IRS Not Ready for Y2K
The General Accounting Office has just completed an investigation of the Treasury Department’s readiness for the year 2000. After a 2 year, comprehensive study, the government has concluded that there is a Y2K problem. Although the report did not say exactly what the problem is, it did state that it would have no effect whatsoever on the normal delays inherent in dealing with IRS.
In order to
determine what this means for the average taxpayer, we took a survey of all of
the accountants in New Kingston, NY. Here is what you 
can
expect for the Millennium according to our poll of the expert.
1. There will be fewer office audits. IRS simply does not have the personnel because they are bogged down with so much red tape. It has been politically popular to bash IRS in recent years. The result was enactment of the "Taxpayer Bill of Rights" by Congress. This was followed by the "Taxpayer Bill of Rights 2," in 1996. In case taxpayers didn’t have enough rights, Congress enacted the "Internal Revenue Service Restructuring and Reform Act" in 1998. Taxpayers now have the right to appeal almost any IRS action. This means the government agents have to spend more time and care in documenting and reviewing everything they do.
IRS has also been mandated to be more responsive to the needs of it’s customers. The government has just realized that the "S" in IRS stands for service, so they are now groping for ways to improve their standing in the eyes of the taxpaying public. How will "Big Brother" administer the tax code in a kind and gentler fashion? Perhaps they’ll figure that out by the end of the next Millennium.
The agents also spend a lot of time in training programs to learn about the ever changing tax laws. Add this to the 4 or 5 weeks of vacation and personal time allotted to veteran employees and the result is no one left to conduct a time consuming, paperwork intensive, office audit. Aside from the very wealthy taxpayers, the limited number of audits in the "audit lottery" will be reserved for the returns with the most outrageous deductions or losses. Odds are, it won’t be yours.
2. Instead of office audits we will see more computer generated "correspondence audits." IRS is slowly learning to use technology to sort through the massive volume of data collected each year. They now do a pretty good job in matching up most of your income. It may take 2 years, but IRS will eventually let you know if you forgot to report income from a small savings account.
Although the government’s computers are getting better, they still cannot distinguish all of the complicated income categories created by the massive tax reform in 1986. Since they are not yet "86 Compliant," we cannot expect them to be Y2K compliant for quite a while. However, this will not deter their efforts to use the computer to single out areas of perceived abuse. So if you get a letter or any correspondence from the government call your accountant immediately.
3. The proliferation of tax laws will continue. Tax accountants have become accustomed to the fact that the only thing we can count on from our legislators is perpetual change. The American Institute of Certified Public Accountants recently made a number of recommendations to Congress with regard to simplification of the tax laws. The AICPA concluded that one of the best ways to simplify the tax code would be to leave the damn thing alone.
However, our leaders will not, and can not leave it alone. Especially in an election year, we are bound to have some tinkering with the law. The trend seems to be toward granting additional benefits for education, families with children, IRA and similar accounts. Reduction and possible elimination of the estate and gift tax is another likelihood.
The one NY accountant we spoke to warned us to beware of any gifts that we may receive from Congress. He said that modern day tax law changes must be "revenue neutral." This means when Congress gives you something they usually take something away with the other hand. After all, somebody has to pay for these gifts. The accountant predicted, "I don’t see any major overhaul during the next 4 years. The major candidates have already announced their tax platforms. Instead we will continue to see the annoying, piecemeal, "Trojan Horse" type of legislation that we have grown accustomed to over the years. Unfortunately, it will take some kind of economic shock or collapse to motivate our leaders to take meaningful action. However, with these guys in charge, you never know what to expect."
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