IRS wants $300 million for IT modernization in 2021

The IRS is seeking $300 million to fund new and ongoing IT modernization and security initiatives next year, while the agency's Criminal Investigations Unit wants to hire more agents with technical backgrounds to handle increases in cybercrime and cryptocurrency investigations.

Overall, the tax agency wants $12 billion for 2021, along with an additional $400 million discretionary fund to pay for tax enforcement operations that the agency claims will yield $79 billion in new revenue over the next 10 years.

That includes $300 million for business modernization activities, an increase of $113 million over last year. The money would be put towards a range of IT activities, including $100 million to continue upgrades for the Customer Account Data Engine 2 (CADE2), $64 million for its new Enterprise Case Management System, $15 million for modernized infrastructure such as hardware, software and network resources and services, $5 million for a shared pool of cloud computing resources and $5 million for new Robotic Process Automation software.

On the security modernization front, the budget calls for $20 million for integration and automation of vulnerability and threat management, $14 million for a nest generation Secure Operations Center and $12 million for new identity and access management controls to prevent unauthorized access to taxpayer data.

The CADE2 upgrades this year involve reengineering and replacing outdated code from its predecessor, the Individual Master File. The agency said the work will improve security controls, allow for advanced analytics capabilities and help towards its goal of reducing legacy code in the IRS technology environment by 75% by 2024.

The requested funding is part of the tax agency's six-year, $2.7 billion plan for upgrading its tech and digital security infrastructure. The budget details other modernization milestones, including the addition of 20 data sources to its primary fraud detection system, reducing percentage of its aged infrastructure to 25% and get half of all taxpayers using their online identity verification tools by 2024.

The IRS Criminal Investigations Unit has become increasingly focused on cyber-enabled theft and fraud as criminal organizations and tax evaders increasingly use the Internet and leverage virtual currencies. Tax evasion through the use of cryptocurrencies has seen "a dramatic increase" since 2016, and the agency's previous recruiting focus for investigative work was for candidates with skills and background in accounting, not IT. The Criminal Investigations Unit is asking for 108 additional special agents to man cyber task forces, target large scale criminal organizations and handle investigative work around virtual currency.

"With top coins like Bitcoin and Ethereum seeing increases well above 1,200% in recent years, this remains a large area of noncompliance and risk to the IRS," the budget states. "Internal statistics indicate that very few individuals filed tax returns showing gains generated from the sale or transfer of cryptocurrency, which indicates a large tax gap in this program area."

The unit is authorized to use electronic surveillance, digital forensics and "covert Internet surveillance" in its work, but those capabilities are currently deployed outside the IRS' IT infrastructure and are spread out over dozens of isolated systems and law enforcement applications. It plans to centralize these systems under a new, separate Operational Technology Environment and add an additional attorney focused on cybercrime in each of its six geographic criminal tax areas.

The IRS is still dealing with a workforce that is substantially smaller than it was 10 years ago and expects to hire an additional 7,000 workers between 2019 and 2020. The vast majority of those new hires will work in enforcement, but more than 2,300 will be for operations and support, a category that where approximately 57% work in information technology.

According to the budget, IT spending is taking up an increasing share of operations and support dollars since 2010, something the IRS says is fueled by jumps in electronic filing by taxpayers, higher demand for online services and security concerns. The agency successfully lobbied Congress to pass new legislation last year reestablishing its critical pay authorities, which allows for the quick hiring of IT and cybersecurity staff at higher salary levels.