The taxman’s tech troubles

Calling the IRS "arguably the most important federal bureaucracy in American life," author David Foster Wallace spun a fictional tale of technological modernization, tedium and existential terror in "The Pale King."

The unfinished novel was edited and published after Wallace committed suicide in 2008. And the IRS' own story of modernization remains a sometimes painful work in progress.

The agency spends $2.5 billion annually on IT across more than 20 major systems, yet it still relies on a central data processing setup that went online in the 1960s to keep its revenue-collecting cogs turning.

The problems are manifold: not enough money, political pressure, technical constraints, a lack of skilled tech professionals and the tax code itself.

"We've got more IT challenges than you can shake a stick at," IRS Commissioner John Koskinen said. He has asked for more money, and he's hopeful he can push legislation to save the IT employees he'll soon otherwise lose. But the code itself continues to knot up his plans.

What taxpayers see — and what they don't

The IRS faces technology challenges on two fairly obvious fronts: external and internal.

The agency's public-facing technology operates fairly well, with the exception of telephone support. About 80 percent of taxpayers file returns electronically, and although occasional hardware failures might throw a wrench into the system, they haven't seriously hindered the processing of more than 150 million personal tax returns each year.

"We've already made great strides," Koskinen said. "Fifteen years ago, if you'd said 85 percent of people were going to file electronically, people would say, 'Well, that'll never happen. They don't even have the systems to do that.'"

Ancillary tools such as "Get Transcript" and "Where's My Refund?" have been among the government's most popular web offerings. "Get Transcript" was popular with cyber thieves, too. Hackers easily breached the system's knowledge-based security screen in 2015 and compromised more than 700,000 taxpayer accounts. The IRS had to shut down the service but plans to revive it with new security features at some point.

The systems that keep the IRS humming internally seem to be the bigger issue. The agency still relies on the Individual Master File, which started operating in the early 1960s, for its central data processing needs. The Customer Account Data Engine was supposed to swap current database technology for IMF's magnetic tape, but the push to replace IMF has slowed to a crawl.

In 2008, Richard Spires, then-deputy commissioner for operations support at the IRS, touted CADE's ability to process 15 million taxpayer returns and said, "This system is the centerpiece of our modernization efforts at the IRS."

However, CADE never fully replaced IMF. It was sort of rolled into CADE-2, a follow-on project that was at one point slated to be completed by June 2013. It's still not done, and the IRS continues to rely on IMF's magnetic tape to process and store taxpayer data.

"We do have mainframes, whether you like it or not," said Nitin Naik, the IRS' technical director for strategic planning.

It ain't broke but needs fixing

The back-end work is a tangled slog. Nearly a decade after kicking off  its Tax Systems Modernization effort, IRS officials had to admit in 1997 that they had spent $4 billion on computer systems that "do not work in the real world."

Charles Rossotti was brought in from the private sector that year to shake things up, and during his tenure as IRS commissioner, he championed Business Systems Modernization. But although that initiative helped power a reorganization at the IRS, it was beset by delays, cost overruns and failures to effectively coordinate between contractor CSC and the IRS bureaucracy.

And so the agency is still, in 2016, using 1960s technology. It's a workforce problem as much as it is an IT challenge.

"It's not broken," Naik said of IMF. "It's just…difficult to maintain. Congress keeps changing legislation, altering rules, then you have to go back in, program it, make sure it works."

All that programming in the old assembler language Cobol helps keep the IRS tied to IMF. "We have to train our own people" in the old programming language, which certainly doesn't help the agency operate nimbly, Naik said.

Taxpayer data has been transferred to modern data storage platforms through CADE-2. But the agency still depends on the logic and processes coded into IMF, all linked to the Byzantine interplay of the tax code.

Complexity breeds complexity

Web-based interfaces such as "Get Transcript" don't fit easily into the IRS' mainframe setup.

IMF's designers "never really thought you'd have people extracting data on a one-off basis," said Tom Romeo, president of IRS contractor Maximus Federal Services. "Their underlying systems were not written to support that kind of access."

Instead, IMF was designed with mass-intake capacity in mind. In the modern era, IRS and contractor employees have to code workarounds to help IMF link to outside systems and enable the rapid pull of individual taxpayer files for systems such as "Get Transcript."

