June, 1998 

Dear ICE Supporter:

On May 7, an amazing pair of events took place within a few hundred yards of each other. I would not have imagined that either of them was possible as recently as a year ago.

On one side of Capitol Hill in Washington, Charles Rossotti, the newly appointed Commissioner of the Internal Revenue Service, testified before the House Ways & Means Committee. The Committee is chaired by William Archer, a Texas Republican who is an opponent of the graduated income tax. He favors a flat sales tax.

Mr. Rossotti made a plea for money. This never comes as a surprise on Capitol Hill. But he made his plea on the basis of a threat: the end of the IRS. The thought of Congressman Archer's listening to this threat reminded me of the scene in Mel Brooks' Blazing Saddles, where Cleavon Little, who plays a black sheriff in a white racist town, tries to stop a mob. He pulls out his gun, points it at his own head, and yells, "Stop right there or I'll shoot the nigger!"

The money, if appropriated, is to go to the IRS's renovation of its computer system. Mr. Rossotti wants a total of billion dollars. This is up from about a quarter billion, less than a year ago. What he said about the IRS collection system indicates just how much he needs the money.

In addition, the scope and short time frames associated with our massive century date conversion project present tremendous challenges to our technical management of IRS systems. If not corrected, most existing application systems are programmed to display 00 in the year fields, and after January 1, 2000, would incorrectly use 1900 for the year in date-based calculations. Failure to identify, renovate and test each of these system calculations could result in catastrophic disruption to taxpayers and the government. For example, millions of erroneous tax notices, refunds, bills, taxpayer account adjustments, accounting transactions and financial reporting errors could be generated. Clearly, the IRS' role in collecting revenue supporting 95 percent of the federal government's operations could be jeopardized if the Century Date program is not completed in a timely fashion.

That put it as clearly as anyone in Washington could reasonably expect. But it was only the beginning. Mr. Rossotti went on to describe the huge nature of the y2k repair.

Adding to the challenge is our largely non-Year 2000 compliant technical infrastructure which includes more than 80 mainframes, 1,400 minicomputers, 130,000 personal computers and massive telecommunications networks comprised of more than 100,000 components. Because of the number, age, fragmentation, and variety of products associated with this infrastructure, successful implementation of these aspects of our Year 2000 program require strong central management and oversight.

Now, he did not want the Committee to imagine that all is lost. If they got this idea, they might not allocate the funds. He painted this not-quite-a-disaster-yet picture:

The IRS currently supports 127 mission-critical application systems comprising 85,000 modules and approximately 50 million lines of code. IRS has five phases for code conversion, each six months long, and has completed three phases to date. As of April 24, 1998, the IRS has renovated 83 of its 127 mission-critical systems and tested 62. Fifty-nine of these systems were placed back into production. These systems are working effectively and contributed to a successful filing season. We are on schedule to complete the systems conversion by January 1999.

John Yost, who is in charge of the repair, a few days before had painted a much less optimistic picture. He said that only 55% of the IRS's systems have been renovated.

Then Mr. Rossotti ventured into the shark-infested waters of vendor-supplied software. In every industry, large institutions are dependent on such software, sometimes as many as a hundred different products. Few of these are compliant. They must also be integrated with each other after they are fixed, assuming that they ever get fixed. The organizations whose survival depends on these products have no legal authority over their producers. The IRS is no exception.

Tier II and Tier III computers and their associated systems software (operating systems, data bases, etc.) require replacement or upgrades. Century date compliance for more than 1,400 minicomputers and 130,000 personal computers largely depends on obtaining vendor upgrades; many are only now being made available in the market place. We are currently evaluating and testing these components to ensure they are compliant.

But what if the tests reveal that the upgraded software will not work?

Then there are telecommunications. The IRS is completely dependent on the U.S. Treasury's system. It is not compliant, and the IRS has no authority over its repair:

The critical IRS network backbone is supported through the Treasury Communications System (TCS) contract. A network component inventory was received from the contractor. We are reviewing and validating these data as well as the contractor's site specific plans to convert the network. Given the need to upgrade or replace thousands of components within the TCS network, as well as additional IRS proprietary networks which themselves comprise nearly 30,000 components, the network conversion represents a significant challenge. Integrated project management teams were formed with the TCS contractor, and we have engaged the services of other contractors to assist us in completing this critical effort.

