oversight

Tax System Modernization: IRS' Challenge for the 21st Century

Published by the Government Accountability Office on 1990-02-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                    TAX SYSTEM
                                    MODERNIZATION
                                    IRS’ Challenge for the
                                    21st Century




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           United States
           General Accounting Office
           Washington, D.C. 20548

           Information Management and
           Technology Division

           B-227683
           February 8,199O
           The Honorable J. J. Pickle
           Chairman, Subcommitteeon Oversight
           Committee on Ways and Means
           Houseof Representatives
           Dear Mr. Chairman:

           In responseto your September29,1989, request, this report discusses
           the progress of the Internal RevenueService’s(IRS)Tax System Modern-
           ization (TSM) program in achieving a fully automated and modernized
           tax processingsystem. Specifically, you requestedthat we assess(1) the
           extent to which the program will meet its overall goal of improved ser-
           vice to taxpayers, and (2) whether individual componentsare guided by
           a strategic plan and have discrete, measurable deliverables.

           The modernization program is characterized by high expectations and
Synbpsis   unanswered questions. IRShas spent about $120 million on TSM since its
           inception in 1986 and expects to spend several billion dollars more to
           complete it. Although the program has made significant progress since
            1986,the extent of this progress is difficult to measurebecausethe
           nature and scopeof the program has not been clearly articulated. At
           present, the program is a collection of independent modernization
           projects, most of which are intended to upgrade existing systems or pro-
           vide additional computer capacity to meet near-term requirements.
           While many of these projects should yield badly neededimprovements
           to IRStax processingcapability, the Service needsto clarify how they
           will fit together into an integrated system that will meet the agency’s
           needsinto the next century. This uncertainty stems in large part from
           the fact that IRSdoesnot expect to complete its Master Plan for TSM until
           the Fall of 1990. Without the road map that this plan is intended to pro-
           vide, it has been difficult for IRSto articulate to the Congresswhat
           projects will comprise TSM and how these projects will cometogether to
           meet IRS’ stated long-range goals for modernization.
           The Commissioner has recently demonstrated his commitment to effec-
           tive managementof information technology by creating the position of
           Chief Information Officer. This presents an opportunity for IRS manage-
           ment to take a fresh look at the status and future of the modernization
           program. To his credit, the Commissioneris exercising leadership in



           Page 1                             GAO/IMTECBO-13IRS Modernlzatlon Challenge
                     refining IRS’vision of the modernization. In the process,he is also seek-
                     ing to addressmany of the unanswered questions that have surrounded
                     TSM.
                     To help in these efforts, this report provides our views on TSMand offers
                     a framework for reducing the risks inherent in this critical and costly
                     undertaking. This framework was reinforced at a recent GAO-sponsored
                     symposium involving leaders from private industry, the executive agen-
                     cies, and the Congress.IRSparticipated in the symposium and has enthu-
                     siastically supported the managementframework. In general, this
                     framework emphasizesthe significance of committed leadership, a
                     clearly articulated vision of how technology can be used to enable the
                     agencyto achieve its objectives, a concrete plan for implementing this
                     vision that transcends changesin leadership and management,mile-
                     stonesthat establish accountability while providing a clear means of
                     measuring progress, and the right people to make the vision a reality.
                     IRSgenerally agreed with the accuracy of this report and highlighted its
                     progress in implementing the managementframework that resulted
                     from the symposium. IRSalso noted four challengesto the modernization
                     beyond those discussedin this report. We recognizethese issuesas being
                     endemic to most major government modernization efforts and believe
                     that the managementframework offered in this report can help IRSover-
                     comethese challengesto a successfulmodernization.
  I




TShk An Historical   The IRStax processingsystem has remained virtually unchangedsince it
                     was automated in the early 1960s.This system processestax returns
Perspective          using design conceptsfrom the 19609,such as batch processingand
                     magnetic tape storage on reels. As a result, taxpayers and IRSemployees
                     alike have to deal with a tax processingsystem that relies heavily on
                     paper-driven, labor-intensive processes.Specifically, (1) employeesdo
                     not have direct accessto its master files but must request paper docu-
                     ments, (2) cross-country shipments of magnetic tapes are used to trans-
                     mit information between computers instead of modern tele-
                     communications, and (3) systems are not integrated to share informa-
                     tion Consequently, data input and retrieval often take several weeks,
                     making service to taxpayers slow and unreliable. IRSexpects the volume
                     of tax returns to increasethrough the 1990s from 208 million in 1990 to
                     230 million by 1996; modernizing its tax processingsystem is critical if
                     IRSis to operate in a world of increasing workloads and limited
                     resources.



