One day in 2018, IRS computers went down – and not just on any old day. The individual master file of the agency crashed on tax day in April. Known as the IMF, this file stores every detail about tax returns, penalties, and other details for every taxpayer in the country. The agency cannot function without them. Taxpayers could not file electronic returns through the IRS portal, creating a huge headache for agency employees and giving taxpayers an extra day, who could now file without fear of penalties after the deadline.
The crash came as no surprise to those in the know. In his last press conference as IRS commissioner in 2017, John Koskinen warned that a “catastrophic system failure” due to the outdated Individual Master File and related programs was likely imminent if the agency did not act. But Congress didn’t address the issue until August of this year when it passed the Anti-Inflation Act, which allocates $80 billion to the IRS over the next decade.
To reduce that tax loophole— the difference between taxes owed and collected running into hundreds of billions that the federal government never sees, in part due to tax evasion by the super-rich — bolstering people’s power to hack into tax returns, conduct audits and conduct investigations has been one of the top priorities of the Biden administration.
The deployment of additional agents fuels the Republican outrage machine, but hiring new investigators only scratches the surface of the resources the IRS needs to become an efficient tax collector.
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The agency urgently needs to get acquainted with the information technology of the 21st century. IRA’s nearly $5 billion for modernization is ‘transforming’, IRS Commissioner Chuck Rettig said in a statement. Rettig added that the new funds “will not only close the tax gap, but will significantly improve service and technology for taxpayers.” But he has to move: Treasury Secretary Janet Yellen has called for a strategic IT plan that will be on their desk in six months.
The agency has phenomenal technology problems. At the moment IRS employees have to Enter data manually of taxes filed by mail in IRS systems. The introduction of optical character recognition (OCR) technology would allow IRS employees to point a camera or reader at a piece of paper and type the text into the IMF. Joe Hughes, a federal policy analyst with the Institute on Taxation and Economic Policy, says the manual data entry system is one reason some taxpayers don’t receive their tax refunds for the previous year before they start preparing their taxes for the following year. “If you have a smartphone, you probably have OCR,” Hughes said. “But the IRS doesn’t currently have that technology.”
The IRA also does not mandate an electronic tax filing system, a move supported by Sens. Elizabeth Warren (D-MA) and Ron Wyden (D-OR), who have long advocated this long-overdue upgrade. Funding is available for an e-filing study that would help the IRS decide how best to implement a direct e-filing system at no cost to taxpayers. Once in place, such a system would allow most middle-class taxpayers to simply file their taxes through an IRS portal, rather than paying a tax preparation service to file the documents electronically. (ProPublica investigated how Intuit, the maker of TurboTax, one of the country’s largest tax advisors, has campaigned for years to stop the IRS from creating its own tax filing system.)
Hiring new investigators only scratches the surface of the resources the IRS needs to become an efficient tax collector.
The IRA also specifically directs the IRS to upgrade its phone technology to provide faster responses to taxpayers who wish to speak to an agency representative. The new funds will also allow the agency to use them chatbots which computer users give answers by telephone or computer.
The introduction of OCR, a direct e-file system and chat (and voice) bots would go a long way towards professionalizing and streamlining the IRS operation and equipping its agents with the IT tools to do the job. And those upgrades don’t necessarily have to put workers out of work, as automation and other programmatic efficiencies often do. Since a bipartisan defunding campaign left the agency with too few employees, workers who are no longer burdened with data collection tasks could ideally be redistributed to more important positions within the agency.
However, the use of new technologies is marked with a large asterisk. The agency’s decision to stick with COBOL as its programming language means a meltdown like 2018 (or maybe something worse) remains a constant threat. The IRS will not be able to move forward by keeping COBOL, which was originally introduced in 1959, going. Eric Egan, policy fellow at the Information Technology and Innovation Foundation, a research and education think tank, says what Latin is to English, COBOL is to most modern programming languages. However, because the IRA mandates the “operation and maintenance of legacy systems,” the agency currently has little choice.
Replacing a legacy system is astronomically expensive, which may be why the IRA let COBOL live on. Ofria estimates that replacing the legacy system would be a decades-long project costing at least $1 billion. However, pushing COBOL could also prove costly: the programming language is not widely taught in universities and colleges today – meaning the IRS must train new employees in COBOL. Switching to newer programming languages would likely help the agency attract a larger pool of highly qualified potential employees.