Tax Systems Modernization:

Input Processing Strategy is Risky and Lacks a Sound Analytical Basis

T-IMTEC-92-15: Published: Apr 29, 1992. Publicly Released: Apr 29, 1992.

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GAO discussed the Internal Revenue Service's (IRS) integrated input processing initiative, focusing on whether: (1) IRS adequately assessed the costs and benefits of imaging returns compared to processing input electronically; (2) imaging would be cost-effective; (3) the current IRS input strategy is technically feasible given the state of character recognition technology; and (4) the Document Processing System (DPS) and the Service Center Recognition/Image Processing System (SCRIPS) are complementary and integrated into the overall IRS strategy for processing paper documents. GAO noted that: (1) the IRS input processing strategy appeared to be a high-tech, high-risk, and high-cost venture; (2) IRS has not effectively planned to justify committing nearly $3 billion to risky optical character recognition technology; and (3) IRS plans to spend over $130 million on SCRIPS, which duplicates certain DPS functions.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: During April 1993, IRS completed justification for proceeding with its input processing strategy and briefed GAO on the results of these efforts. The strategy is set forth in an IRS Executive Report entitled "Integrated Input Processing Strategy", dated April 16, 1993. The strategy is the culmination of analyses of trends and projections and their likely impacts on electronic filing, as well as the filing media that are likely to be used and the role of incentives and deterrents to their use. IRS is also continually updating these analyses to reflect changes in "real world" market conditions. Among other things, the strategy calls for a totally electronic payment information environment and an annual volume of 80 million returns filed electronically by 2000, thereby lowering IRS dependence on DPS and SCRIPS for converting paper to electronic media. This volume takes into consideration results of recent studies involving reengineering of IRS business functions.

    Recommendation: In light of the high risk and high cost of the IRS input processing strategy, the Commissioner of Internal Revenue should take the following steps to ensure that this strategy is properly justified before committing to its implementation: (1) conduct a comprehensive analysis to determine the costs and benefits of alternative input processing strategies, taking into consideration anticipated technological advances; (2) identify the different types of taxpayers and how they file returns; (3) assess the current and projected filing media that would be suitable for each type; and (4) determine the potential impact of various electronic filing incentives on the requirements for imaging and optical character recognition. The analysis should be updated periodically.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS completed its economic analysis of the relationship of SCRIPS, DPS, and electronic filing volumes in April 1993 and developed a data model to incorporate all projected volumes of returns through 2000. The model provides "what if" analyses involving shifts in filing volumes, eliminates the analytical possibility of duplication of form types, and provides a breakeven for DPS and electronically filed returns. IRS' Integrated Input Processing Strategy, dated April 16, 1993, provides the projected annual target mix of filing alternatives through 2000.

    Recommendation: In light of the high risk and high cost of the IRS input processing strategy, the Commissioner of Internal Revenue should structure the IRS input processing strategy around the alternative, or mix of alternatives, that are determined to be most advantageous to the government.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: IRS' Integrated Input Processing Strategy, dated April 16, 1993, calls for distinct roles for DPS and SCRIPS, with no overlap. DPS is to be an image-based system for complex two-sided submissions and will be the replacement for IRS' current Distributed Input System. Its life cycle will be through 2008. SCRIPS is to be an image-based system for simple, single-sided OCR-type returns and will replace IRS' current OCR equipment. SCRIPS will phase out at the end of its life cycle in 2000.

    Recommendation: In light of the high risk and high cost of the IRS input processing strategy, the Commissioner of Internal Revenue should reexamine the functional requirements for DPS and SCRIPS and determine whether both systems will be needed and, if so, which system will be used for what so as to eliminate any potential overlap.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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