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..   :

                              B.227333




                             Recognizingthe limitations of the tax processingsystem, IRSset out in
                              1968 to redesign the entire system to take advantage of more advanced
                             technology. This redesign effort was abandonedin 1978 becauseIRSwas
                             unable to resolve congressionalconcernsabout the cost of the redesign
                             and the security of taxpayer information. Another modernization pro-
                             gram was initiated in 1982. From 1982 through 1986, IRSpursued three
                             approachesto this modernization, yet none of these progressedbeyond
                             the planning stage.These failures resulted in part from repeated
                             changesin leadership at IRSand Treasury, a lack of clear management
                             responsibility for the program, and the need for enhancedtechnical and
                             managerial expertise within the agency’sexecutive ranks.
                             Late in 1986, IRS began its third major modernization effort. By March
                              1988, IRS had approved a managementplan that was intended as a basis
                             for modernization. The plan was updated in March 1989. In this update,
                             IRS outlined a modernized environment in which its employeescould
                             accessall neededtaxpayer information directly from computer termi-
                             nals, thereby providing faster, less costly resolution of taxpayer ques-
                             tions and problems. The agency has indicated to the Congressthat the
                             modernization effort, known as TSM, could cost several billion dollars
                             and take another 10 years to complete.

                             IRS’ current modernization approach is surrounded by uncertainty. Mak-
TSM Today: High              ing the transition from a tax processingenvironment basedon 1950s
Expectations and             design conceptsto a state-of-the-art processingenvironment is neither
Unanswered Questions         simple nor rapid. For modernization efforts of this sort to be successful,
                             they must be based upon and directed by a clearly marked road map
                             detailing how the ultimate vision can be achieved.To date, IRS still needs
                             to (1) complete its analysesof how it wants to do businessin the future,
                             (2) resolve system integration issues,and (3) identify a clear and consis-
                             tent set of projects that will comprise TSM. In addition, IRS needsto
                             clearly distinguish between those projects that are primarily intended as
                             near-term improvements to keep the current system operating and those
                             that are designedto meet the modernization’s goals. IRS acknowledges
                             that resolving these issuesis important to provide the Congress,the Ser-
                             vice, and the oversight agenciesthe information they need to effectively
                             guide the modernization effort.


TSM Will Not Be Fully        The status of TSM is difficult to assessin large part becausethe moderni-
Defined Until Late in 1990   zation has not been fully defined. While IRS’ 1989 modernization man-
                             agementplan generally describesthe objectives for modernizing IRS and


                             Page 3                             GAO/IMTEC30-13 IRS’ Modernization Challenge
                           B-227633




                           outlines its planning process,the detailed analysis required to imple-
                           ment the modernization will not be available until completion of the TSM
                           Master Plan, currently scheduledfor September 1990.
                           The Master Plan, as currently conceived,will identify the specific IRS
                           functions to be performed, define the automated systems required to
                           perform these functions, describe how these systems will share data,
                           and outline the specific projects neededto implement the modernization.
                           All of these componentsare necessaryto fully define TSM. IRS is cur-
                           rently assessingwhether the Master Plan can be completed before Sep-
                           tember 1990.


TS$l Business Assessment   An essential step in completing the Master Plan is assessingthe business
Unfinished                 needsof IRS. In other words, before heavily investing in modernization
                           projects, IRSshould determine precisely how it will provide taxpayer
                           servicesand what organizational structure and systems will be needed
                           to deliver these services.

