IRS database delay affects refunds

Internal Revenue Service: Interim Results of the 2007 Tax Filing Season and Fiscal Year 2008 Budget Request

Refunds for millions of taxpayers have been delayed for up to several days because of slower processing times as a result of the Internal Revenue Service’s delaying the latest release of its Customer Account Data Engine by two months, the Government Accountability Office said. The latest taxpayer database version became operational in March, GAO said.

“This delay may have a more serious impact on IRS’ ability to deliver future releases of CADE because it caused contention for key resources, but it is too early to know,” said James White, director of tax issues for GAO’s strategic issues team, in a report released April 4.

The IRS had anticipated processing 33 million returns through CADE this year but because of the delay instead will process 20.5 million , GAO said.

CADE, a key processing system, and Modernized e-File, IRS' electronic-filing system for corporate returns, significantly exceeded costs last year, adding uncertainty to future releases. The IRS expects CADE to replace its 45-year old Master File system of taxpayer accounts by 2012. The Modernized e-File overrun was due in part to unplanned infrastructure upgrades to support e-filing for large corporations and tax-exempt organizations.

“The potential for schedule delays, coupled with reported resource constraints and expanding complexity of CADE, increases the risk of scope problems and the potential for deferring planned functionality to later releases,” White said.

Taxpayers are using the Free File program that software companies offer eligible taxpayers at a rate 5.5 percent below last year at this time.

The IRS has improved its Business Systems Modernization management controls and capabilities. But controls and capabilities related to requirements development and management, and post-implementation reviews of deployed BSM project lag. The agency also needs to establish time frames for consolidating and retiring systems.

The IRS, however, has done a better-than-expected job of handling tax law changes that could have added more risk to this year’s filing season operations, including the new telephone excise tax refund, split refund option and other changes that passed Congress late last year. This caused last-minute changes to processing. The IRS also is meeting its goals for improved telephone customer service.

The tax agency has processed 63.5 million individual tax returns as of mid-March, with 77 percent of them electronically filed, 5 percent more than the same time last year. State mandates to e-file are contributing to the increase in federal tax return e-filing.

In another area, the IRS’ 2008 budget requests $11.6 billion for total program operations, a 5.5 percent increase over this year’s continuing resolution. It would increase spending for enforcement, including operational support, by 6.5 percent to $7.2 billion. The expected direct enforcement revenue to be gained is small, about $699 million, compared with the tax gap of $345 billion. The indirect effect on voluntary compliance is unknown, but research indicates that indirect revenue might exceed direct gains.

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