Success at IRS? Systems coming online at last

Having brought four systems online over the past few months, the IRS and contractor Computer Sciences Corp. want to build on the momentum they have gained in the Business Systems Modernization program.

CSC is considering increasing the number of returns processed by the Customer Account Data Engine, the massive database of taxpayer information that is the cornerstone of the modernization effort. The contractor also wants to retain filers whose returns CADE has already processed, even if they no longer meet the program’s criteria.

CADE began processing a limited number of simple returns in July. The IRS also brought its Integrated Financial System online this month to handle core accounting, post debits and credits, and manage the budget. And the tax agency began offering electronic services for returns from corporations and tax-exempt groups.

The IRS expects CADE to process about 2.5 million Form 1040EZ returns in 2005 from taxpayers who owe no taxes and have not changed their address in the past year.

“That number will double exponentially in 2006 and the year after that,” CIO Todd Grams said at a recent conference sponsored by the Council for Electronic Revenue Communication Advancement in Arlington, Va.

At that rate, it will still take several years to be able to process most EZ filers. In total, 25 million taxpayers are eligible to file 1040EZ returns.

But filers whose returns are processed by CADE now may not fit the criteria the next year because of an address change. Adapting the database to continue to process returns from filers who change addresses would let the IRS retain more returns in CADE, said Jim Sheaffer, CSC’s vice president and general manager of the Prime Alliance.

The company’s strategy has been to expand CADE processing by increasing the number of forms it can handle, such as 1040EZ, 1040 and 1040A.

“There’s an alternative strategy to look at by putting more simple returns regardless of form into CADE and therefore having more taxpayers be eligible to be processed through CADE,” Sheaffer said. “It’s just rearranging what we do but not spending more money or building larger project teams.”

Implementing such a strategy would depend on factors such as budget and other resources, he said.

Tax filers whose returns are processed through CADE will receive their refunds up to a week sooner than returns handled by the legacy Master File tape system. CADE transmits data from returns daily while the Master File transmits weekly, Grams said.

“This is the most successful year in Business Systems Modernization,” he said. The IRS is now doing final enterprise testing of CADE Version 1.2 for the 2005 tax year, which begins in January. CSC revised the relational database to reflect 2004 tax law changes.

CADE and other major modernization projects have suffered years of cost overruns and schedule delays. “We believe the problems of the past are behind us,” Sheaffer said.

Charles Rossotti, a senior adviser at the Carlyle Group in Washington and a former IRS commissioner, said the tax agency and CSC made important steps forward by deploying CADE, as well as the new financial system and e-services. “The amount of real, honest, meaningful systems work exceeded what I have seen in any given year. For the taxpayer database, they had to put in all of the infrastructure, security and interfaces. Getting that in was a monumental achievement,” he said.

The Integrated Financial System is handling several essential finance functions for the tax agency. The IRS has tested other systems to interface with it, such as travel, procurement and requisitions processing, which will be switched on gradually, said Robert Albicker, IRS deputy associate commissioner of modernization for systems integration.

Beginning next month, the IRS will use the new system to produce W-2 and 1099 forms for employees and contractors to accompany 2004 tax returns.

IFS will be fully operational by Jan. 31, when it will handle all major accounting tasks, Sheaffer said. The system will compile a combined financial report for October and November by mid-December.

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