                           IRS has undertaken a series of businessarea analyses that are intended
                           to examine the businessfunctions, information requirements, and data
                           structures for each IRS businessarea. According to IRS’ Strategic Data
                           Plan, these analyses are necessaryto complete the definition of IRS’ busi-
                           nessrequirements for automated information systemssupport, The busi-
                           nessareas under review include functions such as processingtax
                           returns, reviewing tax returns, and collecting outstanding taxes.
                           The results of these studies, if adopted, could changethe way IRS
                           choosesto conduct businessin the future. The agency, for example, may
                           decide to changeits organization, or realign the responsibilities of its
                           current organizational units. It is important, therefore, that these stud-
                           ies be completed and consideredin planning TSM. The most urgent of
                           these studies are currently scheduledto be conducted while the TSM
                           Master Plan is being developed and may not be completed before the
                           Master Plan is finished in 1990.
                           In commenting on this report, IRS said that the businessarea analyses
                           are not critical to the completion of the Master Plan. According to IRS, its
                           Global Baseline User Requirements analysis, Strategic Data Plan, and
                           systems architecture analysis are an adequate foundation for develop-
                           ing systems specifications for the Master Plan. IRS intends to use the busi-
                           nessarea analyses as a secondstep, to define detailed requirements for



                           Page 4                              GAO/IMTJXXO-13 IRS’ Modernization Challenge
                             B227683




                            software specifications. IRS believes that there is risk involved in delay-
                            ing the Master Plan until the businessarea analyses have been
                            completed.

                             While we agree that the businessarea analyses will be useful in develop-
                             ing systems specifications, we continue to believe that they should also
                             be considered in planning WM. The three studies IRS cites may not be
                             adequate for TSM planning. First, the Global Baseline User Requirements
                             is an inventory of the information needsof parties inside and outside
                             ms-ranging from oversight agenciesto IRS program offices-that will
                             rely on TSM for analysis, information, and processingfunctions. This
                             study doesnot analyze the businessfunctions and data needsof IRS, a
                            necessarystep in designing the modernized architecture. Second,the
                            Strategic Data Plan is a high-level document identifying IRS’ general busi-
                            nessfunctions and information requirements. It lacks the detail needed
                            to provide a clear picture of how IRS carries out its mission. In fact, the
                            plan highlights the necessity of completing the businessarea analyses
                            for this purpose. Third, the systems architecture analysis identifies,
                            describes,and evaluates (1) alternate ways that IRS could operate within
                            ‘EM and (2) the hardware and software architecture neededto support
                            these alternatives. However, it is basedupon IRS’ existing organization
                            and systems, which may not be structured to take full advantage of the
                            potential efficiencies of modern technology.
                            In light of the limitations of these studies, it is important that the busi-
                            nessarea analyses be used in planning TSM. If IRS usesthe businessarea
                            analyses only for defining software specifications, it is foregoing an
                            opportunity to take a fresh look at how it doesbusinessand, according
                            to the Strategic Data Plan, risks developing systems that lock IRS into its
                            current way of doing business.Accordingly, IRS should consider their
                            results as early as possible in TSM planning.


System Integration Issues   As part of the Master Plan, IRS intends to identify the projects that com-
Unresolved                  prise TSM and describe how the individual projects will be integrated.
                            However, IRS is currently proceeding with several independent projects
                            before demonstrating how they will be connectedinto an integrated sys-
                            tem that will enable IRS employeesto share data electronically.

                            IRS believes that the independent projects now underway will bring suf-
                            ficient benefits to justify developing them before the integration plans




                            Page 6                               GAO/IMTEGQO-13lRS’ Modernimtion Challenge
                       B-227682




                       have been completed. We agreethat many of these projects should pro-
                       vide badly neededimprovements to IRS’ tax processingoperations. How-
                       ever, by developing these projects without a clear plan for their
                       integration, IRS risks having to make potentially difficult and costly sys-
                       terns modifications to allow data to be easily exchanged.IRS is working
                       on plans for connecting and integrating the projects that will comprise
                       TSM and will include these plans in the Master Plan.



TSM Projects in Flux   BecauseIRS has not finished the road map-the ‘EM Master Plan-the
                       automation projects comprising TSM have been in a state of flux for the
                       last few years. For example, in fiscal year 1990, the modernization pro-
                       gram was composedof 17 projects, as compared to 6 projects in fiscal
                       year 1989. In addition, one of the projects that had been identified as
                       part of TSM in 1989 was dropped in 1990. As we testified in April 1989,’
                       the renaming, consolidating, splitting, and unclear identification of
                       projects prevented us from tracing projects over previous years.

