The Internal Revenue Service was unable to deploy an $8.6 million case management system for matching tax returns with information returns from banks and brokerage firms reporting data such as credit card transactions and the cost basis of trades, according to a new government report.

The report, from the Treasury Inspector General for Tax Administration, noted that Congress enacted information reporting and document matching legislation starting in 2009 to narrow the $450 million tax gap by requiring third-party payors to submit information returns to the IRS reporting income earned by businesses on merchant payment card and the cost basis for securities transactions.

In response, the IRS began creating the software infrastructure needed to implement the Information Reporting and Document Matching program and has developed and deployed four out of five IRDM information technology projects.

However, according to TIGTA, the IRS developed, but did not deploy, its IRDM Case Management System to manage business taxpayer cases with identified underreported income.

TIGTA found that the IRDM Case Management System requirements were not enough to allow planned deployment of the completed system. After a year of testing, IRS officials acknowledged that the system could not effectively process business cases containing underreported income and could not be deployed into the IRS production environment. In the absence of the case management system, thousands of business taxpayer cases containing underreported income could not be processed.

The IRS spent approximately $8.6 million from fiscal years 2009 through 2013 developing the case management system needed for the IRDM program.  Based on the available data from the IRS, TIGTA estimated that unprocessed 2011 cases could have potentially resulted in assessed taxes of $54.9 million.

TIGTA made three recommendations to improve future IRDM case management system development. The IRS agreed with two recommendations and partially agreed with the third, stating that while it is currently determining how the Entellitrak case management solution can meet business needs, significant budget constraints could affect future work on the IRDMCM system.

In response to the report, IRS chief technology officer Terence V. Milholland disagreed with TIGTA’s estimate of $8.6 million of inefficient use of resources, saying that any future case management system would benefit from the preliminary work that was done. He also noted that the IRS has completed four of the systems: data assimilation, data correlation, business master file analytics, and case inventory selection and analytics. Those projects have been deployed and are in production. In January, however, Milholland wrote, the IRS “decided to strategically pause development of the IRDMCM system due to budget constraints and the inability to certify that the ongoing case management functionality deployment would not have an adverse impact on taxpayers.”

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