Last-minute spending hurts IRS, IG says

The Internal Revenue Service’s end-of-year spending increased dramatically in the past five fiscal years, according to a new report.

The overload of work coming at the last minute caused problems in acquisitions. On 15 percent of 92 purchases in August and September 2006, TIGTA found that IRS violated appropriations regulations on four acquisitions, and contracting officers may have skipped steps in the procurement process on 10 others, the report states.

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Keeping modernization on track

The Internal Revenue Service must replace its aging tax processing systems, but the agency can’t stop running them while it builds replacements. So the IRS builds new systems while it operates the old systems, and it tries to make sure the new systems work with the old.

The job is “like trying to change the engines on a jumbo jet while it’s in flight, and you don’t have a complete set of blueprints to know how the original engine was put together,” said W. Todd Grams, the IRS’ chief information officer from 2003 to 2006.

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Flood floats telework to top priority at IRS

The more than 20 feet of water that flooded the basement of the Internal Revenue Service’s headquarters last year has helped float telecommuting to a top agency concern.

The Treasury Inspector General for Tax Administration wants the IRS’ chief human capital officer to build a business case to decide whether to expand telecommuting by giving more laptop computers to employees, according to a Feb. 7 report.

“Increasing the availability of laptop computers for telecommuting could further strengthen the IRS’ ability to continue working during emergencies,” the report states.

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2008 budget would boost IRS modernization by $85M

The Bush administration is seeking $282 million to modernize the Internal Revenue Service in his fiscal 2008 proposed budget, an $85 million increase over the fiscal 2007 request.

Modernization is one piece of a three-part strategy for closing the gap between taxes owed and taxes paid. Congressional leaders have discussed how to bring in the taxes owed. Through modernization, the Treasury Department intends to emphasize the other two parts: better taxpayer services and enforcement to eliminate the gap, according to the budget proposal, which was released today.

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Free File opens for early birds

Free File, a tax-filing program, opened today for taxpayers wanting to get an early start on filing season.

The controversial program, in its fifth year, is a free tax preparation and electronic filing initiative between the Internal Revenue Service and the Free File Alliance, which is composed of 20 private-sector tax preparation companies.

Congress and the IRS’ inspector general have criticized the program for excluding taxpayers who once used the program by setting stricter income requirements. Those requirements caused a double-digit percentage drop in usage in 2006.

But the IRS and the alliance have made Free File more consumer-friendly this year, according to the IRS.

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IRS, IG disagree on process vs. independent judgment

The Internal Revenue Service and its inspector general are divided on whether to define a process or use managers’ judgment to analyze the effects of project delays.

IRS officials objected to the IG’s recommendation to establish a process to determine the effects of deferred work on funding and for marking incomplete work to avoid paying for it again, according to a December 2006 Treasury Inspector General for Tax Administration report on the Modernization e-File project.

Officials consider the process a waste of resources.

But, the IG wrote, such a process should help prevent the agency from paying for the same work.

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IRS uses Web to make up for lost time

The Internal Revenue Service is pushing taxpayers to the Web for the latest filing information after the 109th Congress passed last-minute legislation that delayed the IRS’ ability to distribute paper instructions for the tax filing season.

The previous Congress passed the Tax Relief and Health Care Act the day before it adjourned. The bill renews and extends tax cuts, including the college tuition deduction and the research and development tax credit.

But the information is not on the IRS documents already at the printer.

“Unless taxpayers are willing to get on the Internet and search, they may never know that we extended these [tax] incentives in the nick of time,” said Sen. Max Baucus, chairman of the Senate Finance Committee, just before Congress adjourned last year.

IRS Commissioner Mark Everson wrote in a Dec. 5, 2006, letter to Baucus that the individual tax form, Form 1040, was already being printed. Tax legislation passed after Oct. 31 risks hindering the IRS’ ability to meet tax filing season needs, such as distributing up-to-date information and on-time returns. He estimated that updating the forms would cost more than $2 million.

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Lawmakers urged to consider expanded mandate for e-filing

The Internal Revenue Service could sharply reduce its tax processing costs if paid tax preparers had to file returns electronically. But not all of them would welcome such a mandate, tax industry observers say.

The Government Accountability Office has recommended that lawmakers require paid tax preparers to file their clients’ tax returns electronically. If they electronically filed 90 percent of those returns, the government would save about $68 million a year on tax processing, according to a report GAO released in November. The “IRS is missing an opportunity to generate additional savings,” wrote GAO.

Cindy Hockenberry, a tax information analyst at the National Association of Tax Professionals, said she recognizes the benefits of mandatory e-filing, which include more accurate tax returns and faster tax refunds.

But she added that commercial tax preparers worry that the cost of upgrading their computer systems and business processes for e-filing would lower their profits and be too time-consuming.

To become authorized providers, tax preparers would need to submit formal applications and undergo fingerprint and background checks. “That’s a lot of hoops to jump through,” Hockenberry said.

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