IRS system failure shines light on agency's IT struggles

- April 18, 2018

The IRS computer system meltdown that halted the processing of millions of returns came after years of warnings from top IRS officials, federal auditors and tax professionals that the agency’s IT system is outdated and needs much more than patchwork repairs.

Now, the House is gearing up to vote on IRS reform legislation that would pave the way for technology upgrades. And Congress has earmarked more money recently for the effort. But defenders of the agency say it is suffering from more than a decade of budget cuts, pushed by Republicans who have an ideological aversion to the agency, especially after a controversy over IRS scrutiny of conservative nonprofits exploded in 2013.

Occasional breakdowns less dramatic than the one on Tuesday have been happening with increasing frequency, said former IRS Commissioner John Koskinen, whose term expired last November.

“What was surprising and got everyone’s attention was the system failure came on Tax Day,” he said. “That’s why it got everybody’s attention.”

In fact, in his final news conference as commissioner, Koskinen warned of a “potential for a catastrophic system failure,” adding, “I don’t want anyone to say they weren’t warned.”

The IRS uses some software that dates to the Kennedy administration, other software that’s no longer supported by manufacturers and some of its hardware is two or three upgrades out of date.

IT staff at the IRS has done yeoman’s work in creatively maintaining operations and implementing some upgrades, according to Koskinen, who said there have nonetheless been more and more small, unnoticed glitches that lead to outages for a few minutes at a time.

Tuesday’s outage lasted about 11 hours — on what was supposed to be the last day of tax filing season.

The breakdown began between 1 a.m. and 3 a.m., according to acting IRS Commissioner David Kautter, at a system housed in Martinsville, W.Va. Just before 5 p.m., an IRS email to tax preparers and others in the tax business alerted them that the agency’s processing systems were back online and the IRS was accepting tax returns and payments.

Soon after, the IRS granted taxpayers an extra day to get their returns in, giving them until midnight Wednesday to finish filing their 2017 taxes.

Some critics of the agency used the opportunity to bash it for incompetence.

“It’s game day for the IRS, and it seems the IRS can’t get out of the locker room,” said Rep. Greg Gianforte (R-Mont.).

But Congress has been warned repeatedly in recent years about deficiencies in IRS IT systems.

A May 2016 report from the Government Accountability Office noted that the IRS programmed key legacy systems like its Individual Master File — the authoritative data source for individual taxpayer accounts — using a computer language initially used in the 1950s. Known as assembly language code, it’s typically tied to the hardware for which it was developed, according to the GAO, which described it as “difficult to code and maintain.”

IT systems at the IRS, including case management systems, need to be upgraded to improve agency efficiency and taxpayer service, National Taxpayer Advocate Nina Olson testified before Congress last May. Current IRS technology “substantially limits the IRS’s ability to carry out effective tax administration,” she said.

Tax practitioners don’t need to read reports or follow hearings on Capitol Hill to have a sense of systems failures at the IRS because they experience them regularly in practice, such as struggling to get new tax identification numbers for clients through the IRS website. Done as an initial step to forming new businesses or trusts, a process that’s meant to be quick and easy can take several days and often requires phone calls to the IRS, said Steven Trytten, a certified public accountant and partner in Anglin, Flewelling, Rasmussen, Campbell & Trytten LLP in Los Angeles.

“It’s a crapshoot everyday whether it’s going to work,” said Trytten.

Lawmakers pushing the IRS legislation on the House floor this week seized on the IRS systems failure as a prime example of why the bills should pass.

The package includes a series of IT-related provisions, such as mandating a strategic plan to address long-term needs, formalizing the agency’s chief information officer position and laying out goals to increase online accounts and other internet access for taxpayers.

IRS officials requested Congress formalize these types of objectives as priorities for the agency, according to a staffer for the tax-writing Ways and Means Committee who helped draft the legislation.

The agency needs to be in a more reliable position than it is with its decades-old IT systems, and the legislation helps, said Rep. Tom Rice (R-S.C.), a Ways and Means member.

“But we need to go further,” he said.

Rice was skeptical, however, that more funding for the IRS would also be needed. He suggested the cost of maintaining 320 separate systems could be better spent.

Instead, he said the IRS needs to address what he called its 300 points of failure, which according to Rice occur when only one employee at the agency is knowledgeable enough to fix something in the system. When that person retires or leaves for another reason, their know-how is gone too.

But money — specifically chronic defunding for the IRS led by congressional Republicans since 2010 — remains a core issue involved in IT deficiencies.

“For the Ways and Means Committee to say the answer is passing a bill, with its requirements and support for a lot that’s going on but no money, to me that’s illusory,” Koskinen said.

Olson’s testimony said the IRS requires substantially more funding for IT. Trytten, the lawyer in L.A., agreed that defunding has hindered the IRS.

And Koskinen banged the drum throughout his time as IRS chief, getting even more loud just before his term ended last November.

“I spent my last couple of months on the hill noting that if they keep cutting the budget, it’s not a question of whether the system is going to fail, it’s just a question of when,” Koskinen said.


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