The Internal Revenue Service faces skepticism from the Government Accountability Office over its ability to transfer individual taxpayer records into a relational database by January 2012.

In a report released Oct. 6 based on a briefing delivered to congressional staffers in July, the GAO notes that an independent readiness assessment commissioned by the IRS says January 2012 implementation of the relational database would have to be done in a compressed time frame, and therefore has a relatively lower likelihood of success. It's an assessment the GAO appears to share, calling the January deadline "challenging."

IRS is in the midst of a decades-long modernization effort to replace its legacy tax processing and data storage systems, which still greatly depend on a magnetic tape system known as the Master File.

In recent years, the IRS has shifted the modernization effort, placing greater emphasis on getting the relational database operational in order to shut down the Master File for individual taxpayers, which the IRS hopes to do in fiscal 2014. The relational database of all individual taxpayer records is one of the first major deliverables of a project known as Customer Account Data Engine 2. CADE 1 currently houses records for about 40 million taxpayers, but in 2008 the IRS made a break with previous efforts that resulted in CADE 2.

The IRS's baseline cost estimate for implementing the first phase of CADE 2 is $241 million, the GAO report says--more than double a July 2009 estimate of $109 million. The previous, lower, estimate was a rough order-of-magnitude estimate not informed by detailed design information for database implementation and daily processing projects that the IRS has since developed, IRS officials told auditors. (The estimate, although more than doubled, is within the same magnitude.)

The report also finds that a February 2010 release of Modernized e-File software, although released only 7 days later than scheduled, was 73 percent over the $39.8 million budget. IRS officials told auditors several factors contributed to the overrun, including unplanned disaster recovery requirements.

Still, of the 12 modernization milestones scheduled for completion between January 2010 and May 2011, the tax agency completed 11 of them within 10 percent of cost and schedule estimates or under budget, the report says.

GAO auditors also say the IRS is likely to succeed in a modernization effort to increase the frequency of Master File processing of individual tax returns. A big downside to the Master File--apart from the fact that reel-to-reel magnetic tape storage gained widespread traction when doo wop was on the radio--has been that updating taxpayer accounts could only be done weekly, in batch mode. But, the IRS now says it should be able to start updating legacy Individual Master File accounts on a daily, or nearly daily, basis, also starting in January 2012.

For more:
- download the report, GAO-12-26 (.pdf)

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