IRS requests less funding for its modernization program

Despite ongoing problems and delays with its multibillion-dollar modernization program to update aging networks, the Internal Revenue Service's requested budget for fiscal 2009 includes a 17 percent cut in the program's funding. The lower budget figure is expected to result in the elimination of at least 25 positions, according to a Treasury Department inspector general.

Comment on this article in The Forum.The IRS requested $222.7 million in fiscal 2009 for the program, known as Business Systems Modernization, a cut of $44.4 million from fiscal 2008, the year the program received a 26 percent boost in funding from fiscal 2007. "This cut is expected to eliminate at least 25 employees," according to a statement that J. Russell George, Treasury inspector general for tax administration, provided the Senate Appropriations Subcommittee on Financial Services and General Government on April 16.

The requested funding is also well short of the $407 million recommended by the IRS Oversight Board, which has advocated for the Business Systems Modernization program to be funded at a higher level to hasten progress.

"Technology modernization will result in major benefits to taxpayers and the government," said IRS Oversight Board chairman Paul Cherecwich at the hearing. "The IRS must make progress much faster…This is not the time to go backwards in funding." He highlighted the $185 million gulf in funding between the board's recommendations and the IRS' request and said the board considered modernization to be of the highest priority, because of its long-term ability to reduce the gap between taxes owed and taxes collected.

Cherecwich said that among other things, erratic funding made program management more difficult and created staffing issues for both the IRS and contractors. "When projects are cut back, you always lose the people you most want to keep. Few taxpayers would use a financial institution that updated its accounts weekly, yet we accept that for the IRS. That should change." Cherecwich added that modern systems for electronic filing also were necessary.

The IRS started its modernization program in 1999 after a previously failed effort. The agency's goal is to modernize its technology and consolidate the more than 400 legacy systems it uses. This involves integrating thousands of hardware and software components and maintaining the current tax system to provide better service to taxpayers.

Overall, the IRS requested $11.4 billion for fiscal 2009, a $469.1 million increase, or 4.3 percent more than fiscal 2008. Higher spending on tax enforcement, operations and the agency's Health Insurance Tax Credit Administration drove the increase, while the largest decrease in funding was in the Business Systems Modernization program.

Despite the cuts, the IRS said it would be able to continue to work on its modernization effort, but the Government Accountability Office criticized the agency for not elaborating on its plans. GAO noted: "IRS stated that the requested BSM funding level will allow it to continue developing and delivering its primary modernization projects, but did not provide details on how plans to deliver specific projects or benefits to taxpayers would be affected."

GAO said the IRS has made progress in implementing BSM projects and meeting cost and schedule commitments for most deliverables, but added that several project milestones recently experienced significant cost or schedule delays. The IRS was unable to provide an interview before this article was posted to explain the reasons for the decrease.

"The modernization program should be past the halfway point in calendar year 2008," according to George's statement. "However, the IRS has not completed as many modernization projects as planned, because it has received less funding than initially anticipated and has had difficulties in managing the scope and complexity of the work."

George said the backbone of the modernization effort is the Customer Account Data Engine program, which is supposed to replace the Individual Master File processing system, a database of existing taxpayer information.

With CADE, the IRS will be able to update taxpayer information daily rather than once every two weeks, allowing employees access to the latest taxpayer information and reducing delays related to issuing tax returns. CADE has experienced significant schedule delays and cost overruns, according to GAO.

Another key program facing a large budget cut is the Modernized e-File program, which saw a $30 million drop in funding since fiscal 2008. The project will establish a single, standardized format for filing electronic tax returns. Despite the cut, IRS told GAO that the proposed funding would enable it to continue to develop the program, but didn't provide details. Still, George acknowledged in his statement that "modernization remains high risk for the IRS."

GAO also reported that the IRS has yet to follow its recommendation to develop a long-term plan for completing its modernization efforts and retiring legacy systems.