IRS seeks filing and payment compliance

Tax dodgers, beware. The Internal Revenue Service is going after scofflaws with renewed vigor in an attempt to close an annual tax gap of at least $257 billion — more than the gross domestic product of Austria.

Agency officials are hiring more tax enforcers, requesting additional congressional funding for more enforcement activities and starting the Filing and Payment Compliance (F&PC) system, the IRS' next major modernization project.

F&PC replaces 20-year-old tax enforcement technologies that run 30-year-old processes. The IRS' information technology shop will unveil the new system in three stages, each covering a broad area of IT functionality underpinning in-the-field and telephone collections.

The system's first release will come in January 2006, tentatively followed by annual releases of the remaining two stages. F&PC would fulfill a portion of the American Jobs Creation Act of 2004, which allows private-sector companies to collect some overdue taxes on behalf of the IRS.

"We have enough collections backlog, and with our staffing, we can't do all the work," said Richard Spires, associate chief information officer for business systems modernization at the IRS.

Unions and some members of Congress oppose the move, but IRS officials have already awarded a $2.7 million contract to CGI-AMS for the underlying software.

"Even by IRS' own numbers, it is much more cost-effective for IRS workers to do this," said Colleen Kelley, president of the National Treasury Employees Union.

The second F&PC release would replace aging systems at IRS telephone collection centers. The third would replace IT systems for field operations.

Under the CGI-AMS contract, the company will provide services and build software for the first version of the first release. The IRS will conduct another competition to determine an F&PC software integrator. Spires added that the agency will speed the configuration of new versions whenever possible to add new functions more than once a year.

In addition, IRS modernization officials are contemplating purchasing an analytics tool system to better manage the flow of collection cases. "Right now, we tend to treat everyone the same," Spires said. Tax delinquents get three written notices asking them to pony up. Then come the phone calls, and then the knock on the door from a field agent.

But maybe a case "should go right to the telephone," Spires said. "Forget the notices — that's not going to help us."

A decision analytics tool would help agents prioritize cases based on the amount of revenue at stake, he added. IRS officials plan to start examining an analytics tool procurement after the first release of F&PC is complete. But "we might change plans, depending on the business needs," Spires said.

F&PC began at an inauspicious moment, however, as Congress reduced the modernization effort's fiscal 2005 budget by $82 million, to $203 million. The system's first-year funding of $6 million has come entirely from a central management reserve.

The IRS has requested approximately $10 million for F&PC for fiscal 2006, but the agency still may have to rely on management reserve funds for the next couple of years, Spires said.

Eventually, the addition of enforcement agents will decrease efficiency if the underlying IT system is frequently unresponsive. The new emphasis on funding enforcement activities requires a balance between spending money on enforcement and modernization, said John Dalrymple, the IRS' deputy commissioner for operations support.

"Over time, if you don't invest in these enforcement IT activities, then you'll not get as big a return on your enforcement investment," Dalrymple said.

The operations side of the IRS agrees, he added. "We're starting to hear from the operators that they're getting what they need, but they want to make sure that there aren't too many more cuts on the support side," he said. "That's new."