IRS' system praised for processing more complex tax returns

The Internal Revenue Service processed nearly three times more tax returns in 2008 using its new customer account management system compared with the prior year, the agency's inspector general reported in an audit released on Thursday.

Comment on this article in The Forum.The IG also commended the IRS for reworking the system to process the economic stimulus payments sent this summer to 24 million Americans.

The IRS processed more than 30 million tax returns as of July 25 using the Customer Account Data Engine, a central database application it is deploying in phases to replace existing repositories of taxpayer information. The returns represented 21 percent of the total number of individual returns the agency received.

In 2007, the IRS processed 11.2 million returns using CADE, the IG reported.

Through July 25, CADE paid out more than $44 billion in refunds and accurately processed almost 24 million economic stimulus payments totaling more than $18 billion as required by the 2008 Economic Stimulus Act.

The IRS completed CADE release 3.2 in February, incorporating new requirements, according to the report. For example, CADE now accepts claims for child and dependent care expenses, as well as the earned income tax credit, which provides a refund to taxpayers with income under certain thresholds. The latest release also interfaces with the dependent database to help verify taxpayer dependent and earned income tax credit claims, and provides taxpayers the option of depositing their electronic tax return refunds into checking, savings or retirement accounts. The release also allows CADE to accept tax returns that contain errors. It corrects the errors during processing and issues notices to taxpayers about the math errors and explains the corrections.

The first CADE release began posting individual tax returns in July 2004.

Once CADE is fully operational, it will house tax information for more than 200 million individual and business taxpayers.

"The modernized CADE database will allow the IRS to update taxpayer accounts, support account settlement and maintenance and process refunds daily, which will contribute to improved service to taxpayers," the IRS IG reported. "Based on our review, CADE Release 3 is operating effectively to help the IRS provide these improved services to taxpayers."

The report comes two weeks after the IRS inspector general released another report citing security concerns associated with CADE and a computer application that provides employees with access to taxpayer account data.