Lone Ranger At The Irs

IMAGINE TAKING OVER AS skipper of the Exxon Valdez--just as it's about to run aground. For Charles O. Rossotti, running the Internal Revenue Service has been a little like that. The former management-systems whiz came on board as IRS commissioner i n the face of the fiercest congressional and public criticism the agency has faced in decades--widespread allegations of systemic corruption and abuse of taxpayers. The worst of the storm has passed. But Rossotti's been bailing water ever since he was sw orn in on Nov. 13, and early signs are that he's begun to rid the agency of some of its alleged excesses.

Last week the IRS announced that, in Rossotti's first major move, he is requiring directors of the agency's 33 districts nationwide to personally approve any seizure of people's homes, their contents or ""perishable goods" in delinquent tax cases; any other seizures must be approved by the top-level collection chief. Rossotti called it ""a prudent step . . . to ensure that collection-enforcement tools are only used in appropriate cases." IRS critics--who are legion now in Washington--applauded. "" It's a big deal," says former commissioner Fred Goldberg. ""I think he clearly gets it."

Rossotti gets it, all right: he concedes he'll need ""the better part of a decade" to truly reform the IRS. Perhaps that's why he is starting out small, directing his attention to troubled districts like Arkansas-Oklahoma. The two-state district wa s the subject of hearings held in Oklahoma City last week by Sen. Don Nickles (Republican of Oklahoma), who looked into allegations of undue pressures on IRS officers to perform property seizures and close cases prematurely, all to beef up their managers ' ratings. An internal audit released to the Senate Finance Committee on Friday finds the Oklahoma office operated ""without an appropriate emphasis on quality and customer-service issues," according to Dale Hart, the region's compliance chief. (""Qualit y" is IRS bureau-speak for ""treating taxpayers right.")

Personnel changes quickly followed the Oklahoma City probe. Kenneth Sawyer, the district director, retired Nov. 30, and the agency brought in an outside director to replace him. NEWSWEEK has also learned that the district's collection chief, Ronald James, who was suspended Sept. 25, has been detailed to a new post outside of the Arkansas-Oklahoma district.

Still, as Rossotti is discovering, the problem is not so much individual IRS managers as the system that molds them. The Oklahoma City findings tell a larger tale of how the agency's managers became obsessed with production stats that tended to tre at taxpayers like numbers, not people, as the IRS came under intense congressional pressure, especially in the small-government '80s, to show more efficiency. Sawyer, in a 1989 internal memo obtained by NEWSWEEK, complained that the district's ""emphasis on quality improvement has . . . impacted adversely on productivity." He wrote of pushing hard ""to improve our relative standing." In an interview, Sawyer denied that he ever wrongly emphasized production. Asked to explain his abrupt departure, he said, ""I could have retired four years ago. I've had enough." James did not return calls.

Such production zeal was not unique to Oklahoma City. The agency's voracious appetite for stats has also inspired bizarre shell games between its two main divisions, Exams (audits) and Collections, nationwide. Collections, for instance, will summar ily close thousands of delinquent accounts--often from bankrupt taxpayers--to make its books look good. Then it sends them over to Exams, which keeps them on file, automatically calculating cost-of-living, interest and penalty charges each year--unbekno wnst to the taxpayer, who thinks the IRS has dropped his case. When he gets back on his feet, he often finds himself suddenly assessed with a huge amount he can't pay. His file goes back to Collections, which then logs him as a new case. ""That's what mo st of that $200 billion in uncollected taxes a year amounts to," says one IRS manager. ""Most of it isn't really even owed." By the end of the month, the IRS is expected to complete a national audit of the misuse of statistics in evaluating employees--an d early reports are that at least six districts will be found culpable. ""I don't believe anybody in the IRS now thinks those measures can remain the same," says Robert Tobias, president of the National Treasury Employees Union. e Oklahoma City case also shows how when complaints arise, problem managers are shuffled around to posts in different districts, often without a reprimand. ""Generally they let the water cool, then slip 'em back into their old jobs," says Dave Martino, a n executive with the NTEU. ""That's the way it works in this organization." That's where Rossotti will need help from Congress. Sometime next spring the Senate is expected to approve a bill to revamp the IRS that will likely give Rossotti greater hire-an d-fire powers, and create an independent oversight board to back his reforms. ""You can't just have a Lone Ranger pushing this agency into shape," says Jeffrey Trinka, former executive director of the bipartisan IRS restructuring commission. Perhaps not. And Rossotti's clearly not riding into the sunset any time soon.