IRS: It's the best modernization year

Internal Revenue Service officials are completing their best year in the recent history of the tax systems modernization program, W. Todd Grams, the IRS' chief information officer, said today in a speech to tax software and tax preparation officials.

Speaking at the annual meeting of the Council for Electronic Revenue Communication Advancement, Grams said 2004 would be remembered as the year that the IRS delivered four modernized tax systems. They are the Customer Account Data Engine, a modern database system for processing taxpayer returns; modernized e-filing for corporate income tax and tax-exempt organization returns; and the Integrated Financial System, an internal financial accounting system.

The functionality of the financial accounting system will not be fully enabled until January 2005. Grams said IRS officials had planned to reach that goal in 2004, but he added that IFS was the only project that missed its deadline this year.

Unlike previous years, 2004 provided relatively stable funding for systems modernization, Grams said. This year, only 4 percent of budgeted funds were shifted during the year.

By contrast, in 2002, 33 percent of the budgeted funds were shifted among the different modernization components, which made it difficult to set goals and complete them, Grams said.

In recapping the problems that have plagued the systems modernization effort, Grams said the IRS this year solved one of the major difficulties by hiring outside information technology executives with commercial or other experience in managing large systems modernization projects.

The agency made a mistake by putting its tax administration "superstars" in charge of modernization, Grams said. "The jobs didn't match their strengths," he said, "and that led to some of the problems we had in the first four years."

By the end of this year, Grams said, the tax systems modernization effort will be led by "five outsiders and three insiders," as compared with the previous mix of seven insiders and one outsider.

IRS officials' decision to put its modernization contractors under fixed-price, performance-based contracts instead of cost-plus and time-and-materials contracts contributed greatly to the progress made in 2004, Grams said. Under the old contracting approach, he said, "poor performance on the contractors' part meant they got more money."