Tax Systems Modernization

For more than a decade, the Internal Revenue Service (IRS) has tried to improve service to taxpayers by modernizing its antiquated tax-processing systems, which the agency acknowledges to be "fundamentally deficient." However, IRS' tax systems modernization efforts have been plagued by management and technical weaknesses. To address these problems, IRS requested, and Congress established, a $506 million information technology investments account. IRS cannot spend the money until it submits an expenditure plan to Congress. This report presents the results of GAO's review of IRS' second expenditure plan, which reports on IRS' progress against commitments made in its first expenditure plan submitted last year. GAO discusses (1) IRS' progress in meeting the commitments in its first expenditure plan, (2) whether the plan satisfies the conditions spelled out in Treasury's fiscal years 1998 and 1999 appropriations acts, (3) whether the plan is consistent with GAO's open recommendations on IRS' systems modernization, and (4) whether GAO has any other observations on IRS' modernization efforts.

GAO noted that: (1) IRS met relatively few commitments in its $35 million first ITIA expenditure plan, even though the IRS later received an additional $33 million and nearly 5 months of extra time to accomplish the goals set forth in the plan; (2) notwithstanding IRS' progress to date, GAO believes that its second expenditure plan satisfies the legislative conditions placed on the use of ITIA funds, and it is generally consistent with recommendations contained in GAO's earlier reports for strengthening its modernization management capability before building new systems; (3) in particular, the second expenditure plan places appropriate emphasis and priority on implementing and updating the modernization blueprint in light of recent organizational restructuring and ongoing business process reengineering as well as technology advances; (4) also, the plan provides for fully implementing the Enterprise Life Cycle and related software acquisition and investment management processes and slowing investments in new systems until these management controls are established; (5) as was the case with the first plan, the key to IRS' success will be whether it effectively implements the second expenditure plan; (6) to improve on its performance in implementing the first plan and to establish the much needed management and technical foundation for modernizing its systems, IRS will need to adhere to its stated commitment of first establishing the institutional management and technical processes and the architecture artifacts that are absolute prerequisites to building a portfolio of interrelated systems that deliver promised functionality and performance on time and within budget; (7) to establish its modernization management and technical foundation capabilities and refrain from building systems until it does so, IRS has recently initiated actions, as described in the second expenditure plan, to redirect and restructure its modernization effort; and (8) until it has completed these actions, it will continue to lack key modernization and technical controls, such as complete and enforced architecture, fully implemented life cycle methodology, clearly defined contractor roles and responsibilities, and fully implemented investment management controls.