrestling with another technical problem apparently unrelated to the office's year 2000 computer bug. On Thursday, the Hillsborough tax collector's official Web site went down and stayed down. Ashley, the information services director, initially had no explanation why the Web site went out of service. By Friday afternoon, he had traced the problem to the company that administers the tax collector's domain name server, the link that allows computer users access to the Web page. "We've been calling them to get it fixed," Ashley said Friday afternoon. ''But we keep getting busy signals."

- Times staff writer Jeff Testerman can be reached at (813) 226-3422. His e-mail address is testerman@sptimes.com.

-- Deb M. (vmcclell@columbus.rr.com), November 15, 1999.

Oh geeeeeezzz, I'm gonna miss'em...

Kookster

-- Y2Kook (Y2Kook@usa.net), November 15, 1999.

See there is no cloud that doesn't have a silver lining! Killing the Beast could be the best that has happened to this country since the abolition of slavery.

-- kozak (kozak@formerusaf.guv), November 15, 1999.

Can you spell "MELTDOWN"???

Just 24 Federal workdays to fix it ALL!!

-- Z (Z@Z.Z), November 15, 1999.

Good reading -- needs no comment

http://216.46.238.34/articles/?a=1999/11/14/155628

TA

-- TA (sea_spur@yahoo.com), November 15, 1999.

VAT -Value Added Tax. This is what we think is sitting on the back burner. Will you like it? Well, those who have lots of money won't be hurt too much- they pay big bucks now. It will be very painful for those on small fixed incomes, especially if there is no exempt - like food and meds. Imagine paying 20% more for everything - and then think about that being on top of inflated prices driven up because of broken supply lines.

Out of the frying pan - into the fire?

-- April (Alwzapril@home.com), November 15, 1999.

April,

When the IRS undergoes rollover meltdown, the only logical governmental response is his VAT. I'm still skeptical they could implement it in the ensueing governmental chaos but if they are able to its another good reason to stock up on provisions NOW.

-- Downstreamer (downstream@bigfoot.com), November 15, 1999.

Downstreamer - Yes, if possible need to make any big ticket purchase - like auto now. Very likely the system is ready to roll and won't be effected by other government disfunction. IMHO they let the IRS go in order to be able to put this "emergency" stop gap measure in place. No need to go through the voting process.

-- April (Alwzapril@home.com), November 15, 1999.