Taxing Times: IRS Reputedly Inefficient, Reckless, Spiteful : Bureaucracy: The service holds taxpayers to a higher standard than its own workers, experts say. Yet Congress holds it sacrosanct because it funds the U.S. government.

If you think the Internal Revenue Service throws its weight around just to intimidate U.S. workers into paying their taxes on time, you’re not alone.

Tax experts, government reports and IRS watchers call the world’s largest bureaucracy arrogant and inefficient, with a carefully cultivated schoolyard-bully reputation designed to keep the tax system “voluntary.”

Held sacrosanct by the Treasury Department that oversees it and the Congress that relies on it to fund the U.S. government, experts said, the IRS holds taxpayers to a higher standard than it holds its own 115,000 workers.

“When you make a little error with the IRS, it’s like a paper cut that turns into gangrene and you lose your arm,” said Laurence Foster, a partner with KPMG Peat Marwick’s personal financial planning practice in New York.

According to recent General Accounting Office reports, IRS regulation writers are behind in their work and employees poke around tax records for their own amusement. And it fails to collect tens of billions of dollars in outstanding tax delinquencies, giving up on $2 for every $1 collected.

While the IRS said it correctly answers 90% of questions directed to its toll-free help line compared to 63% in 1989, the GAO said only 20% get through.

“You call them up, you get busy signals, you’re put on hold, they don’t even provide music,” said David Silverman, a tax preparer who wrote “Battling the IRS.” “And unless you have a very easy question, you get knocked from pillar to post.”

Even its harshest critics admit the IRS has one of the toughest jobs in government, interpreting compromise tax laws handed down by Congress and still collecting more than $1 trillion a year from hundreds of millions of taxpayers. Its problems stem from the sheer enormity of national tax collection and a lack of funds to pay for an adequate staff of auditors, accountants said.

“People are seeing that there aren’t that many audits around,” said Stuart Kessler, a personal finance expert at Goldstein Golub Kessler. “It’s bad for collections. They’re also going crazy with paperwork, while their computers are so antique that it creates a tremendous burden for compliance.”

IRS problems go beyond old-fashioned computers and outfoxed agents. It has a reputation for arrogance that is only fueled by refusals to specifically answer critics’ charges, although it addressed the GAO reports for this article.

“The IRS can do what it wants, and it’s always been that way,” said Martin S. Kaplan, a New York accountant and author of “What the IRS Doesn’t Want You to Know.” “It’s where the money comes from, and that’s why Congress doesn’t fool with them.”

Still, the GAO is Congress’ investigative arm and it has published eight critical reports in the last two years, including those this year that revealed the IRS:

* Failed to account for 64% of the $6.7 billion it spent in 1992 for items such as office rental, salaries and computers;

* Took so long to deposit taxpayers’ checks that the government lost some $20 million in interest;

* Failed to develop an accounting system that correctly identifies how much it’s owed, trying unsuccessfully to collect $46.6 billion from debtors who were broke, jailed or dead;

* Can’t confirm that it actually holds some $797 million in assets it claimed it seized;

* Failed to collect billions of dollars a year in corporate taxes, because it doesn’t track net operating losses. While companies can deduct losses once they’re profitable, the IRS only identifies bogus losses through audits. Trouble is, it generally doesn’t perform them on companies claiming they lost money.

“While the IRS has undertaken many individual initiatives, in some respects the accounts receivable problem is worse today than five years ago,” U.S. Comptroller General Charles Bowsher said in a letter that accompanied the GAO’s latest broadside. “The IRS has yet to clearly demonstrate that the efforts it has underway have sufficient institutional focus to effectively deal with the underlying causes of the problem.”

IRS officials said its apparent failure to account for spending was the result of an accounting system that didn’t break out specific spending figures and was replaced after the GAO audit; that the delays in depositing taxpayer checks was mainly attributable to the crush of some 20 million returns in the last week of filing; that the figure for seized assets included some $300 million in collateral the GAO couldn’t audit and that the collection of delinquent taxes declined from 1990 because it had fewer revenue agents in 1994. The IRS confirmed it doesn’t track net operating losses, but could not confirm lost-revenue figures.

Frustrated by these problems, the IRS sometimes flexes its considerable muscle, prosecuting taxpayers unfairly or merely for publicity, said author Kaplan, who added it’s no coincidence that a raft of publicity surrounds a celebrity tax-evasion prosecution every spring. Baseball player Darryl Strawberry’s IRS investigation became public within the first two months of the year, as did investigations of baseball’s Pete Rose in 1990, singer Willie Nelson in 1991, businessman Samuel Singletary in 1992 and jet-set divorce attorney Marvin Mitchelson in 1993.

According to spokeswoman Jodi Patterson, who said the IRS has nothing to do with lawsuits it hands over to the Department of Justice for enforcement, “Obviously we welcome any publicity that acts as a deterrent, but we don’t actively seek it.”

Last month, a Miami attorney who had charged he was maliciously targeted by three IRS agents received a $500,000 settlement from the IRS. Former Miami News general counsel Daniel Heller spent four years in prison after his accountant gave allegedly false testimony about his tax return. Heller charged that the IRS coerced the testimony after he refusal to reveal sources who detailed illegal IRS spying in the paper’s stories.

If the IRS isn’t polishing its image as a bully, it still manages to intimidate many accountants who privately share horror stories but won’t criticize the IRS publicly.

Take Vincent Batyr, who is often frustrated by the IRS’s refusal to take responsibility for incorrect information it gives over the phone. According to the head of his own CPA firm, “I am always nice to the IRS.”