In carrying out its mission, IRS annually  collects over $3 trillion in taxes from millions of taxpayers, and manages  the distribution of over $400 billion in refunds. Customer Account Data Engine 2 is being developed to replace the  Individual Master File investment, IRS’s authoritative data source for  individual tax account data. The Return Review Program is IRS’s system of record for fraud  detection. This investment has been operational since 1970. In light of these ongoing challenges, in  February 2015, we added improving the management of IT acquisitions  and operations to our list of high-risk areas for the federal government. GAO Reviews Have Identified Weaknesses with IRS’s Management of Its Modernization Activities and Legacy Systems

In reviews that we have undertaken over the past several years, we have  identified various opportunities for the IRS to improve the management of  its IT investments. Accordingly, we have  made a number of related recommendations, which IRS is in various  stages of implementing. However, IRS has  yet to address the recommendation. We reported in April 2014, that the cost and schedule performance  information that IRS reported for its major investments was for the  fiscal year only. We recommended that IRS report more comprehensive and reliable cost  and schedule information for its major investments. We therefore  maintained our recommendation. IRS agreed with the  recommendations and has since addressed them. We found that the agency had developed a structured  process for allocating funding to its operations activities consistent  with best practices, which specify that an organization should  document policies and procedures for selecting new and reselecting  ongoing IT investments, and include criteria for making selection and  prioritization decisions. However, IRS did not have a similarly structured process for prioritizing its  modernization activities, to which the agency allocated hundreds of  millions of dollars for fiscal year 2016. Agency officials stated that  discussions were held to determine the modernization efforts that were of  highest priority to meet IRS’s future state vision and technology roadmap. The officials reported that staffing resources and lifecycle stage were  considered, but there were no formal criteria for making final  determinations. We concluded that such a process would better assist Congress  and other decision makers in carrying out their oversight responsibilities. Accordingly, we recommended that IRS develop and document its  processes for prioritizing IT funding. The agency agreed with the  recommendations and has taken steps to address them. As part of that  work, we noted that the Department of the Treasury used assembly  language code—a computer language initially used in the 1950s and  typically tied to the hardware for which it was developed—and Common  Business Oriented Language (COBOL)—a programming language  developed in the late 1950s and early 1960s—to program its legacy  systems. Further, we reported that IRS’s Individual Master File was over 50 years  old and, although IRS was working to modernize it, the agency did not  have a time frame for completing the modernization or replacement. Thus, we recommended that the Secretary of the Treasury direct the  Chief Information Officer to identify and plan to modernize and replace  legacy systems, as needed, and consistent with the Office of  Management and Budget’s draft guidance on IT modernization, including  time frames, activities to be performed, and functions to be replaced or  enhanced. The department had no comments on our recommendation. In summary, IRS faces longstanding challenges in managing its IT  systems. While effective IT management has been a prevalent issue  throughout the federal government, it is especially concerning at IRS  given the agency’s extensive reliance on IT to carry out its mission of  providing service to America’s taxpayers in meeting their tax obligations. Related GAO Products

IRS 2013 Budget: Continuing to Improve Information on Program Costs  and Results Could Aid in Resource Decision Making, GAO-12-603  (Washington, D.C.: June 8, 2012)
Information Technology: Consistently Applying Best Practices Could Help  IRS Improve the Reliability of Reported Cost and Schedule Information,  GAO-13-401 (Washington, D.C.: April 17, 2013)
Information Technology: Agencies Need to Strengthen Oversight of  Multibillion Dollar Investments in Operations and Maintenance,   GAO-14-66 (Washington, D.C.: Nov. 6, 2013)
Information Technology: IRS Needs to Improve the Reliability and  Transparency of Reported Investment Information, GAO-14-298  (Washington, D.C.: April 2, 2014)
Information Technology: Management Needs to Address Reporting of  IRS Investments’ Cost, Schedule, and Scope Information, GAO-15-297  (Washington, D.C.: February 25, 2015)
Information Technology: Federal Agencies Need to Address Aging  Legacy Systems, GAO-16-468 (Washington, D.C.: May 25, 2016)
This is a work of the U.S. government and is not subject to copyright protection in the  United States.
Why GAO Did This Study

The IRS, a bureau of the Department of the Treasury, relies extensively on IT to annually collect more than $3 trillion in taxes, distribute more than $400 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 expended approximately $2.7 billion for IT investments, 70 percent of which was allocated for operational systems.
GAO has long reported that the effective and efficient management of IT acquisitions and operational investments has been a challenge in the federal government. Accordingly, in February 2015, GAO introduced a new government-wide high-risk area, Improving the Management of IT Acquisitions and Operations. GAO has also reported on challenges IRS has faced in managing its IT acquisitions and operations, and identified opportunities for IRS to improve the management of these investments.
In light of these challenges, GAO was asked to testify about IT management at IRS. To do so, GAO summarized its prior work regarding IRS's IT management, including the agency's management of operational, or legacy, IT systems.

What GAO Found

GAO has issued a series of reports in recent years which have identified numerous opportunities for the Internal Revenue Service (IRS) to improve the management of its major acquisitions and operational, or legacy, information technology (IT) investments. For example,
In June 2016, GAO reported that IRS had developed a structured process for allocating funding to its operations activities, consistent with best practices; however, GAO found that IRS did not have a similarly structured process for prioritizing modernization activities to which the agency allocated hundreds of millions of dollars for fiscal year 2016. Instead, IRS officials stated that they held discussions to determine the modernization efforts that were of highest priority to meet IRS's future state vision and technology roadmap, and considered staffing resources and lifecycle stage. However, they did not use formal criteria for making final determinations. GAO concluded that establishing a structured process for prioritizing modernization activities would better assist Congress and other decision makers in ensuring that the right priorities are funded. Accordingly, GAO recommended that IRS establish, document, and implement policies and procedures for prioritizing modernization activities. IRS agreed with the recommendation and has efforts underway to address it.
In the same report, GAO noted that IRS could improve the accuracy of reported performance information for key development investments to provide Congress and other external parties with pertinent information about the delivery of these investments. This included investments such as Customer Account Data Engine 2, which IRS is developing to replace its 50-year old repository of individual tax account data, and the Return Review Program, IRS's system of record for fraud detection. GAO recommended that IRS take steps to improve reported investment performance information. IRS agreed with the recommendation, and has efforts underway to address it.
In a May 2016 report on legacy IT systems across the federal government, GAO noted that IRS used assembly language code to program key legacy systems. Assembly language code is a computer language initially used in the 1950s that is typically tied to the hardware for which it was developed; it has become difficult to code and maintain. One investment that used this language is IRS's Individual Master File which serves as the authoritative data source for individual taxpayer accounts. GAO noted that, although IRS has been working to replace the Individual Master File, the bureau did not have time frames for its modernization or replacement. Therefore, GAO recommended that the Department of Treasury identify and plan to modernize and replace this legacy system, consistent with applicable guidance from the Office of Management and Budget. The department had no comments on the recommendation.

What GAO Recommends

GAO has made a number of recommendations to IRS to improve its management of IT acquisitions and operations. IRS has generally agreed with the recommendations and is in various stages of implementing them.