                       Plans for fiscal year 1991 reflect further project shuffling. Although fis-
                       cal year I991 information was not officially available from IRS, as of
                       December31,1989, agency officials have said that there will be eight
                       projects. Sevenprojects that were classified as TSM in 1990 will be
                       dropped from the 1991 program, and two new projects will be added.
                       One project appearing among the 1991 projects was excluded from the
                       1990 projects, but it had been included for 1989. Table 1 shows the
                       shifts in the TSM projects that have occurred from fiscal years 1989
                       through 1991. Descriptions of these projects are contained in appendix I.
                       According to IRS, these shifts reflect the neededrefinements that are
                       occurring in the Service’sdefinition of modernization as planning pro-
                       gresses.The projects identified for fiscal year 1991, according to IRS,
                       focus on such activities as automating paper tax returns and are activi-
                       ties that would need to be done under TSM regardless of the final design.
                       Unfortunately, the lack of a master plan has made it difficult for IRS to
                       provide a clear and consistent explanation of the relationship between
                       these projects and the goals of the modernization.




                       ’ BudgetaryImplicationsof IRS Tax SystemModernizationand AutomatedExaminationSystem
                       Efforts (GAO/T-m-89-4,      Apr. 4,1989).

                                                                                       .
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                                         B-227633




Table 11:Annual Changes in Designation
of R%+l Projects                                                                                                       Fiscal Year
                                         Projecta                                                         1989             1990                 1991
     I                                                                                                                                                  b
                                         Auto Pipeline                                                                           X
     /                                   Automated Underreporter Project                                      X                                         c
                                         Automation of Non-Master File                                                          X
                                         Check Handling Enhancements and Expert Systems                                         X                       b

                                         Corporate Files On-Line                                                                 X                  X
                                         Corporate Systems/Mirror Imaging Acquisition                                                               X
                                         Digital Imaging/Optical Disk Storage System                          X                 X                       b

                                         Electronic Federal Tax Deposit System                                                  X                       b
                                         Electronic Filing Project                                            X                 X                   X
                                         Information Systems Development Mission Support                      X                 X                   X
                                         Integrated Input Processing System                                                     X                   X
                                         Integrated Telecommunications Network                                                  X
                                         Local Automation Support                                                               X
                                         Migration to State-of-the-Art Tape Drives                                              X
                                         NCC IBM Interactive Programming/ Remote Job Entry                                      X
                                         Optical Character Recoanition Replacement Svstem                                       X
                                         Service Center Departmental Applications                                                                   X
                                         Service Center Systems Acquisition                                                     X                   X
                                         Servicewide Citator System                                                             X
                                         Svstem lntearation and Lona Term Desian                              x                 X                   X

                                         aThis table is based on budget information that was in effect as of Feb 1988 (fiscal year 1989) Feb.
                                         1989 (fiscal year 1990) and Dec. 1989 (fiscal year 1991). We generally used the most recent project
                                         titles and did not show changes in project titles or scope from year to year.

                                         bThese projects were included in Integrated Input Processing project for fiscal year 1991,

                                         ‘Automated Underreporter   was included in the Service Center Departmental    Applications   project for
                                         fiscal year 1991.




TSI’i4Projects Need                      As the above discussionof unresolved TSM issuessuggests,IRS is facing a
Re-evaluation                            difficult dilemma. On the one hand, the agency must solve near-term
                                         problems such as the need to acquire additional computer capacity to
                                         support its current tax processingsystems.On the other hand, IRS needs
                                         to create a fully automated, modernized tax processingsystem that can
                                         take the agency into the 21st century.
                                         The current modernization projects reflect this dilemma. In essence,
                                         most of these projects are primarily designedto provide near-term
                                         improvements to current operations. For example, one TSM project, the
                                         Service Center SystemsAcquisition, is designed,in part, to upgrade the
                                         computers in the service centers in order to add computer capacity that


                                         Page 7                                             GAO/IMTEC-90-13IRS’ Modernization Challenge
                         5227682




                         IRSconsidersto be an immediate need; however, this project is also being
                         justified on the basis of its potential function as an integral part of the
                         modernization. Projects such as this may well be worth pursuing, but
                         since TSM will not be fully defined until late 1990, planning and justify-
                         ing them on the basis of their projected value to the modernization is
                         difficult and risky.

