In carrying out its mission, IRS  annually collects over $2 trillion in taxes from millions of individual  taxpayers and numerous other types of taxpayers and manages the  distribution of over $300 billion in refunds. IRS allocated $91.7 million to RRP for  fiscal year 2016. Specifically, IRS has developed eight priority groups for operations, such  as the delivering essential tax administration and taxpayer services  group, and identified eight priority projects for modernization, including  CADE 2 and RRP, to help reach IRS’s future state vision. In addition, IRS  has developed a structured process for allocating funding to its operations  support activities which is consistent with best practices. However, IRS  has not fully documented this process. In addition, IRS does not have a  similar structured process for prioritizing funding among its modernization  activities, stating it does not have such a process because there are  fewer competing activities than for operations support. A documented  process for both operations support and modernization activities that is  consistent with best practices would provide transparency into the  process and provide greater assurance it is consistently applied. IRS officials stated this is because it is  relatively new and not yet stabilized. Performance Varied for Selected Investments

Of the six selected investments in our review, two development  investments—FATCA and RRP—performed under cost, with varying  schedule performance, and delivered most of the scope that was  planned; however, performance information for these investments could  be improved by implementing best practices for determining actual work  performed. However,  neither investment reported information on planned versus actual delivery  of scope, in accordance with best practices. Specifically, IRS uses a level of effort method beyond the amount  generally accepted by best practices to determine the amount of work  completed by its own staff. CADE 2 and ACA: For the CADE 2 projects that were completed during  fiscal year 2015 and the first quarter of fiscal year 2016, IRS reported that  CADE 2 performed on time and $1.7 million under planned cost. Recommendations for Executive Action

To help IRS improve its process for determining IT funding priorities and  to provide timely information on the progress of its investments, we  recommend that the Commissioner of IRS direct the Chief Technology  Officer to take the following four actions: document IRS’s process for selecting and prioritizing operations establish, document, and implement policies and procedures for  selecting new and reselecting ongoing business systems  modernization activities, consistent with IRS’s process for prioritizing  operations support priorities, which addresses (1) prioritization and  comparison of IT assets against each other, (2) criteria for making  selection and prioritization decisions, and (3) ensuring IRS executives’  final funding decisions on IT proposals are based on IRS’s  prioritization process; modify existing processes for FATCA and RRP for measuring work  performed by IRS staff to incorporate best practices, including  accounting for actual work performed and using the level of effort  measure sparingly; and  report on actual costs and scope delivery at least quarterly for CADE  2 and ACA. In its written  comments, reproduced in appendix III, IRS agreed with two  recommendations, did not agree nor disagree with one, and disagreed  with one. Accordingly, we maintain our  recommendation is still warranted. Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) describe the Internal Revenue Service’s (IRS)  current information technology (IT) investment priorities and assess IRS’s  process for determining these priorities, and (2) determine IRS’s progress  in implementing key IT investments. For our second objective, we analyzed the performance of four key  development investments—Customer Account Data Engine 2 (CADE 2),  Return Review Program (RRP), Foreign Account Tax Compliance Act  (FATCA), and the Affordable Care Act Administration (ACA). Further, we  analyzed two key operational investments —Telecommunications  Systems and Support (TSS) and Mainframes and Servers Services and  Support (MSSS).
Why GAO Did This Study

IRS relies extensively on IT systems to annually collect more than $2 trillion in taxes, distribute more than $300 billion in refunds, and carry out its mission of providing service to America's taxpayers in meeting their tax obligations. For fiscal year 2016, IRS planned to spend approximately $2.7 billion for IT investments. Given the size and significance of these expenditures, it is important that Congress be provided information on agency funding priorities, the process for determining these priorities, and progress in completing key IT investments.
Accordingly, GAO's objectives were to (1) describe IRS's current IT investment priorities and assess IRS's process for determining these priorities, and (2) determine IRS's progress in implementing key IT investments.
To do so, GAO analyzed IRS's process for determining its fiscal year 2016 funding priorities, interviewed program officials, and analyzed performance information for six selected investments for fiscal year 2015 and the first quarter of 2016.

What GAO Found

The Internal Revenue Service (IRS) has developed information technology (IT) investment priorities for fiscal year 2016, which support two types of activities—operations and modernization. For example, it has developed priority groups for operations such as: (1) critical business operations, infrastructure operations, and maintenance; and (2) delivery of essential tax administration/taxpayer services. It has identified priorities for modernization, such as web applications, to help reach IRS's future state vision. However, while IRS has developed a structured process for allocating funding to its operations activities consistent with best practices, it has not fully documented this process. IRS officials stated this is because the process is relatively new and not yet stabilized. In addition, IRS does not have a structured process for its modernization activities, because, according to officials, there are fewer competing activities than for operations activities. Fully documenting a process for both operations support and modernization activities that is consistent with best practices would provide transparency and greater assurance it is consistently applied.
Of the six investments GAO reviewed, two investments—Foreign Account Tax Compliance Act and Return Review Program—provided complete and timely performance information for GAO's analyses. These investments performed under cost, with varying schedule performance, and delivered most planned scope (see table). However, IRS did not always use best practices for determining scope delivered. Specifically, IRS used a method inconsistent with best practices for determining the amount of work completed by its own staff.
Two other investments reported completing portions of their work on time and $1.7 million under planned costs (for the Customer Account Data Engine 2), and on time and $10.3 million under planned costs (for Affordable Care Act Administration). However, neither investment reported information on planned versus actual delivery of scope in accordance with best practices. The remaining two investments—Mainframes and Servers Services and Support and Telecommunications Systems and Support—generally met performance goals.

What GAO Recommends

GAO is recommending that IRS develop and document its processes for prioritizing IT funding and improve the calculation and reporting of investment performance information. IRS agreed with two recommendations regarding its prioritization processes, disagreed with one related to the calculation of performance information, and did not comment on one recommendation. GAO maintains all of the recommendations are warranted.