Bill to Usher IRS into the 21st Century

The 21st Century IRS Act passed the House on April 18th as a bipartisan measure to update IRS information technology infrastructure, improve cybersecurity and combat identity theft. The legislation was introduced by Congressman Mike Bishop (R-MI) to benefit tax payers and also improve IRS IT.

In a statement after the passage of the act, Bishop said, “Since coming to Washington, … stories of ID theft have only become more frequent, and are often compounded by delays due to the IRS’s outdated technology. We live in a world of constantly emerging threats and sophisticated criminals who are probing to gain access to taxpayer information, and the 21st Century IRS Act is an important step to overhaul and modernize IRS IT infrastructure, giving Americans more peace of mind.”

GAO’s most recent audit showed that 64% of IRS’ IT systems are “aged.” IRS has struggled for years to update a critical tax system, the Individual Master File, which dates back to the 1960s. The tax day crash was due to a newer piece of hardware supporting this old system. Plans to update IMF are at least six years behind.

The 21st Century IRS Act would amend the Internal Revenue Code to establish the following IRS requirements:

• Require the IRS to work with the public and private sectors to protect taxpayers from identity theft refund fraud
• Require the Electronic Tax Administration Advisory Committee to make recommendations to prevent identity theft and refund fraud
• Authorize the IRS to participate in an information sharing and analysis center for identity theft tax refund fraud
• Prohibit the disclosure of returns or return information to contractors or other agents for agencies that do not comply with confidentiality safeguards
• Establish the position of IRS Chief Information Officer
• Limit redisclosures and uses of tax return information by individuals designated by taxpayers to receive the information
• Allow the IRS to require additional taxpayers to file returns electronically
• Allow the IRS to pay fees for the use of credit, debit, or charge cards for tax payments if the fees are recouped by charging taxpayers
• Develop and implement the following:
  • Online accounts to provide services to taxpayers and return preparers
  • A process for accepting electronic tax forms and supporting documents
  • An internet platform for Form 1099 filings
  • A fully automated program for disclosing taxpayer information for third-party income verification using the internet
  • Uniform standards and procedures for the acceptance of electronic signatures

Former IRS Commissioner John Koskinen stated in his final press conference in November, “I’m concerned that the potential for a catastrophic system failure is increasing as our infrastructure continues to age. If this failure were to occur during the filing season, we could be looking at a lengthy interruption in processing returns and issuing refunds.”

Luckily, the IRS was able to recover from the temporary outage on tax day rather quickly, but the incident did amplify the need to modernize IRS technology and systems.  Federal IT contractors should monitor the IRS for opportunities to assist with their modernization efforts. 

The current legislation awaits Senate action.