The Price of Modernization and Technology at the IRS

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The Internal Revenue Service (IRS) is six years into their most current modernization effort. It's not their first modernization effort but the Service is now almost fully digitized and improvement appears to be steadily coming their way. Corporate and non-profit filers have been using a modernized E-File and it will be expanded to include the 1040 tax form in the future. The Service's Business Systems Modernization (BSM) program rolls on.

Detractors say the IRS will not achieve their legislated mandate but they have been directed to receive 80 percent of all tax returns by 2007. They received 55 percent of all returns electronically in the 2005 tax year according to John Dalrymple speaking with FCW.com. Dalrymple is deputy commissioner of operations support at the IRS. He can see future taxpayers using their computers to change addresses, make tax payments, or check their account information instead of visiting an IRS office. “Its not [IRS] state-of-the-art technology,” he said. “There's no reason that's not available.”

The IRS has started three modernization efforts since 1968 and this lead to the Clinger-Cohen Act of 1996. Victory is still far away though. Although the Service has turned to the private sector for technical and managerial leadership, all paper and electronic taxpayer data still comes to their Martinsburg Computing Center to become part of the IRS Master File. The 40-plus-year-old computer system processes both business and individual tax returns. The magnetic tape system is past its prime and “as time passes, a catastrophic disruption in our nation's tax system becomes more likely,” as written in a recent IRS oversight Board report cautions.

Replacing the Master File has been an expensive and over-budget target but came closer to reality when the Customer Account Data Engine (CADE) was brought online in July 2004. It handled the easiest returns then and has been gaining the capacity to handle more complex returns each six months with each upgrade. The Master File is projected for replacement in 2012 when CADE should be processing individual tax returns.

Linda Gilpin, the associate chief information officer, leads an office called Enterprise Services at the IRS. It's a new office created to keep the BSM budget and project schedule on track. “You can have the best processes since sliced bread, but if you as an organization do not have the discipline to follow all of those things, then you have issues,” she said in a statement to FCW.com. The office was created after the current IRS CIO, W. Todd Grams, was appointed. “You can call it a lesson learned,” he said in a statement to FCW.com. “I'd call it common sense.” Her office has the Herculean task of seeing that project work is done correctly and finishes on time.

Development of properly completed and tested compliant applications is an important part of the huge technological effort. Application functionality is limited to allow for realistic maintenance and upgrading. “You build a prototype of a system, of an interface for a user, you get their feedbac, you come back, you get more feedback, you go back and do it again,” said Richard Spires, the Service's associate CIO for Business Systems Modernization.

The interative processes don't stop at application development. Projects go through five exhaustive reviews before becoming executable. Consideration of project costs must include total costs plus adjustments and realistic operating expenditures and a margin for delays. Grams said, “On a project this large and this complex, invaribly things won't be perfect.”

The future of the BSM is bright and at the same time is suffering from the blight of past failed efforts. With long memories, lawmakers cut $82 million from their 2005 budget causing project management to cancel projects such as the Custodial Accounting Project, while the CADE Project is central to their efforts. $203 million was appropriated in 2005 while $199 million has been requested for fiscal 2006. This number is the minimum necessary to ensure the project's scaled down modernization track.

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