                         The risks inherent in IRS’ approach to TSM are two-fold. First, IRS risks
                         basing a project’s justification in part on future benefits that may or
                         may not materialize depending on the final modernization design. Sec-
                         ond, if current hardware acquisitions are justified in terms of their pos-
                         sible future role as part of TSM, then IRS risks creating a design to fit the
                         newly-purchased hardware rather than allowing long-range business
                         goals to drive the design. In other words, IRS could be limiting its future
                         options in order to meet near-term needs.The net result of these risks is
                         that IRS may increaseits overall costs by making investments before
                         planning is complete, lock itself into a way of doing businessthat does
                         not fully meet the needsof government and its taxpayers, increasethe
                         time required to complete the modernization due to the need for correc-
                         tive action, and limit competition among vendors to implement the
                         modernization.

                         IRS needsto determine the extent to which each of the projects currently
                         included in ‘EM should be justified as modernization investments and the
                         extent to which each should be justified solely on its own merits as
                         meeting critical near-term needs.IRS officials believe that the projects
                         they are currently pursuing are flexible enough to be adapted to the
                         final design. However, IRS has not described the required flexibility or
                         how the projects will be adapted to TSM. In fact, it is difficult to fully
                         assessthe risks in IRS’ approach until the Master Plan is completed in
                         late 1990. In the interim, becauseCongressionaldecision makers must
                         allocate funds basedon the expected benefits of projects, it is important
                         that they understand the distinction between those projects that are pri-
                         marily designedas near-term improvements and those that are designed
                         to achieve the goals of TSM.

                         The federal government has repeatedly found that major modernization
Charting the Course: a   efforts such as TSM are extremely difficult and complex undertakings,
Framework for            and fraught with high risks. Many, including IRS’ past efforts, have
Decisionmaking           floundered and failed. This costly cycle of failure to meet the needsof
                         our government and our nation’s people must be broken.



                         Page 8                               GAO/IMTEGBO-13IRS’ Modernization Challenge
B-227692




To explore new ways of meeting the federal government’s technology
challenge,we sponsoreda symposium in October 1989 that brought
together concernedleaders from industry, the Executive Branch, and
the Congress.These discussionsaddressedthe need for reducing the risk
of major modernization efforts and confirmed our views in several key
areas.IRS participated in the symposium and has been meeting with us
to reconsider TSM in light of these perspe@ives.
As confirmed by symposium speakersand participants, solutions to
modernization problems start at the top. Sincethe position of Chief
Information Officer was recently established in October 1989, this is an
opportune time for IRS leadership to reevaluate its modernization activi-
ties to ensure that each element of the framework is effectively
implemented.
The key to successfully integrating information technology into any
agency is the commitment and vision of its leadership. Agency leaders
must clearly define their agencies’fundamental missions, understand
the needsof the public they serve, and firmly link their information sys-
tems plans to these missions and needs.Instead of simply automating
old ways of doing business,agenciesneed to take a fresh look at how
technology can best help them accomplish their mission. It is important,
therefore, that IRS complete its businessassessments;obtain taxpayers’
views on how IRScan better serve them, and use the results as the basis
for modernization planning. As a general rule, modernization invest-
ments should be justified only on the basis of how well they contribute
toward achieving IRS’ vision of improving taxpayer services and reduc-
ing operating costs.
In order to translate the results of its businessassessmentsinto a techni-
cal “platform” that defines the essential characteristics of the required
hardware, software, telecommunications, and information repositories,
IRS must forge a partnership between its businessand technical mana-
gers. These groups must work together to ensure that the platform
incorporates the best businessthinking with the best technical thinking.
The resulting platform should be an integral part of the Master Plan,
along with specific milestones that establish accountability for
implementation.
It is also critically important that the Commissionerand his top staff
surround themselves with the best talent available from government,
industry, and academia,and form alliances with these groups to obtain
the best possible advice on major modernization decisions.It is also


