IRS is flying blind without plans to modernize legacy tech, watchdog says

The IRS lacks enterprise-wide plans for how it will modernize its legacy technology, the agency’s watchdog says in a new report released last week. 

The tax agency was able to address some of the years-old recommendations from the Inspector General for Tax Administration since TIGTA first made them in 2020 by making improvements to how it tracks its legacy tech. 

But TIGTA isn’t satisfied with IRS planning for how it will shut down or update its old technology, writing that “there is no enterprise-wide program to identify, prioritize and execute the updating, replacing or retiring of legacy systems.”

The report comes as the IRS is spending the tens of billions it received from Congress as part of the 2022 Inflation Reduction Act. As TIGTA has reported previously, IRS technology and data are foundational to the success of many of the agency’s goals to use the funding for a transformation the agency’s commissioner has called a “generational imperative.”

“This vision where taxpayers around the nation can just go online and get everything done — there is a lot of data that needs to be cleaned; technology that needs to be cleaned up; process that needs to be re-engineered. Behind the scenes at the IRS, the technology is old,” IRS Commissioner Danny Werfel has said previously. “There’s just a ton of work that needs to be done.”

The tax agency’s spending on operations and maintenance for IT increased by 35% to $2.7 billion between fiscal 2019 and 2023 — a number that “will likely continue to increase until a majority of legacy systems are decommissioned,” TIGTA says. 

As of the end of last year, the IRS had tagged 107 of 334 legacy systems as “candidates for retirement,” and of those, only two had specific plans for decommissioning, according to the latest watchdog report. 

Since the 2020 TIGTA report — which recommended that the tax agency create an enterprise-wide program to update or retire its legacy tech — the IRS set up a Technology Retirement Office in 2021, but then closed it in early 2023. The inspector general wants the agency to either re-establish the office or create a similar program. 

In comments included in the report, IRS CIO Rajiv Uppal pointed to the agency’s Transformation and Strategy Office that was created after the IRA. It has an executive dedicated to each objective the IRS has under its strategic operating plan made after the passage of the IRA. Uppal also pointed to an advisory committee overseeing IRA projects.

The tax agency also has a new legacy modernization strategy, Uppal writes, where it is focusing on a “platform and product model” — an operating model organized around user experiences where centralized platforms provide common functions, as McKinsey describes  — instead of aiming to rewrite and retire all IRS legacy systems. 

This isn’t the first time oversight officials have called out the IRS for a lack of planning.

In March, the Government Accountability Office also noted the lack of a detailed technology agenda at the IRS, which it said could derail the agency’s efforts to make its big-picture transformation goals a reality.

The implementation roadmap for the IRS strategic operating plan issued in May didn’t include the tech objectives under the IRA. GAO has a remaining open recommendation from that report that the IRS include the tech objective in that roadmap. 

Uppal wrote in the most recent TIGTA report that a forthcoming, updated roadmap for calendar years 2025 and 2026 will include the technology objective.

“The IRA transformation roadmap will reflect the implementation of enterprise common platforms for capabilities such as case management, case selection, and service management,” the IRS CIO wrote. “As priorities are determined by the Transformation Steering Committee, each platform team will incrementally deliver new capabilities that will replace relevant legacy capabilities and functionalities over time.”

In some cases where “common platforms are not applicable,” the IRS will “continue to develop new capabilities that will enable incremental legacy retirement.” That includes individual and business tax processing, the agency says, which will have associated strategies and plans in IRA roadmaps.

In another report in February, GAO noted that many IRS modernization initiatives didn’t have timelines for getting rid of legacy systems. 

The latest report from TIGTA also found some mistakes with how the IRS tags its tech as legacy and left a related recommendation to ensure that the agency accurately identifies all of its legacy technology in its authoritative source of tech and business environments. The IRS fully agreed with that recommendation.