by Roger Russell

Washington -- The Internal Revenue Service’s modernization program is fraught with technical and management problems and its electronic filing efforts are behind schedule in gaining market acceptance, according to the body charged with overseeing the agency’s modernization program.

In December, the IRS Oversight Board reported that all ongoing projects in the IRS’s Business Systems Modernization Program are off schedule and over budget, and blamed the program’s prime contractor, Computer Services Corp., of Dallas. In a separate report, the board said that the IRS did not attract as many e-filers as originally expected last season and it’s highly unlikely to reach other near-term e-filing goals.

The oversight board’s modernization program report warns that the nation’s tax collection capabilities are in danger if that program is not improved. It further said that CSC, which has a $5 billion contract as the project’s prime contractor, should be more closely monitored and replaced if matters don’t improve.

BSM problems that it cited include:

● An e-Services plan to provide Web-based products to third parties is $72 million over its original budget.

● A customer account data engine — intended to move taxpayers from the current antiquated tape-based system to a modern database management system — is two years behind schedule and $30 million over budget.

● A replacement to the IRS’s core financial system missed its October 2003 “go live” date and its costs have increased proportionately.

“The IRS cannot continue to operate with the outmoded and inefficient systems it uses today,” the oversight board said in its special report. “Over time, the existing systems will become impossible to maintain and at that point, the ability to administer our country’s tax system will be in grave danger,” Larry Levitan, an oversight board committee chairman, said in issuing the report.

The board did not propose scrapping the BSM program, but rather called on the IRS to assume a greater role in ensuring its success. It suggests that the IRS take greater leadership and ownership of BSM projects, and that it enhance the program’s overall contracting processes. It has also urged the IRS to strengthen its internal BSM resources, suggesting that it consider hiring people from other organizations that have large technology systems, such as the Defense Department.

The board also voiced strong support for the IRS in this matter. Board chair Nancy Killefer said, “The board believes that the overall modernization plan is sound and well-designed,” and that it hopes its recommendations “get the BSM program back on track.”

CSC, in published reports, said that it expected to “continue our efforts in close partnership with the IRS.”

The BSM findings came on the heels of a separate oversight board report submitted to Congress that said that the IRS missed the targeted goal for the number of returns e-filed last year and appears unlikely to meet the goal of 80 percent e-filing in 2007. Both e-filing targets were set in the 1998 federal law that created the modernization program.

Although the IRS was only off by 3 percent in e-filing last year, the oversight board warned that continued growth in this area will be more difficult in the years ahead. “The first 50 million e-filers was relatively easy compared to what it will take to attract the next 60 million or more e-filers needed to meet the 2007 goal of 80 percent,”” the report said, citing research done by the Electronic Tax Administration Advisory Committee.

The 2003 filing season resulted in a 5.8 million increase in e-filed individual tax returns over 2002, for a total of 52.2 million e-filed returns as of June 30, 2003, but the IRS had originally projected that 53.8 million returns would be electronically filed for the entire 2003 tax season.

The board’s report to Congress calls for broader e-filing educational and marketing efforts and for the possible addition of benefits or incentives to e-filers. Suggestions include working with the private sector to enable taxpayers to file via the Internet at no cost.

The board also said that tax practitioners who have converted their practices to all electronic filing should be identified and encouraged to share their experiences with other practitioners at venues such as National Tax Forums.

In addition, it suggests that the IRS activate a partnering program with schools, libraries, community facilities, tax practitioners, software providers and other interested parties to provide free Internet access and assistance in teaching the fundamentals of online filing.

The board continues to support the administration’s proposal to extend the filing date to April 30 for individual taxpayers who file electronically as an incentive. The e-Services system, part of the IRS modernization program, will provide a number of incentives to professional preparers who electronically file over 100 returns, including electronic account resolution, disclosure authorization and transcript delivery.

Regardless of whether more incentives are added, the oversight board’s report notes that “reaching the 80 percent goal [in 2007] at this point requires a major and, most likely, unrealistic change in tax preparer and taxpayer behavior.”

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