Page 9                             GAO/lMTEC-99.13lRS’ ModerntzatIon Challenge
B-227683




important that IRS have the right people with relevant experience and
accomplishmentsdirecting the modernization at all organizational levels.
The lack of continuity at key leadership and project managementlevels
has been a problem in IRS’ past modernization efforts. IRS Commissioners
seldom serve for more than 2 to 4 years; even career project managers
often do not serve for the duration of a project’s development. In light of
the likelihood of such disruptions, IRS needsto focus on creating a
detailed long-range strategy that can transcend changesin leadership or
management.
IRS must involve the Congressas an active partner in the modernization
effort. As a step in this direction, IRS must clearly articulate to the Con-
gressthe businessgoals to be achieved by TSM and how each project will
help achieve those goals. In this respect, IRS must separate the near-term
projects neededto continue current operations from those that are more
appropriate to the modernization’s goals. This will enable the Congress
to better evaluate the progress on the modernization and make informed
funding decisions.While near-term projects may be appropriate and
even critical to IRS’ current operations, Congressshould understand that
they are not part of TSM.

Fully automating and modernizing IRS’ tax processingsystem will result
in changesin the way IRS doesbusiness-how it is organized, how it
usespeople, and how it interacts with taxpayers. It is important, there-
fore, that IRS develop a strategy not only for the modernization, but also
for the organizational and personnel changesthat modernization will
surely bring. It is crucial that the Congressbe involved in deciding how
best to effect these changes.
TSM may prove to  be the largest and most costly civilian modernization
effort the government has undertaken. Becausethis challenge is so enor-
mous, every avenue should be explored to maximize the prospects of its
success.One such avenue is phased development whereby each phase
produces incremental results that are tangible and build credibility. The
increments should fit together as well conceivedbuilding blocks, each
contributing to the ultimate modernization objective of faster taxpayer
service at lower costs. The phased approach also reinforces the partner-
ship with Congressbecauseit provides intermediate checkpoints for
assessingTSM’S progress and benefits.
The issuesdiscussedin this report illustrate the magnitude of the chal-
lenge faced by IRS. It is essential, therefore, that IRS devote full attention


Page 10                               GAO/IMTEGBO-1%IRS’ Modernization Challenge
                      to setting a clear coursetoward achieving an automated tax processing
                      system that can serve the nation’s needsinto the next century.

                      IRS generally agreedwith the accuracy of this report, highlighting its
A ency Comments and   participation in the GAO symposium and stressing its commitment to the
0 f r Evaluation      resulting managementframework. IRS believes it is making significant
                      progress in integrating the framework into its managementstrategy for
                      the modernization. IRS underscored,in particular, (1) the commitment of
                      the Commissioner and top managementto the modernization, (2) the
                      recent establishment of a new organizational structure for technology
                      management,(3) the creation of programs to provide training to its
                      executives and to recruit seasonedinformation systems managers,and
                      (4) concerted efforts to involve interested parties outside IRS in moderni-
                      zation decisionmaking and to forge a partnership between its business
                      and technical units. IRS also stated that it believed the three completed
                      planning analyses constituted an adequate foundation for the Master
                      Plan. (This issue is discussedin the section entitled TSM BusinessAssess-
                      ment Unfinished.)

                      We agreethat IRS has demonstrated progress in each of these important
                      areas.However, as IRS acknowledges,the agency will have to show con-
                      tinued progress to ensure a successfulmodernization, In this regard, IRS
                      should emphasizethe issuesdiscussedin this report-completing the
                      businessanalyses,resolving system integration issues,identifying a
                      clear and consistent set of TSM projects based on the Master Plan, and
                      determining the extent to which each of the projects currently included
                      in TSM should be justified as modernization investments and the extent
                      to which each should bejustified solely on its own merits to meet critical
                      near-term needs.
                      IRS also noted fouradditional challengesthat it believes increasethe dif-
                      ficulty of successfully completing TsM:
                      the constraints inherent in federal procurement regulations and the con-
                      tract appeals process;
                      the absenceof multiyear capital budgeting to ensure commitment of
                      resourcesover long timeframes;
                      the need to resolve issuesresulting from the impact of automation on
                      the workforce; and
                      the constraints posed by federal personnel and pay regulations in hiring
                      and retaining technically proficient information systemsprofessionals.



