We requested comments on a draft of this report from the Department of the Treasury, the Internal Revenue Service, and the Office of Management and Budget. As a result, IRS has not made adequate progress in correcting its management and technical weaknesses, and none of our recommendations have been fully implemented. As we reported, until IRS’ weaknesses are corrected and our recommendations are fully implemented, we believe the Congress should consider limiting TSM spending to only cost-effective modernization efforts that support ongoing operations and maintenance; correct IRS’ pervasive management and technical weaknesses; are small, represent low technical risk, and can be delivered in a relatively short time frame; and involve deploying already developed systems that have been fully tested, are not premature given the lack of a completed architecture, and produce a proven, verifiable business value. Developing the Capacity to Make Sound Technology Investments

Successfully achieving IRS’ business goals—reducing the volume of paper returns, better serving customers, and improving compliance—will depend heavily on investing in information technology. No Single IRS Entity Controls All Information Systems Efforts

IRS has not yet established an effective organizational structure to consistently manage and control systems modernization organizationwide. Plans Must Be Defined and Capabilities Strengthened Before Obtaining Additional Contractor Support

By increasing its reliance on contractors, IRS expects to improve the accountability for and probability of TSM success. We are encouraged that Treasury is taking a more active role in overseeing IRS’ efforts to improve its business operations. It is charged with reviewing: present IRS practices, especially its organizational structure, paper and return processing activities, infrastructure, and collection process; what is required for improvements in (1) making returns processing “paperless,” (2) modernizing IRS operations, (3) improving the collections process without major increases in personnel or funding, (4) improving taxpayer accounts management, (5) improving accuracy of information requested by taxpayers in order to file returns, and (6) changing the culture of IRS to make it more efficient, productive, and customer oriented; whether IRS could be replaced with a quasi-governmental organization with tangible incentives for managing its programs and activities, and for modernizing its activities; and whether IRS could perform other collection, information, and financial service functions of the federal government. The Commission’s work could help provide the added impetus necessary to (1) develop an effective implementation strategy for IRS’ business vision, (2) manage information systems as investments, (3) build a strong technical foundation for TSM, and (4) ensure the reliability of financial information and systems. In addition, IRS described the status of actions underway to resolve deficiencies in its financial management systems. IRS reaffirmed its commitment to ensuring the integrity of its financial data.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed opportunities to improve the Internal Revenue Service's (IRS) business operations, focusing on actions IRS needs to take to: (1) implement its business vision; (2) overcome management and technical weaknesses in its tax systems modernization (TSM) efforts; and (3) improve the reliability of its financial management systems.

What GAO Found

GAO found that: (1) IRS has not made significant progress in correcting its TSM management and technical weaknesses, and Congress should consider limiting IRS funding for TSM to critical and cost-effective projects; (2) IRS needs to develop an effective implementation strategy for its business vision, particularly regarding electronic filing, paper return processing, customer service, data capture and retrieval, and its TSM and reengineering efforts; (3) IRS needs to develop the capacity to make sound information technology investments; (4) IRS needs to build a technical foundation for TSM information systems projects, improve its software development activities, and complete systems architecture and test planning; (5) IRS has not given control of all systems development activities to one responsible official; (6) IRS must strengthen its capability to manage contracts effectively before obtaining additional contractor support; (7) IRS has not improved its financial management systems, financial records, and accounting procedures; (8) IRS, the Department of the Treasury, and the Office of Budget and Management need to ensure that IRS information management initiatives are promptly and fully implemented; (9) legislation has provided a good framework for measuring IRS performance in meeting its business vision; and (10) the National Commission on Restructuring IRS will have a leading role in evaluating IRS operations and recommending IRS organizational, management, and operating changes.