IRS Oversight Board and commish bump heads

In a dramatic divergence from the IRS, the IRS Oversight Board last week said the Bush administration’s proposed fiscal 2005 budget will hamstring the tax agency’s efforts to upgrade its systems.

The president has earmarked $10.7 billion for the IRS next year, 4.8 percent more than the agency is receiving this year. Of that, $285 million will fund Business Systems Modernization, a drop of 26.5 percent.

The agency’s systems modernization requires a larger investment to stabilize the program, the board said in a report and in congressional testimony by its chairwoman, Nancy Killefer, to the House Ways and Means Subcommittee on Oversight.

The amount the administration proposed “will adversely affect funding in future fiscal years and force the program to take longer and cost more than necessary,” she said. Although the project has experienced serious and unacceptable delays and cost overruns, “the modernization plan cannot be allowed to fail,” Killefer said.

Modernization money

IRS commissioner Mark Everson told lawmakers the tax agency would be able to continue its modernization and boost enforcement activities without impairing taxpayer service under the president’s 2005 proposal.

The agency has scaled back its modernization projects to better manage them and mesh with the planned 2005 funding. The IRS also has increased the role of specific business units in the modernization projects that affect them and revised its relationship with Prime contractor Computer Sciences Corp. to keep IT projects on track, Everson said.

The board said funding should be set at $400 million, with only $285 million initially made available for spending. When the IRS has corrected the program’s weaknesses, the remaining funds would be released. This would let the IRS treat the systems money like a multiyear fund, which Congress originally envisioned.

Although the president’s request is a meaningful investment, the IRS must be able to plan into fiscal 2006 so it can deliver concrete results for taxpayers, the board’s report said. The overall modernization plan is sound, and its delivery is critical to the future of tax administration, the report added.

“Transition to modernization is a real cost that must be incurred. There are no shortcuts to successful modernization,” the report said.

The IRS still lags on controls and capabilities related to configuration, human capital and contract management, and cost and schedule estimating. Weaknesses in these areas have contributed to cost overruns and delays, said James White, the General Accounting Office’s director of tax issues. Tasks associated with the projects are moving beyond design into development, which is riskier, according to a separate report by GAO.

The IRS expects the first release of its new taxpayer database, the Customer Account Data Engine, later this year. “We’re still shooting for this summer,” Everson said. “We’re pleased with the progress.”

By late 2005, the IRS should be able to proceed with the remaining CADE releases as quickly as possible, the oversight board said in its report. This will minimize problems and the long-term costs of modernization.

Overall, the 2005 budget proposal for IRS seeks $1.6 billion for information systems, including staffing, telecommunications, hardware and software and contractual services. The Oversight Board has recommended $1.7 billion.

Although spending for the IRS has increased under the Bush administration, so has the IRS workload, Killefer said. “It is time to strengthen IRS, not just maintain it,” she said. The board urged a 10 percent increase for IRS’ total budget to $11.2 billion, or $500 million more than the president’s request.

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