ADP Modernization:

IRS Needs to Assess Design Alternatives for Its Electronic Filing System

IMTEC-89-33: Published: May 5, 1989. Publicly Released: Jun 7, 1989.

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Howard G. Rhile, Jr
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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) development of an electronic filing system, intended to streamline the tax processing system by using computers instead of the traditional paper forms for filing individual tax returns.

GAO found that IRS: (1) issued a task order to its automatic data processing (ADP) contractor to develop software for the electronic filing system; (2) implemented an interim system in several districts for the 1988 tax season, processing about 583,000 returns electronically; (3) believed that it processed the electronically filed returns faster and with fewer errors than paper returns; (4) was able to process the returns, although the software for a major system component did not work as intended; (5) replaced the defective software prior to the 1989 tax season, but continued to experience similar problems; and (6) expected installation of new software in time for the 1990 tax season and proposed to enhance the interim system, rather than replace it. GAO also found that IRS: (1) in the task order, failed to clearly define critical performance requirements or allow adequate time for approving deliverables; (2) paid the contractor for the defective software; (3) took 4 months to reject the software but eventually paid the contractor for its installation; and (4) has not yet clearly identified its needs or evaluated the costs, benefits, and technical feasibility of alternative approaches.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Electronic filing will be operational nationwide by the 1990 filing season, and system requirements have been defined in a requisite analysis submitted to Treasury in January 1990.

    Recommendation: The Commissioner of Internal Revenue should validate the design approach for the nationwide electronic filing system before selecting and funding a system. At a minimum, IRS should: (1) clearly define system requirements for nationwide implementation, including determining how it will minimize the burgeoning, paper-intensive nature of the current system and accommodate the processing of tax-due returns; and (2) identify and analyze the costs and benefits of various alternatives for meeting the requirements for a nationwide system.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: A new project planning process is being used for ADP modernization projects. The new ADP support services contract calls for the acceptance period to be negotiated on a project-by-project basis.

    Recommendation: The Commissioner of Internal Revenue should ensure better management in contracting for ADP support services by: (1) revising IRS procedures to require project offices to get technical assistance in writing and negotiating contracts for major ADP systems; and (2) allowing enough time to thoroughly test deliverables, thereby ensuring product quality.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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