Stuck in the mud: IRS spins its wheels on electronic modernization

The number of taxpayers filing electronic federal tax returns has increased steadily since 2005, accounting for more than two thirds of returns during the 2009 filing season. However, as the Internal Revenue Service enters the 2010 filing season, it is curtailing development of a major element of its modernization program and rethinking its strategy for delivering electronic services.

The Customer Account Data Engine (CADE), a part of the IRS Business Modernization Program that is intended eventually to replace the legacy Master File processing system, processed 40 million returns in 2009, producing taxpayer refunds from one to eight days faster than the older system. CADE originally was to be completed by 2012, but increasing complexities have extended that date.

“After over 5 years and $400 million, CADE is only processing about 15 percent of the functionality originally planned for completion by 2012,” a Government Accountability Office report says.

Each successive release of the system was expected to process more complex returns, but several technical challenges in the system had not been dealt with. The IRS estimated that full implementation would not be achieved until at least 2018, and possibly as late as 2028.

After realizing how much remained to be done, the IRS decided to stop development of new CADE functionality and rethink its strategy for modernizing individual taxpayer accounts, the GAO report said. To handle the expected volume in electronic tax return filing for 2010, the IRS will upgrade its legacy Individual Master File system to handle returns not being processed by CADE more quickly.

Electronic processing of returns is becoming increasingly important to the IRS' performance during the tax filing season as a growing number of taxpayers are filing returns electronically rather than on paper. In 2009, 94 million returns were filed electronically, 68 percent of the total 139 returns filed, compared with 65 million in 2005. The service attributes the increase in part to a 19 percent increase in people filing returns from home computers, probably because of the elimination of a separate fee for electronic filing. Some paid preparers also have eliminated fees for electronic filing.

This provides benefits to both the taxpayer and the IRS.

“Compared to paper, electronic filing allows taxpayers to receive refunds faster, is less prone to transcription and other errors, and provides IRS with significant cost savings,” the report says. “IRS estimates the cost savings of electronic filing [in 2009] to be $2.71 per return over the costs in 2008.”

The service has a goal of having 80 percent of returns filed electronically by 2012. CADE is part of an effort improve the efficiency of electronic processing.

Because CADE posts information daily, direct deposit refunds are issued one to five business days faster than with the Master File system, and paper checks are issued four to eight business days faster. CADE processed 30.3 million returns in 2008, up sharply from the 11 million returns processed in 2007 and exceeding the agency’s goal for 2008 of 30 million returns. The number increased 31 percent to 40 million in 2009, but is expected to stay there for 2010.

The IRS plans continue daily processing of about 40 million taxpayer accounts currently on CADE throughout the current tax filing season, while converting the Individual Master File system from weekly to daily processing for about 100 million remaining accounts. The service also plans to develop a new database to be the authoritative source of taxpayer account information for daily processing by 2014.

The IRS established a program management office to guide the implementation of a new strategy and is developing a preliminary road map and high-level cost estimates for the effort.

The agency also is continuing to develop new customer service features on its Web site at www.irs.gov, that include:

  • The “How Much Was My 2008 Stimulus Payment” application and the recovery rebate check calculator to determine eligibility for recovery rebate credit and the appropriate amount to claim.
  • The Online Payment Agreement application that provides taxpayers with an online, interactive payment agreement process that reduces the need for contact with an assister and eliminates paper processing.
  • A “What if” page that describes different scenarios for taxpayers on the possible impact of loss of a job, house, or other events on the taxpayers ability to pay taxes.
  • Information on the new tax credits provided in the Recovery Act with details on claiming the first-time homebuyer credit and tax breaks for vehicle purchases, as well as other changes.

Total Web site visits were down 19 percent in 2009 from 2008, but GAO concluded that the volume of traffic in 2008 was anomalous because of the traffic generated by stimulus-related features on the site that year.

The Keynote Systems Government Index of top 40 government Web sites, ranked IRS fourth and fifth in response time during each week of the 2009 filing season, compared with first or second during the 2008 filing season.

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Reader comments

Fri, Jan 15, 2010 Dave

Better yet, do this: Taxable Income = Personal Income - National Poverty Level. If TI is less than 0, you get paid that amount. This replaces all other forms of welfare. If TI is greater than 0, you're taxed at 10% of TI.

Fri, Jan 15, 2010 Michigan

Agree with Tennessee - it's thae constant meddling that keeps things a moving target and adds significantly to the complexity issue. I see this even in my small world as an individual taxpayer and can just imagine the multiplication of complexity to "all of us".

Fri, Jan 15, 2010 oracle2world

One goal of any tax system is to be always changing and mostly incomprehensible. If the IRS could computerize the tax code, it would mean all the anomalies and inconsistencies were resolved, which is just not going in the right direction of obfuscation. So forget the IRS ever making much progress on automated processing of returns.

Wed, Jan 13, 2010 Tennessee

It's a wonder they have a system that works at all with the regulations changeing every year from congressional meddling. A flat-rate, no-deductions tax system with a total exemption if your household makes less than 1.25 times the local poverty level would go a long way towards increasing tax revenue/compliance as well as simplifying filing and the IRS' processing of returns. But then where would the elected get their campaign funds?

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