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B.227682




We recognizethat the additional challengesIRS has pointed out must be
met in completing TSM;most major government modernizations face
them. The managementframework espousedin our recent symposium
can be applied by IRS to help meet these challenges,particularly those
dealing with mitigating the impact of automation on the workforce and
hiring and retaining skilled professionals. Working closely with the Con-
gressto addressissuessuch as these should be part of IRS’ strategy for
completing a successfulmodernization.

We are sending copiesof this report to the Chairmen, House and Senate
Committeeson Appropriations; Chairman, House Committee on Govern-
ment Operations; Chairman, SenateCommittee on Governmental
Affairs; Chairman, SenateSubcommitteeon Private Retirement Plans
and Oversight of the Internal RevenueService;the Secretary of the
Treasury; and the Commissionerof Internal Revenue.

This report was prepared under the direction of Howard G. Rhile, Direc-
tor, General Government Information Systems,who can be reached at
(202) 276-3466.Other major contributors are listed in appendix II.
Sincerely yours,




Ralph V. Carlone
Assistant Comptroller General




Page 12                            GAO/IMTJZG9O-13IRS’ Modernization Challenge
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    Page 13   GAO/IMTEG@O-13IRS’ Modernization Challenge
Appendix I

TV SystemModernizationProjectsF’iscd
Yc?ars19894991

                           This appendix contains descriptions of IRS information systems projects
                           that have at one time been identified as part of Tax System Moderniza-
                           tion. We used a number of IRS sourcesin compiling the descriptions, life
                           cycle costs, and implementation dates. Life cycle costs refer to the total
                           costs of developing and operating a system over the entire time it will be
                           used. This period can extend from 5 to 10 years beyond the implementa-
                           tion date-the earliest date the system is used to processtaxpayer
                           information. To avoid including the sameinformation twice in this
                           appendix, we have not provided life cycle costs and implementation
                           dates for those projects that were later merged with other projects.


Autd Pipeline              Automation of the initial processingand transcription of tax returns
                           received in paper form. Merged with the Integrated Input Processing
                           System for fiscal year 1991.


Automated Underreporter    Automation of the service center research and analysis efforts to
Project                    resolve casesin which a taxpayer’s reported income doesnot match
                           information returns filed with IRS. Merged with the larger Service Center
                           Departmental Applications project for fiscal year 1991.


Automation of Non-Master   Automates subsidiary tax forms and tax information files. Merged with
File                       the Manual Accounting ReplacementSystem for fiscal year 1991.
                           Life cycle cost: Not currently available.
                           Implementation date: 1990.


Cheqk Handling             Pilot testing of image technology to combine remittance processingand
Enhancements and Expert    cash managementfunctions into a single system. Merged with the Inte-
                           grated Input ProcessingSystem for fiscal year 1991.
Syst@ms

Corporate Files On-Line    A multiphased project to create and provide accessto on-line data bases
                           of taxpayer and tax-related information received from individuals and
                           businesses.
                Y          Life cycle cost: $250.9 Million.
                           Implementation date: 1990 (PhaseI).



                           Page 14                             GAO/IMTEGSO-13IRS’ Modernization Challenge
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                               Appendix I
                               Tax Syetem Modernization Pro&cte Fiscal
                               Years 19861991




    Coiporate Systems/Mirror   Replacementof mainframe computers at the Martinsburg Computing
    Imbging Acquisition        Center and Detroit Computing Center and subsequentacquisition of
      I                        computers for the Corporate Files On-Line project.
                               Life cycle cost: Not currently available.
                               Implementation date: 1991.


       ital Imaging/Optical    Development of a data basefor the storage and retrieval of tax returns
          Storage System       and tax information documents in image form. Merged with the Inte-
                               grated Input ProcessingSystem project for fiscal year 1991.


Electronic Federal Tax         Automated processingof federal tax deposits submitted by employers.
Deposit System                 Merged with the Integrated Input ProcessingSystem for fiscal year
                               1991.


