Core Tax System Modernization Lagging According to GAO

The IRS is highly dependent on IT systems to carry out its mission of tax collection, refund disbursement, and providing services to U.S. taxpayers, spending $2.8B on IT investments in FY 2020.

The agency is in the midst of executing an IT modernization plan launched in 2019. The plan focuses on the following categories of IT modernization:

• Taxpayer experience
• Core taxpayer services and enforcement
• Modernized IRS operations
• Cybersecurity and data protection

GAO reviewed the performance of five mission-critical IRS IT investments, three in development and two in Operations and Maintenance (O&M):

• Enterprise Case Management (ECM) - Development
• Customer Account Data Engine 2 (CADE 2) – Development
• Web Applications (WebApps) – Development
• Individual Master File (IMF) – O&M
• End User Systems and Services (EUSS) – O&M

The ECM and WebApps programs were within 10% of performance goals for FY 2019 and 2020. The CADE 2 program, which will modernize tax processing, spent 15% less than its budget in FY 2020. The IMF program met all five operational performance goals in FY 2019 and 2020. The EUSS program met three of five goals in FY 2019 and four of five goals in FY 2020.  

Although CADE 2 showed lower costs than expected in FY 2020 and was within 10% of schedule goals for both years, its long-term performance and outlook are worrisome, according to GAO. The CADE 2 investment aims to replace the IMF system, which is 60-years-old and runs on an outdated computer language. The IMF system is critical to IRS operations, serving as the agency’s key data source for individual tax accounts. Maintaining IMF is difficult because it is hard to find people who have experience with the aging technology.  

The CADE 2 program began in 2009. Over the life of the program, IRS has revised program costs, schedule, and scope several times. Between 2016 and 2019, the agency revised these benchmarks seven different times.  CADE 2 Transition State 2, a key program milestone for replacing several IMF functions, has slipped 9 years, from 2014 to 2023. Additionally, the scope of CADE 2 has changed. The program is now only intended to replace core IMF functions, not the entire system. However, in June 2021, IRS reported plans to replace the full IMF system by 2030.

GAO stated that delays in IMF replacement and CADE 2 development are troublesome due to the following factors:

1. IMF is one of the oldest systems in the federal government
2. The system has software written in an archaic language that is no longer taught in school
3. IMF is currently supported by a workforce with specialized skills that are increasingly harder to find 

IRS stated that actions to maximize telework capabilities during the pandemic delayed plans for IT modernization and operations. Specifically for CADE 2, staff initially slated for the project were reassigned to support COVID-19 responsibilities. This resulted in a 7-month delay in the schedule for key development activities.