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The IRS Lumbers Under Beatles-era Tech After Billions of Dollars

The IRS had a technical meltdown four years ago on the most inconvenient day: the last day of the tax filing season. Hundreds of critical IRS processing systems fell for around 11 hours, including the agency’s capacity to accept electronically-filed returns.

On Tax Day 2018, it wasn’t hackers who brought the IRS down. Instead, a storage device underpins the agency’s nearly 60-year-old IT system failed due to a firmware fault.

The use of old systems raises the likelihood of future IT disasters. However, it impedes the IRS daily, leading to two of the agency’s most pressing customer service issues: a backlog of millions of unprocessed tax returns and the agency’s incapacity to handle a torrent of phone calls from the public and their dissatisfied tax professionals.

“We have to account for every minute of our day in our business,” Evan Morgan, a Miami-based principal in Kaufman Rossin’s tax consulting services group, said. “If I agree to complete a tax return and the IRS does anything that causes me to spend more time than I need to, either I have to come back to you and ask for more money—which you won’t like—or I have to eat it and have less profit.”

Commissioner Chuck Rettig joined the IRS in 2018 with decades of experience as a Beverly Hills tax attorney, touting himself during his Senate confirmation hearing as someone who understands the challenges taxpayers confront when interacting with the agency. Congress passed a broad IRS reform measure the following year, requiring the agency to enhance its customer service.

Despite this, the IRS continues to struggle. The Covid-19 pandemic exacerbated long-standing structural flaws in the IRS’s capacity to perform its primary duty of collecting income and enforcing tax laws—problems that money alone cannot remedy. More resources would be beneficial, but whether or not funding is increased, the agency must address the technological, workforce, and public perception issues at the base of its customer service woes.

The IRS currently spends billions of dollars on technology each year. Still, officials say they need more to carry out a long-term strategic plan, including a large-scale initiative to update the system that holds taxpayer data. In this situation, steady long-term financing appears to be the silver bullet for the agency’s technology troubles. Still, it will be years before the agency can shift away from the outdated systems that contribute to its customer service issues.

‘Antiquated’ Space-Age Technology

Employees who handle paper tax returns must manually enter data into the Individual Master File, a 1960s-era system that stores taxpayer information. ACCORDING TO A GOVERNMENT WATCHDOG LAST OCTOBER, the IRS system, one of the oldest still in use by the federal government, is based on an “archaic” assembly language code that is difficult to build and maintain.

The agency’s recruiting issues are exacerbated by its reliance on outdated systems, which makes the process take longer and necessitates hours of training for new workers.

“I’m watching the IRS try to attract individuals who can program their existing technology,” said Natasha Sarin, Treasury’s deputy assistant secretary for economic strategy. “You have to make fixes; you have to make modifications at the beginning of each filing season,” she added. “Finding those people is just tremendously expensive.”

IRS phone service is also being hampered by technological difficulties, with operators failing to keep up with far more calls than they can handle. The IRS has consistently advised the public to examine its website before calling, although the most often used application on the IRS website isn’t beneficial.

According to an April study from National Taxpayer Advocate Erin Collins, the almost 20-year-old “Where’s My Refund?” service is popular—taxpayers used it 629 million times last year. The tool will confirm that a return has been received, accepted, or is on its way. Still, IRS officials informed Collins that it won’t be able to access data sources that include more detailed information, such as whether a return has been marked for a mistake.

“The absence of precise information in the application has forced people to call IRS for live assistance, or in certain circumstances, file a second return, which adds to IRS staff’s workload,” Collins said.

Despite the Treasury Department identifying it as a high priority for modernization, Collins stated the IRS has no plans to significantly enhance the “Where’s My Refund” program, citing a lack of resources, budget, and technical restrictions.

A Major IT Upgrade Is Currently Underway

The IRS is counting on the Customer Account Data Engine (CADE) 2, a long-awaited IT project, to assist it in tackling some of its customer service issues. It’s a vital component of the agency’s long-term IT strategy.

The project, which is expected to deliver advanced individual taxpayer account processing for faster refunds, alerts, and payment postings, has a lot riding on. According to IRS Chief Information Officer Nancy Sieger, it will also allow IRS personnel to access data more rapidly, speeding up interactions with taxpayers.

In an interview, Sieger stated that the project has had a lot of success thus far. She added that early work on the project has reduced the time it takes for e-filing taxpayers to obtain refunds from 4-6 weeks to 7-10 days.

With roughly $25 billion allocated between fiscal 2011 and 2020, the IRS currently spends a significant amount on maintaining and updating its IT systems. However, resources are still an issue even for a project as essential as CADE 2.

The IRS Lumbers Under Beatles-era Tech After Billions of Dollars

According to Sieger, a project to transfer significant legacy system components to the more current Java programming language in CADE 2 is 80 percent complete and should be completed by 2023. Next year, the old and new systems will run in tandem for the next phase.

After then, she added, it’s unclear where the project will go because the agency’s tech modernization program is only 57% financed. A larger budget will be required to fully retire the Individual Master File from the 1960s.

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Sieger added, “We have an obvious, very robust, very current Individual Master File upgrade strategy.” “And we’re hoping for more modernization funds to get started on that plan and truly roll up our sleeves to upgrade the complete individual master file,” she says. We don’t have the money to do that work right now.”

CR’Madness’ Complicates Planning

When it comes to technology, the IRS, like any other organization, cannot just set it and forget it. Stable financing is needed to keep personnel, hire new ones, and ensure that software and systems are updated regularly to keep the agency’s sensitive data safe.

And, because the IRS’s financing is strictly regulated by Congress, politicians must ensure that it has the funds it requires to keep all of its operations functioning efficiently.

“The IRS has a finite amount of resources. “You can’t move money from bucket A to bucket B,” stated Terence Milholland, former IRS Chief Information Officer. “You have to acquire the money that isn’t going to be cut.”

Stability isn’t one of the hallmarks of the annual congressional appropriations process. Lawmakers routinely rely on short-term funding extensions called continuing resolutions to keep the government open while negotiations play out. For fiscal 2022, Congress passed four different continuing resolutions before President Joe Biden, on March 15, signed an omnibus funding bill giving the IRS a $675 million budget boost.

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“If they finally get a budget, they have to spend all they have by the end of September and pray that the thing might get renewed,” Milholland said. “It’s madness.”

Long Road Ahead

The Biden administration wants to super-charge the IRS budget, seeking to devote $80 billion over a decade for the agency to more than quadruple its employees, intensify enforcement of companies and the wealthy, and upgrade its business systems.

That proposal is blocked in the Senate, and the rest of the administration’s hefty tax, climate, and social spending measures. But even if the agency gets the funds it needs, computer enhancements won’t give results in time to fix short-term concerns like the return backlog, according to former IRS Commissioner Mark Everson.

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“What has to happen is the technology has to be enhanced, but that will not happen in the next 60 or 90 days, or between now and the end of the calendar year,” Everson, now vice chairman of alliantgroup, said in an interview. “It’s just not going to happen.”

Everson said the agency is “suffering” because it hasn’t adequately solved its short-term difficulties. He believes that providing IRS personnel with the low-tech resources they need to work their way through issues like the backlog is the most urgent solution.

According to the administration, fixing the IRS’s technology will take time and money.

“It’s not going to happen overnight, even with resources,” Sarin added, “because you’re converting the entire legacy system—the oldest legacy system in the United States government—into the twenty-first century.”

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