Government – Baby Steps for IRS Upgrades

As tax day approaches, IRS CIO Todd Grams says returns are beginning to come in on the agency’s investments in an $8 billion modern IT infrastructure.

So far, the gains are small, Grams acknowledges. For example, the IRS will process only 4 million out of more than 200 million individual returns through its Customer Account Data Engine (CADE), a central database of tax information that will eventually replace the 1960s-era master file of taxpayer records. Then again, says Grams, it’s the pursuit of small victories that has enabled the agency to begin turning around its troubled modernization program. “We cut back to where we could manage projects in more bite-size pieces,” Grams says.

Grams asked for and received a 37 percent cut in the budget for new systems last year. He put on hold an internal accounting system because it had less impact on the efficiency and accuracy of the agency’s work than other projects. (For a humorous take on IRS IT, see “Endlines,” Page 76.)

Instead, the agency focused on making improvements to CADE, as well as an electronic filing program for corporate tax returns. In 2005, CADE processed only the simplest returns: 1.4 million 1040EZ forms that were filed electronically. This year, the agency is also accepting the more popular 1040 and 1040A forms from taxpayers with no dependents and no schedules of deductions or investment income.

The agency applied the same baby-step approach to electronic filing of corporate tax returns, mandating it this year for about 11,000 companies with assets of $50 million or more as well as about 1,000 tax-exempt organizations with assets of $100 million or more. Electronic filing makes it easier to process returns, to track irregularities and to conduct audits, which now take five years to complete.

So far, Grams’ approach is getting mixed reviews. The Government Accountability Office agrees the IRS is making progress but notes that the most risky elements of the modernization effort—deployment of systems for processing the majority of tax returns—remains to be completed.