For the foreseeable future, the approach is to slowly keep adding to CADE-2's capabilities in an attempt to wean the IRS off IMF. The Treasury Department has a target completion date of 2022, though the caveats are crucial: Treasury does not assert that CADE-2 will completely replace IMF, two of CADE-2's component projects are behind schedule, and officials such as Naik are reluctant to commit to a hard deadline.

"All systems have to be up, so if we are going to implement any change, it's going to be on a gradual basis," Naik said.

Watchdogs agree that quick, total fixes aren't an option. Instead, the question facing the IRS is, "Can you make a switch while everything's moving? And oh, by the way, you've got tax code changes in the 11^th hour," said Dave Powner, director of IT management issues at the Government Accountability Office. "It's hard."

Filling Uncle Sam's coffers on a shoestring

According to the IRS, the obvious problem is money. Although it collects the revenue that funds most of the government, the IRS has been significantly hamstrung by a Republican-controlled Congress for the past few years.

When asked during a recent budget hearing for his one IRS-fixing wish, Koskinen said, "If we could just have stable, sustainable funding for this agency before I leave, I'd feel like I accomplished something."

The agency's fiscal 2017 budget request of $12.3 billion would put the IRS at the same funding level it had in 2010. Skeptical lawmakers have signaled they might not be willing to grant even that request.

"It was constraining when I was there," said Spires, who left the IRS in 2008 and noted that the agency's budget has been further tightened since then.

But Republicans still smarting over the IRS' investigation of conservative groups' tax-exempt status have accused the IRS of wasting money and, as Koskinen once put it, "doing less with less."

"The resources are there on the customer-service side," said Rep. Peter Roskam (R-Ill.), chairman of the House Ways and Means Committee's Oversight Subcommittee. "They have been misallocating that."

Roskam asserted that the IRS has pushed phone service to dramatic lows. In 2015, only 37 percent of callers got through to the IRS -- after an average hold time of 23 minutes, according to IRS Taxpayer Advocate Nina Olson. Nearly 9 million people experienced "courtesy disconnects."

In a report published last year by Roskam's committee, Republicans cited the IRS' annual spending on bonuses ($60 million) and employee time spent on union activities (nearly $21 million) as egregious misuses of funds.

The report also notes that the IRS takes in half a billion dollars in user fees each year, which it can spend as it likes. In 2015, the agency reduced the amount of the fee revenue that went to taxpayer services by more than $100 million, opting to apply it to operations support instead.

One route to improved budget management is careful congressional oversight. In February 2015, GAO hammered the IRS for spotty reporting of its IT investments' cost, scope and schedules. Powner said another GAO report on IRS technology will be released in May or June.

"We see a lot of room for improvement" when it comes to reporting and budget management, said Powner, adding that the IRS still has a lot of money to play with despite budget cuts.

In the early 2000s, the IRS was obligated to file exhaustive expense justifications with GAO and Congress. That requirement is no longer in place, but Congress took a step toward tighter management with the 2016 omnibus spending bill.

Although that bill slashed $1.7 billion from the Obama administration's IRS funding request, Congress threw the agency a bone in the form of a strictly limited $290 million in additional money that could only be used for taxpayer services, fraud prevention and cybersecurity.

The agency's fiscal 2017 budget request includes $343 million for modernization. It remains to be seen how much of that money lawmakers are willing to appropriate.

Political spotlight helps and hurts

There is, of course, the danger that congressional oversight could turn into congressional micromanagement.

"The biggest challenge...is as we complete a project in modernization and it goes online, like CADE-2, the operation and support for it moves into our operations and maintenance program budget, and that's the one that gets cut," Koskinen said. "So what our IT people will tell you is that they're now stuck because they don't have the ongoing money and ability to keep up with supporting this system."

Legislative mandates and administration priorities also tap the agency's resources. The IRS will have spent roughly $2 billion implementing the Affordable Care Act by the end of the current fiscal year. Powner said it was one of the few government ACA technology projects to function flawlessly from the start. But Republican lawmakers have questioned the IRS' allocation of top talent and funding to the project at the expense of taxpayer services.

"We've got enough systems that we get literally thousands of patches, security upgrades [and] we don't have the resources to implement them all," Koskinen said. "We probably wouldn't implement all of them in any event, but there are some that we don't implement simply because we don't have the resources to do it, so we have to triage which are the most important patches that we've got and which are not, and that's simply a question of resources."

