Best of times for the IRS?

"Business Systems Modernization: IRS's Fiscal Year 2004 Expenditure Plan"

Is the Internal Revenue Service's $10 billion modernization effort on track or in trouble? W. Todd Grams, the agency's chief information officer, presented an upbeat view last month while Government Accountability Office analysts issued a less optimistic report.

"This is unquestionably the most successful year in the modernization program at the IRS," Grams said Nov. 15 during the annual meeting of the Council for Electronic Revenue Communication Advancement.

Two days later, GAO auditors released a report stating that IRS officials have made improvements, but cost and schedule overruns persist because of weak internal controls. The auditors conducted their review from July through August.

Most observers agree that IRS officials made significant adjustments to the systems modernization program this year, ending the once-real possibility that the project would collapse.

The report states that the cost of the Customer Account Data Engine (CADE) went up by an additional $28 million during fiscal 2004, bringing the project's total cost overruns to $118 million so far. CADE is a database that will replace the decades-old magnetic tape system used to process tax returns. Despite the latest cost overruns, agency officials cite CADE as a recent success story. IRS officials used it to process a small set of 1040 EZ forms this summer.

"This is the first time that we are actually processing tax returns through a different system other than the legacy

system," Grams said. He predicted that the number of returns processed using CADE would double next year and double again in 2006.

It is GAO officials' responsibility to look for problems, said Stephen Holden, a former IRS modernization program director who is an assistant professor of information systems at the University of Maryland-Baltimore County. "They're almost always going to come out with a longer list of things to improve than things that are going well," he said.

Grams has argued that some of the agency's achievements aren't readily visible because they involve setting up the supporting structure. "I don't mean to imply that rolling out new applications will be easier, but we're definitely through the toughest part of that, which is setting up the underlying infrastructure," he said.

Holden said IRS officials responsible for systems modernization have safely passed a critical marker. "At this point, it's not a question of whether it's going to succeed or fail, but the proportion of the original vision that they're going to achieve," he said.

Grams partly attributes the effort's turnaround to his decision to recruit outside information technology executives into the ranks of the agency's modernization managers.

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

Florence Olsen contributed to this article.

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On track or still in trouble?

Last month, officials delivered conflicting opinions on the status of the Internal Revenue Service's systems modernization program. One opinion came from a top IRS executive, and the other from independent government auditors. Those opinions are:

W. Todd Grams, the IRS€ chief information officer: "We€ve delivered four major systems and applications this year. This is unquestionably the most successful year in the modernization program."

A report from Government Accountability Office analysts: "Projects continued to incur cost increases and schedule delays for several reasons, including inadequate definition of systems requirements, increases in project scope, and cost and schedule estimating deficiencies."