Investigation: How the IRS Spends Money
Dec. 27, 2001 -- The Internal Revenue Service is charged with collecting taxes from Americans in order to pay for the work of government.
But in a three-month investigation, ABCNEWS' Chris Wallace found the IRS is spending millions to recruit and sometimes relocate 34 managers hired to make the agency more efficient and effective.
"It's indefensible to the American taxpayer," said Paul Light, a top expert on government hiring.
When John Duder left a private-sector consulting firm to work for the Internal Revenue Service, for instance, he was allowed to spend up to $260,000 in relocation costs. Recruiting and moving Delena Bratton from California to her new job with the IRS in Washington, D.C. cost about $200,000 in tax dollars.
"When you consider the waste of money by the IRS, you would think that they're printing money rather than collecting the money," said Sen. Charles Grassley, R-Iowa, who launched an investigation when he found out about Duder's move. Grassley said his move to Washington after he was elected to Congress in 1974 cost $200.
'Critical Pay' Issues
The IRS spending spree started back in 1998, when Congress heard a litany of horror stories about the agency abusing taxpayers.
To clean it up, Congress agreed to let the new IRS commissioner Charles Rossotti hire up to 40 people from private industry, employees who could bring new ideas to the agency. To entice executives, they were to be given what's known as "critical pay" — big salaries and lavish benefits.
The IRS helped Duder sell his house in New Jersey and buy a new home near his new job in Atlanta. So far, his move has cost taxpayers $192,000; and Duder is allowed to spend as much as $68,000 more to cover relocation costs.
Experts said that's more than double the average cost for a corporate executive's move. And relocation expenses are just one of the problems.
Critical pay employees can make more than their peers at other agencies — up to as much as $186,000, a little more than the pay of Vice President Dick Cheney. IRS top cop Mark Matthews, for example, makes the top critical salary — more than FBI Director Robert Mueller or Attorney General John Ashcroft.
Light, who heads governmental studies for the Brookings Institution, said critical pay is a good idea for key jobs that demand special skills. But, "It has to be used very, very thoughtfully," he said. "It cannot be divvied up like the cards in a deck, as it appears to have been done at IRS."
Hiring People with Expertise
By law, people hired for these jobs must have "expertise of an extremely high level."
Grassley said lawmakers thought the critical pay would be used to lure computer wizards to modernize the agency. But Primetime has learned that two thirds of the hires have nothing to do with technology.
Bratton, for example, who was allowed to spend up to $200,000 for relocating, is a communications specialist.
"You can literally trip over P.R. people here in Washington, D.C.," said Pete Sepp, vice president of the national taxpayers union, which represents 335,000 Americans. "All taxpayers want to see out of the IRS is computers that work, phones that get answered, and yet they get P.R. people instead."
Sepp points out that despite promises to improve, the IRS lost 70,000 tax returns last summer. And, according to surveys, the IRS answers taxpayers questions incorrectly almost half the time.
IRS chief Rossotti makes no apologies, saying Bratton does much more than public relations.
"We have hired people with specific expertise to help us do specific jobs. Communicating with the public is one of them," he said. "The expertise that we're looking for is the ability to communicate on a complex subject with the public. Taxes are a complex subject."
No Regulation Violations
Rossotti said the money spent on the executives was "one of the best investments for the taxpayers we've ever had." He cited people like Joseph Kehoe, who earned a million dollars a year at a private accounting firm taking a government job with the IRS.
"It's not a glamorous opportunity," said Rossotti. "It's an opportunity that people come into to provide public service, and most of them, in fact, are making a personal and financial sacrifice."
When asked about a budget of nearly $1.5 million to move just 17 executives, he said, "It's spent to compensate people for the cost of relocating, including buying and selling homes.… It can be substantial."
Rossotti pointed out the IRS is not violating any regulations, and there are no limits on many relocation expenses.
'Most Despised Agency'
After spending almost $4 million on moving expenses, bonuses and recruiting, almost one-fourth of the critical pay hires stayed two years or less.
One IRS manager, Thomas Liberti, received a $38,000 signing bonus — and then left after four months.
"Let me just say that if somebody is not entitled to keep a bonus," said Rossotti, "we would recover that bonus."
But Primetime discovered that it wasn't until a year after Liberti left — and several months after a Senate committee started asking questions — that the IRS finally asked him to return $25,000 of that bonus.
Like all the critical hires ABCNEWS contacted, Liberti declined an interview. But some did send a statement.
Bratton said she gave up substantial benefits to take the IRS job. Duder and Matthews told Primetime it was the critical pay that made it possible for them to leave their private sector jobs and go to work for the government on behalf of taxpayers.
But Sepp says the IRS is only digging itself into a deeper hole: "The critical pay program is turning into a very serious and costly flop," he said. "The IRS is the most despised agency in the federal government… This is going to hurt them terribly. And it's going to weaken public support even further. It's a tragedy really."