Rep. Gerry Connolly (D-Va.), for one, is fed up. He said constant congressional attacks have harmed IRS modernization efforts as much as funding cuts.

"Of all the federal agencies, IRS is maybe suffering the most in terms of an IT backlog," Connolly said, criticizing Republicans for spending years hammering the agency over the scrutiny of conservative nonprofits.

Powner, on the other hand, said modern congressional scrutiny is more often good than bad. "I don't think there are too many hearings on IT," he added.

Wanted: Real live people

Critics say the IRS could improve its technology standing with better leadership, but on paper at least, the agency already has strong technology leaders. But if it's going to keep those leaders, the agency might need Congress to reinstitute an expired hiring authority.

Koskinen, who was confirmed at IRS commissioner in late 2013, shepherded the Clinton administration through the Year 2000 computer glitch, and IRS CTO Terry Milholland (who essentially functions as CIO) has been a steady hand at the technology wheel since 2008.

Rossotti said Koskinen is a good leader for an agency in a technological crisis, and Powner said the IRS has had a "continuity of strong leadership" over the past decade and a half under Rossotti, Spires and Milholland.

"What [Milholland] wants to do, he has the authority" to do, Powner said, adding that Milholland had more control over spending and technical direction than many other federal CIOs. "It's a real CIO position."

But Milholland was hired under a streamlined critical pay authority, which was granted to the IRS in 1998. It expired in 2013.

The IRS used that authority to hire as many as 40 executives and pay them salaries of as much as $230,000 without going through the typical months-long federal hiring process.

However, the pay is "much less important than the 'streamlined' part," Koskinen said, adding that talented IT professionals won't wait around.

"It's not always just the additional money," Powner agreed. He said getting people into jobs quickly and smoothly helps demonstrate the importance of their work and the existence of the political will to support that work.

Currently, only 14 people, including 10 very senior IT officials, are still employed at the IRS under the expired authority, Koskinen said. But because the authority only granted four-year terms, those people will soon go away.

"They start turning into pumpkins by June of this year," Koskinen said. "By next summer, they're all gone."

Milholland declined to be interviewed for this story, but Koskinen said that although the CTO "would be delighted to stay" at the IRS if the hiring authority is reinstituted, he's not likely to stick around for a pay cut and a trek through red tape.

Koskinen has tried before and failed to get the authority reinstated, but he has pledged to seek a legislative solution, adding, "We've got a lot of support on the Hill."

The measure would need the approval of such frugal committees as the Senate Homeland Security and Governmental Affairs and the House Oversight and Government Reform committees.

Rep. Jason Chaffetz (R-Utah), chairman of the House oversight committee, said last month that the IRS could take advantage of an existing Office of Personnel Management pay-boosting authority instead of seeking the restoration of its own streamlined critical pay authority. After all, Chaffetz said, only four of 800 available OPM authority slots have been filled.

But Koskinen said those small numbers speak to the program's weakness: It offers higher pay, but "it's the opposite of streamlined."

Keep the tax code simple, stupid

The IRS has taken some lessons from the modernization efforts of the past and is now following the slow-and-steady, one-thread-at-a-time approach.

But for those looking for innovative solutions, tax code simplification is a strong possibility.

"As an American citizen and a guy who worked at the IRS and understands it pretty well, I would say a simplified tax code would help," Spires said. "Frankly, the complexity of it is one of the big problems."

If the government were to dramatically simplify the tax code, the IRS would no longer need to rely on the complicated relationships programmed into IMF or design complicated mechanisms to take its place. And with fewer pages in tax-return instruction books, the agency could design more effective public-facing services as the demand for those services plummets.

As Yale University tax law professor Michael Graetz quipped back in 1998: "Restructuring the IRS without rewriting the tax law it administers is like trying to turn a Winnebago around without taking it out of the garage."

Failing simplification of the tax code, Koskinen said the crucial goal is keeping talented people at the IRS. He added that he intends to push for the restoration of streamlined critical pay authority until his term expires in 2017.

As for the story of IRS modernization, the chapters of that book aren't yet written.

"When you're modernized is when you turn the old stuff off," Powner said. And there's no telling when the Kennedy-era IMF will finally be shut down.