Taxpayers vs. computer
THE taxpayer's annual battle of wits with the IRS is increasingly becoming a contest of man vs. machine. For most individuals, tax season is a low-technology experience.
Aided only by a pocket calculator, the average taxpayer spends a series of ruined spring weekends hunched over the dining-room table surrounded by canceled checks, random receipts, and a stack of inscrutable forms.
But a trip to the Internal Revenue Service's (IRS) Philadelphia Service Center shows that the taxpayer's adversary in this annual ritual is growing ever more dependent on computers.
True, much of the work of processing tax returns is still manual labor of a highly repetitive, crushingly boring nature. In peak periods, for example, 15 workers at this sprawling gray building in northeast Philadelphia spend their days stamping identifying numbers onto returns.
But the processing of returns is being done increasingly by workers positioned in front of computer terminals. On each of two shifts here, for instance, 312 workers spend their full time tapping numbers from IRS 1040 forms into computer terminals.
The computer then checks the return for math or procedural errors and flashes on other computer screens taxpayer files containing mistakes. ``Approximately 10 percent have errors,'' says William H. Rickards, chief of the center's quality-assurance division. A worker reviews the machine's identification of the mistake and signals the computer to send the taxpayer a letter.
In performing some chores, the computer bypasses humans entirely. A portion of the simplest returns, IRS Form 1040EZ, is ``read'' by computerized optical scanning equipment and the information entered directly into the computer.
The hundreds of computer terminals scattered over six football fields of floor space here are all tied to a tightly secured main-computer room containing a new Sperry Univac 1100. It is part of a $100 million computer system that the IRS has just installed at its 10 service centers to replace an antiquated computer network designed two decades ago.
Given growing demands and an ever more complex tax law, ``we will increasingly depend on automated practices,'' IRS commissioner Roscoe Egger says.
The IRS's increasing reliance on computers to process tax returns has proved to be a mixed blessing for the government and for taxpayers. On the positive side:
The system makes it easier for the IRS to catch tax cheats by matching the income reported on individual tax forms with the 1 billion tattle-tale reports filed each year by employers, banks, and brokers. This year the IRS will match roughly 870 million such forms, or about 87 percent of those filed.
Computerization of the collection process -- calling deliquent taxpayers to demand payment -- is letting the service shift more of its resources back into auditing individual returns, IRS officials say.
In the coming budget year, the IRS plans to boost the number of auditors by 2,500, to about 27,500. And 7,500 new examiners will be poring over returns by 1990, Commissioner Egger recently told a congressional committee.
The service's goal is to overcome a growing perception that it is a toothless tiger when it comes to audits. This year only 1.1 million out of 101.4 million individual returns -- or about 1 percent -- will be audited. All returns, however, will be checked for math and procedural errors.
The small odds of having an IRS auditor scrutinize your return are one reason for a ``compliance gap.'' A 1981 IRS study found that $81.5 billion in taxes were being illegally avoided each year.
The computer also will let the IRS offer new ``services'' for taxpayers. For example, as part of the Treasury Department's tax reform proposal the IRS is considering a plan under which certain types of taxpayers would file no return. Instead, the IRS would calculate their tax liability based on information filed by employers and others.
And Mr. Egger predicts that by 1990, some 15 to 25 percent of all returns will be sent directly from taxpayers' home computers to the IRS computers.
Despite their clear long-term potential, the IRS's increasing computerization has not been painless. The processing of tax returns and IRS responses to taxpayer questions about their files have both been delayed by the installation of the new computer system.
``The results are terribly frustrating -- for taxpayers and us,'' Mr. Egger said in a recent speech. ``We're not out of the woods. We're still wrestling with some of the difficulties. But we are getting there.''
Refunds currently are taking about eight weeks to issue, the IRS says, which may be a little longer in some service centers that last year.
And as computers take over more functions, any system failures can generate major suffering for taxpayers and sizable public-relations problems for the IRS.
This week congressional hearings were held into a foul-up last October at the Philadelphia center that caused erroneous tax bills to be sent to businesses in the center's territory, which includes Pennsylvania, Maryland, Delaware, and the District of Columbia.
A computer tape listing payments from 26,000 business taxpayers contained a defect and thus was not posted to IRS records. Warning letters were sent to innocent taxpayers, because workers at the Philadelphia center ignored repeated requests from the IRS national computer center for a replacement tape.
When all goes well, here is how the Philadelphia Center processes individual tax returns:
Incoming mail arrives at the center in the wee hours of the morning and is run through a high-speed sorting machine, which reads the bar code printed on the envelope and spits envelopes into one of 20 bins, according to the type of return it contains.
The next stop is a vast room jammed with 150 sorting tables, where returns are broken down into 12 more-precise categories and assembled into blocks of 100.
Returns containing money are next sent to a remittance processing area, where workers use computerized equipment to enter taxpayers' social security numbers and the amount of the checks. The returns and checks are numbered here. Returns without checks are numbered elsewhere.
Checks are normally deposited within 24 hours, but in the peak mid-April tax-filing season, the IRS has 10 working days to cash your check.
Not all of the numbers on your return are entered into the IRS data base. Numbers the IRS does record are written on the return in brown ink if the taxpayer's writing is not clear. Then the selected information is punched into a computer terminal. The main computer then checks the return for math errors and for consistency with the law.
Returns that the computer thinks contain errors pop up on one of 120 ``error resolution'' terminals. An IRS technician decides if the machine or the taxpayer is at fault.
If the taxpayer made a mistake, the file is coded so he will receive a letter from the IRS spelling out a revised balance due or a bigger refund or seeking additional information.
But the letter goes out only after the data on the individual return have been sent on tape to the IRS computer center at Martinsburg, W.Va., and posted on the taxpayer's permanent record.
The Martinsburg computer arranges for refunds to be sent, and it also subjects individual returns to a secret formula that determines how good a candidate they are for an audit.