In short, the system is not compliant, and the IRS has no way of knowing if it will work in 2000. He calls this a "significant challenge." So was the fall of Rome.

Then there is the problem of noncompliant data imported from another computer. One such computer can pollute the data in all the others that are exchanging data. Mr. Rossotti makes an optimistic statement: 60% are now compliant. But 60% of what? "Trading partner files." What are they?

The IRS is but one of many data dependent public (e.g., Financial Management Service and Social Security Administration) and private sector organizations (e.g., banks and financial institutions) which both send and receive data from one another. At this time, IRS efforts are on schedule to validate the accuracy of both incoming century date compliant data from a variety of sources and outgoing IRS century date compliant data to its trading partners. Over 60 percent of our trading partner files have been made compliant, and the remainder are scheduled for conversion by January 1999.

No known mainframe legacy computer system in any government agency on earth has been made compliant. Congressman Stephen Horn has yet to identify any government agency that is compliant. So, whatever "trading partner files" are, they do not represent compliant organizations. But it sounds good, doesn't it?

Then he admitted that the IRS may not make it. It needs contingency plans.

Given the scope of the IRS program and its critical importance to both the nation's economy and its taxpayers, it is imperative that the Service's mission- critical systems continue to function properly in the new millennium. While the IRS has made substantial progress, the risks are still significant. Accordingly, the IRS must develop contingency plans to manage any adverse impacts of a less-than-fully successful century date program. These plans must address the needs of the IRS, as well as those of our data exchange partners. We intend to concentrate on those areas that have high business impact, significant Year 2000 complexity, and may not be completed on time or successfully. This will allow us to work on aspects that have the greatest risk, while leveraging the majority of limited resources on Year 2000 conversion and testing.

The issue here is money. Mr. Rossotti wants more money. "In conclusion, the Year 2000 effort at the IRS, a $1 billion project, is one of the federal government's most formidable challenges." But, he added, he wants more than money. He wants Congress to stop changing the tax rules. The IRS is at the breaking point; it cannot handle any more changes prior to 2000.

Finally, the Administration has serious concerns with provisions of the IRS restructuring legislation that require changes to IRS computer systems in 1998 and 1999. Mandating these changes according to the schedule currently in the bill would make it virtually impossible for the IRS to ensure that its computer systems are Year 2000 compliant by January 1, 2000, and would create a genuine risk of a catastrophic failure of the Nation's tax collection system in the year 2000. Both Secretary Rubin and I have written the Senate Finance Committee warning them of this risk and recommending that the effective dates be modified in accordance with the schedule set forth in my April 23, 1998 letter.

This leads me to the second event of May 7. As he was testifying before the House, the Senate was voting, 97 to 0, to revamp the IRS, to strip it of some of its most abusive powers. Seeing an iron veto, President Clinton told the press that he supports such legislation. When politicians sense weakness, they attack.

If Mr. Rossotti's teams of underpaid programmers will stay on the job (the attrition rate is about 8% and rising) can fix the IRS's computers -- highly doubtful -- who will fix the Treasury's telecommunications system? Who will fix the computers of the IRS's trading partners? Who will fix the computers of the banks without which no one can send a check to the IRS? To ask these questions is to answer them. They will not be fixed.

What we are about to experience is a breakdown of the tax collection system, not just at the Federal level, but at every level above the smallest county, all over the world, and all before the year 2001. That is, we are going to see the collapse of the modern welfare State. Not modification, not reform -- collapse. Yet the commentators, opinion molders, politicians, and pastors remain blissfully unaware of what this will do to the social fabric. For over a year, I have hammered at this theme. Day by day, the evidence is confirming my views. There is still no compliant national government agency. There is still no compliant bank, railroad company, or electrical power generation plant. Anywhere.

Be prepared. You'll need more than stored food and gold to be prepared.

I have done my best to warn people. Mr. Rossotti has done his best to warn Congress. I don't think there are many people listening to me, and there were none in the Senate listening to Mr. Rossotti.

Sincerely,