IRS Needs More Resources to Update Technology and Fulfill Its Mission

Key Takeaways:

• Lack of budget resources is a major roadblock to IRS IT modernization.
• IRS needs to implement GAO recommendations in order to form a better foundation for managing IT investments and upgrades.  
• Changes in the tax code or other legislation that requires IRS implementation, hinder and stall IRS modernization efforts due to the need to shift resources.

Last week, the House Subcommittee on Government Operations held a hybrid hearing to look at the role the IRS played during the coronavirus pandemic, the financial condition of the IRS, and the state of the agency’s information technology.  Witnesses included Erin Collins from the Taxpayer Advocate Service, Vijay D'Souza from GAO, and Charles P. Rettig, IRS Commissioner.

In April 2019, the IRS released a six-year Integrated Modernization Business Plan estimated to cost $2.3 to $2.7 billion to implement. The IRS is also in the process of implementing the Taxpayer First Act, which is intended to improve the customer experience. However, funding has not been appropriated for either of these efforts.

Rep. Connolly, Chairman of the Subcommittee on Government Operations, pointed out that over the past two decades, Congress has depleted the IRS of critical staffing and technology resources.  IRS staffing has decreased by more than 30% since 2000, and the agency is still using IT systems dating back to the Kennedy Administration.

GAO’s D’Souza testified that IT plays a critical role in enabling IRS to carry out its mission and responsibilities. Stating that the agency relies on information systems to process tax returns; account for tax revenues collected; send bills for taxes owed; issue refunds; assist in the selection of tax returns for audit; and provide telecommunications services for all business activities. Additionally, the IRS relied on IT to process and disburse economic impact payments totaling hundreds of millions of dollars to fulfill its CARES Act responsibilities.

According to D'Souza, IRS IT spending has been steady for the last 10 years, rising slightly from $2.7 billion in FY 2011 to $3.2 billion FY 2020. The agency has generally been able to successfully implemented tax code changes, but there are some IT operational challenges, which hamper the agency’s ability to effectively carryout responsibilities. For example, GAO has reported on deficiencies in information system security controls for financial and tax processing systems, and computer problems experienced by customer service representatives and frontline managers. The IRS is in varying stages of implementing GAO’s recommendations to improve its IT management.

Connolly stated that he planned to “get to the bottom of the legacy [system] problem at IRS.” Connelly plans to have the subcommittee formally request GAO to do a review and comprehensive inventory of IRS legacy systems.

D’Souza told the subcommittee that the number of legacy systems at IRS is likely in the hundreds but it depends on how the agency defines a system. 

He also stated that part of the problem with modernization is the budgeting and appropriations processes. Lapse in appropriations or continuing resolutions causes the IRS to have to continually re-plan and reprioritize, which slows down the process. Also changes in the tax code or the need to distribute stimulus payments draws attention and resources away from IT upgrades.

Rettig was quick to point out that the legacy systems being discussed, still continue to perform fairly well despite the volume of tax returns and other transactions. Tax processing for 2020 set speed records, even with most of the agency's facilities shuttered because of the pandemic.