IRS investment eyes many returns

The Internal Revenue Service intends to turn e-government on its head with a modernization program that agency officials say will make tax filing as easy as surfing the World Wide Web.

Imagine a tax system that can deliver a refund in just two or three days, or one that enables taxpayers to track the status of their returns down to the day a refund will arrive.

Far-fetched? Not at all, according to agency officials. The IRS blueprint for modernization scraps the 40-year-old system installed during the Kennedy administration and replaces it with state-of-the-art technology that ranges from computers that can communicate with each other to software that enables the public to interact with the tax agency.

IRS officials released the blueprint of the $15 billion project—known as Enterprise Architecture 1.0—on Jan. 11. It will be phased in over 10 years in what officials call the biggest civilian modernization program in history.

The blueprint is the second version of the plan. The first, issued in 1997, called for running the old system parallel with the new one until it was completely operational. The new plan installs programs as they become available.

"We didn't think [a parallel system] would work," said Paul Cosgrave, IRS' departing chief information officer. "Normally, you have trouble keeping things in parallel for one day."

Tax filers will see several new services in 2001. They will be able to select their own personal identification numbers and file online without sending a hard copy of their signatures to the IRS. And next month, the agency will introduce automated phone service for rotary phones, enabling callers to access information by speaking.

Meanwhile, the IRS is launching a pilot project this year—one of many—to test a new Web-based application that will enable businesses to pay their federal taxes online and receive their electronic payment history via the Internet.

Although the IRS has grand ambitions, some observers are not convinced and point to the agency's history of failure in trying to improve services. In the late 1990s, the IRS spent more than $3 billion on its first modernization effort before declaring it a failure.

Unless the agency is careful, it will "wind up like the [U.S.] Postal Service, with a lot of new technology and an antiquated personnel and management system," said Pete Sepp of the National Taxpayers Union, a watchdog group.

"I don't trust the IRS to handle things electronically because they can't get it right in paper," said Michael Martin, an enrolled agent and tax preparer from Washington, D.C.

But Robert Carto, past president of the Maryland/D.C. Society of Enrolled Agents, generally gives the agency high grades for its electronic work.

"All they have really done is establish a direct link and taken out potential for human error," Carto said. "You don't have someone inputting at the other end."

Carto did warn that the tax system has to be simplified before the average taxpayer can file online. "If you want an all-electronic system," he said, "you can't have a system where the public doesn't know the rules."

Much more is on the IRS drawing board, according to Bert Concklin, the agency's business systems modernization executive.

"For the first time, the IRS has a plan that spells out how the business practices of the agency will change and how technology will support that effort," Concklin said.

First up is a plan to phase out the 40-year-old tape-based system and replace it with a database of taxpayer returns. The IRS plans to start with the simplest returns—single taxpayers filing short forms—and convert them to easily accessible data.

Although taxpayers won't actually see any changes, the result will be a smoother system for tax auditors and investigators who currently access records by searching alphabetically through magnetic tapes to find a taxpayer. The new system will enable an IRS employee to find the correct file in seconds.

"The way we handle the collection process is antiquated," Cosgrave said. The data is at least 6 months old by the time an auditor retrieves it from the system, resulting in collections less than 50 percent of the time.

IRS officials hope the new system will provide a better and faster examination process, not to mention a swifter collection of tax dollars.

Next up is a Web-based system that will include three IRS portals—one for taxpayers, one for businesses and an internal system for IRS employees. The external portals, slated for debut in 2002, will enable taxpayers to interact with the IRS online.

IRS officials said they are committed to protecting information security. Cosgrave would not discuss the details, but the plan includes firewalls to ensure that hackers cannot get through. The security plan is so tight that the agency delayed posting the blueprint on its Web site until experts could delete any sensitive information.

The biggest change in the overall picture is speed. The IRS will no longer rely on legacy systems that are unable to provide the services taxpayers demand in a virtual environment.

"You wouldn't build a shopping center without having the appropriate architecture in place," said Greg Toth, chief architect of the modernization project. The project is being run by the Prime Alliance, a partnership of seven companies, headed by Computer Sciences Corp.

Key modernization goals

Faster refunds. It now takes four to seven weeks for taxpayers to receive refunds from paper returns and 10 days from electronically filed ones. The Internal Revenue Service hopes to reduce that to as little as two or three days. Improved phone service. The IRS plans to resolve 80 percent of customer account questions during the first call, compared to 40 percent now. Better collection. It now takes on average more than two years to collect the outstanding balance on an account. The IRS is aiming for six months. Data. The agency wants to develop a single, integrated data repository of payment and deposit information. One project, known as the Customer Account Data Engine, will create a centralized, easily updated database for taxpayer records. Security. No one outside the IRS will have access to raw data, and the privacy of taxpayers will be guaranteed through a system so secure that details about it will not be released to the public. Source: Internal Revenue Service