IRS improves tax processing capabilities

The Internal Revenue Service processed more than 25 percent of tax returns filed so far this season with the new customer account information system--a major component of the agency's modernization. Long-term success and the timeline for retiring existing decades-old systems depends on continued funding, said an IRS official.

Comment on this article in the forum.The agency launched its business system modernization in 1999, seeking to replace the existing information technology in 10 to 15 years. Delays and cost overruns plagued the program, leading the agency to make significant adjustments in 2005. Since then, progress has been steady, driving an increase in electronic filing and IRS Web site use, and an improvement in telephone access during the 2007 tax season.

The most significant back-office improvements for the 2008 tax season have been made to the Customer Account Data Engine, or CADE, which replaces the decades-old Master File system. Through March 7, CADE processed 15.1 million individual tax returns out of the more than 59 million received. In 2007, CADE processed a total of 11.2 million returns.

"Certainly the volumes speak for themselves," said Richard Spires, IRS deputy commissioner for operational support. "Additional infrastructure capabilities have made the system more robust. We feel good about its performance. It's worked exceedingly well."

IRS also has enhanced electronic filing capabilities, most recently by enabling users to file online form 1120-F, used by foreign corporations, and form 990-N, used by small tax-exempt organizations. Spires said more forms will go online as modernization continues.

"[Taxpayers] can file their 1040 now through e-file, but on a system that is more than 20 years old," Spires said. "We want to upgrade that system, with the first release planned for summer of 2009." Once the e-file modernization is complete, IRS will begin efforts to enable online filing of form 990 for larger tax-exempt organizations and eventually form 1040 for individual tax income returns.

Ultimately, the goal for the agency is to retire legacy systems. Until that happens, "the program can't claim complete success," said David Powner, director of technology management issues at the Government Accountability Office. And that ability depends on meeting milestones, which in turn depends on sufficient funding. According to a March GAO report on modernization progress, 13 of the 14 project milestones scheduled for completion during fiscal year 2007 were completed within 10 percent of cost estimates, and 11 of the 14 were delivered within 10 percent of schedule estimates; a milestone for CADE, however, exceeded its planned schedule by 66 percent and experienced a 15 percent cost increase.

"So much is based on funding," Spires said. IRS requested $235.8 million for the business systems modernization for fiscal year 2008. "It's so hard to project what that will be into the future, so we try to be careful to project when [systems] will be retired. I will say this, though: We have worked to improve our overall ability to manage these projects. We're not perfect, but when you look at our ability to deliver on time and on budget, for the most part, we're meeting the criteria."