IRS requests a drop in funding for modernization program

Despite ongoing problems and delays with its multibillion-dollar modernization program to update aging networks, the Internal Revenue Service's requested budget for fiscal 2009 includes a 17 percent cut in the program's funding. The lower budget figure is expected to result in the elimination of at least 25 positions, according to a Treasury Department inspector general.

Comment on this article in The Forum.The IRS requested $222.7 million in fiscal 2009 for the modernization program, known as Business Systems Modernization, a cut of $44.4 million from fiscal 2008, the year the program received a 26 percent boost in funding from fiscal 2007. "This cut is expected to eliminate at least 25 employees," according to a statement that J. Russell George, Treasury inspector general for tax administration, provided the Senate Appropriations Subcommittee on Financial Services and General Government on April 16.

IRS started the modernization program in 1999 after a previously failed effort. Its goal is to modernize IRS technology and to consolidate the more than 400 legacy systems the agency uses. It involves integrating thousands of hardware and software components and maintaining the current tax system to provide better service to taxpayers.

Overall, the IRS requested $11.4 billion for fiscal 2009, a $469.1 million increase, or 4.3 percent more than fiscal 2008. Higher spending on tax enforcement, operations and the agency's Health Insurance Tax Credit Administration drove the increase, while the largest decrease in funding was in the Business Systems Modernization program.

Despite the cuts, the IRS said it would be able to continue to work on the modernization effort, but the Government Accountability Office criticized the agency for not elaborating on its plans. "IRS stated that the requested BSM funding level will allow it to continue developing and delivering its primary modernization projects, but did not provide details on how plans to deliver specific projects or benefits to taxpayers would be affected," GAO noted.

GAO said the IRS has made progress in implementing BSM projects and meeting cost and schedule commitments for most deliverables, but added that several project milestones recently experienced significant cost or schedule delays. The IRS was unable to provide an interview before this article was posted to explain the reasons for the decrease.

"The modernization program should be past the halfway point in calendar year 2008," according to George's statement. "However, the IRS has not completed as many modernization projects as planned, because it has received less funding than initially anticipated and has had difficulties in managing the scope and complexity of the work."

George said the backbone of the modernization effort is the Customer Account Data Engine program, which is supposed to replace the existing Individual Master File processing system, a database of existing taxpayer information.

With CADE, the IRS will be able to update taxpayer information daily rather than once every two weeks, allowing employees access to the latest taxpayer information and reducing delays related to issuing tax returns. CADE has experienced significant schedule delays and cost overruns, according to GAO.

Another key program facing a large budget cut is the Modernized e-File program, which saw a $30 million drop in funding since. fiscal 2008. The project will establish a single, standardized format for filing electronic tax returns. Despite the cut, IRS told GAO that the proposed funding would enable it to continue to develop the program, but didn't to provide details. Still, George acknowledged in his statement that "modernization remains high risk for the IRS."

GAO also reported that the IRS has yet to follow its recommendation to develop a long-term plan for completing its modernization efforts and retiring legacy systems.