Electronic Filing Project      Automates the receipt and transcription of individual tax returns filed
                               electronically by tax return preparers.
                               Life cycle cost: $189 Million.
                               Implementation date: 1989.


Information Systems            Annual staffing costs for the Office of the Assistant Commissionerfor
Development Mission            Information SystemsDevelopment. Sincethis is a recurring budget item,
                               life cycle costs and completion dates are not applicable.
StiPPOrt

Iqtegrated Input               A series of systems, incorporating image technology, for remittance
Ptocessing System              processing,and receiving, processing,and storing tax administration
                               data.
                               Life cycle cost: $1.4 Billion.
                               Implementation date: 1993.




                               Page 16                                   GAO/IMTEG99-13 IRS’ Modernization Challenge
                                                                                                                   Y




                             Appendix I
                             Tax Syetem Moderntzation projects Fiscal
                             Yeara 19881991




Integrated                   RenamedIntegrated TelecommunicationsServicesfor fiscal year 1991,
Tel&communications           Provides nationwide intercity and local area communications networks.
Network                      Life cycle cost: $1.8 Billion.
                             Implementation date: 1990.


Local Automation Support     RenamedField Automation Support for fiscal year 1991. Provides single
                             and multiuser microcomputer and minicomputer systems in regional and
                             district offices, and service centers.
                             Life cycle cost: $418.1 Million.
                             Implementation date: 1990.


Migration to State-Of-The-   Replacementof tape drives at the Martinsburg Computing Center with
Art Tape Drives              state-of-the-art tape cartridge systems.
                             Life cycle cost: $29 Million.
                             Imnlementation date: 1990.


NCC IBM Interactive          RenamedSupport of Master File Processingfor fiscal year 1991. Com-
Programming/Remote Job       puter system enhancementsat the Martinsburg Computing Center (for-
                             merly the National Computing Center-Ncc) to provide capacity for all
EnyrY                        aspectsof processingtaxpayer account files.
                             Life cycle cost: $40 Million.
                             Implementation date: 1992.


Opt$cal Character            Replacementof the equipment used to optically processpaper tax docu-
Redognition Replacement      ments filed at IRS service centers.
Sy&em                        Life cycle cost: $88.1 Million.
                             Implementation date: 1991 (PhaseI).




                             Page 16                                    GAO/IM’lXG90-13   IRS’ Modernization Challenge
                            Appendix I
                            Tax System Modernization Projects JSacal
                            Years 19861991




-_----    ~~
Se&ice Center               A seriesof software development and conversion projects for tax
Deeartmental Applications   administration functions performed in IRS service centers. These include
                            the Automated Underreporter Project, Automated Inventory Control
                            System, and Accounts MaintenanceAutomation.
                            Life cycle cost: $271.8 Million.
                            Implementation date: 1990 (First project).


Se&ice Center Systems       Multiphased computer and local area network acquisition project to sup-
Ac@isition                  port service center automation.
                            Life cycle cost: $2.2 Billion.
                            Implementation date: 1991 (PhaseI).


SeFvicewide Citator         Provide on-line tax, legal, and procedural reference data base for access
System                      by all tax administration employees.Removedfrom the active project
                            list effective fiscal year 1991.


System Integration and      Contractual assistancein managing the overall design and development
Long Term Design            of the Modernization effort.
                            Life cycle cost: $485.1 Million.
                            Implementation date: 1997.




                            Page 17                                    GAO/IMTEGB@13 II@’ Modernization Challenge
Appendix II

Major Contributors to This Report


                               Timothy P. Bowling, Senior Assistant Director
Information                    Hazel E. Edwards, Assistant Director
Mhagement and                  William D. Hadesty, Technical Adviser
Technology Division,           Charles D. Hughes,Evaluator-in-Charge
                               Tamara J. Ealey, Evaluator
W@hington, DC.                 Norman F. Heyl, Evaluator
                               Daniel T. Mullaney, Evaluator

                                            . .
bdbn       Regional   office   Pamela Lynn Mllhgan, Evaluator




(aloase)                       Page 18                           GAO/IMTEGBO-13 IRS’ Modernization Challenge
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