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IRS chief predicts increase in audits

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WASHINGTON (AP) — An infusion of money and improved technology will begin to reverse the decline in Internal Revenue Service audits, which agency chief Charles Rossotti says are essential to ensure compliance. But he has a warning for those tempted to cheat.

"This is really not a good path for the average taxpayer," Rossotti said Wednesday in an interview with The Associated Press. "If you want to make bets, your odds would be better to go to a casino."

Less than a week before Monday's tax filing deadline, Rossotti said that, like millions of other taxpayers, he is asking for the automatic four-month extension to finish his return and that his taxes are done by an accountant.

Unlike most people, Rossotti gets audited every year.

"That's one of the privileges of being commissioner," he said with a grin. "I really do want to file an accurate tax return."

Last year, the percentage of audited returns fell to below one-half of 1 percent, which Rossotti blamed on tight budgets over the past five years and lack of money to replace antiquated Internal Revenue Service computers.

President Bush is asking Congress for a $580 million increase for the IRS for fiscal 2002, mainly for technology and to continue hiring about 4,000 in additional staff, in part to beef up enforcement.

"Continuing to drop, year after year, would not be a sound thing," Rossotti said. "We have to have a certain amount of compliance activity."

But audits, the IRS chief added, represent only one of many ways the IRS checks returns for cheaters. Computers match taxpayer documents with those provided by banks, employers and other sources for accuracy. Even neighbors can be a source for the agency.

"You'd be surprised how many people tell us about other people who don't fill out accurate returns," he said.

Still, he said the IRS need not adopt a harsher stance toward taxpayers, in conflict with the more service-oriented agency Congress sought when it passed a major reform law in 1998.

"I've never viewed it as either/or, that we're nice to people and don't collect taxes or that we're tough and mean and collect taxes," Rossotti said. "I view our whole mission as doing both of those more effectively than we have in the past."

In the long term, Rossotti said the key was the gradual, costly replacement of the outmoded IRS main records system, which dates to the early 1960s. Bush's budget asks Congress for an additional $325 million in fiscal 2002 to continue the replacement work, which affects everything from audit rates to the number of taxpayer phone calls that get through.

"You never see an organization as large as the IRS that gets this far behind," said Rossotti, whose private sector background is information management. "We are getting it to where we want it to be. It's really one of the more difficult programs I've ever seen."

On other tax topics, Rossotti:

Said about 40 million tax returns would be filed electronically with the IRS this year, which would be slightly below projections of 42 million. But returns filed from home computers are running well ahead of last year.

Praised the growing use of tax preparation software, which he said solves "100 percent" of math errors that are common on paper returns and helps more people understand tax law. But as for reducing tax evasion, Rossotti said, "that depends on how well you answer the questions" posed by the programs.

Estimated that the IRS will answer 6 million more telephone calls than last year, meaning roughly two-thirds of people wishing to speak with an agency representative will actually get through. "I'm confident we can get to our ultimate goal, which is the 90 percent you see in the private sector," he said. "We've made step-by-step progress, but it's going to take a few years more."

Identified tax complexity as the worst problem facing most taxpayers, but laid most of the blame on Congress and the president for passing complex tax legislation and not on the IRS forms and instructions themselves. "I don't think it's the fault of the instructions. It's inherent in the tax law," he said.

Said the IRS would "have to be more aggressive and innovative" in dealing with organized tax evasion schemes such as trusts involving offshore bank accounts. In addition to targeted audits and investigations, Rossotti said the agency will do more public relations to "warn people off of these schemes."

On the Net:

IRS: www.irs.gov