The IRS Studebaker Bomb

That ticking you hear is time running out on the IRS.

By CPA Trendlines Research

America is a great nation but not without its occasional embarrassment. One of the lesser-known national ignominies is the patched-up, jury-rigged Studebaker at the core of the IRS information technology system.

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Studebaker didn’t manufacture the Individual Master File system, but the company was producing the Lark at about the same time the IMF was installed at the IRS in the early 1960s. Studebaker has long since gone out of business, and Larks are as dead as dinosaurs, but the IMF is still chugging away.

The National Taxpayer Advocate Report to Congress likens the IMF to a 1960s car that has been souped up with Bluetooth, GPS, and anti-lock brakes, but it’s still an old car that isn’t going very fast and shouldn’t be on the road.

231 Legacy Systems

The incredibly antiquated IMF isn’t the only “legacy system” at work at the world’s largest tax collection agency. The Treasury Inspector General for Tax Administration has identified 231 legacy systems – that is, systems more than 25 years old – 45 of which are due for modernization, with another 34 that should have been retired long ago.

A failure of the IMF or other core system would be catastrophic for an agency that harvests $3.6 trillion in taxes every year, in the process touching virtually every American citizen. The state of the current IRS core IT system has been termed “a ticking time bomb.”

The IMF is slated to be replaced by a new system, the Customer Account Data Engine 2 (CADE 2). Unfortunately, the IRS is not expected to complete the second phase of upgrade until 2024, and even that might be an impossible dream. The IRS has been working on CADE 2 since 2016, but every time there’s a budget cut, hiring freeze or change in scope, the project has to be “rebaselined” to account for changes in the IRS and general technology.

And then along came a pandemic and a shutdown.

If there are budget cuts, operational shutdowns, loss of key personnel or other interruptions between now and 2024, the development of CADE 2 could recede even further into the future.

Modernization Plan

Overhauling its IT system is only part of the IRS Integrated Modernization Plan that was released in 2019. Its goal is “More than the replacement of aged infrastructure, software products, and outdated code … It will also address how IRS workforce processes and culture will evolve to sustain ongoing innovation and transformation.”

A month later after the launch of the plan, Nancy Sieger was named chief information officer and handed the keys to the federal Studebaker, which had been installed just a few years before her birth.

The four pillars of the modernization plan are:

• Improvement of taxpayer and tax preparer experience
• Overhaul of core tax systems to provide quicker and easier tax filing. The overhaul includes the development of the CADE 2 and an Enterprise Case Management system. The ECM will replace over 60 discrete case management systems, centralizing any given taxpayer’s history for easy reference.
• Modernization of IRS operations by accelerating emerging technologies, such as artificial intelligence and robotic automation
• Cybersecurity and data protection

The TAS report warns that the IRS needs not only more funding but more consistent funding.

If Congress fails to pass timely appropriations bills, all funding is frozen at the previous year’s level. Under such circumstances, the IRS could be forced to shift IT spending to more urgent needs while the Studebaker bomb keeps going tick… tick… tick…