IRS Has No Set Plan to Replace Old Tech

“If it ain’t broke, don’t fix it” is an age-old phrase against reinventing the wheel. But does it hold water for federal government agencies like the IRS whose hundreds of out-of-date systems house your taxpayer data?

After a recent audit, the federal tax agency was confirmed to have many pieces of “legacy” equipment, that is, tech more than 25 years old, with some up to fifteen versions behind. 

A few people might not be surprised to hear this. After all, studies show that one-third of government IT funds are spent on staffing rather than new technology.

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Yet the audit raises important questions about the impacts of old technology. Does outdated IRS tech come with higher costs? Will those costs include increased risks to taxpayers like you?

How old is IRS technology?  

The IRS has reportedly allocated $4.8 billion in funding from the Inflation Reduction Act (IRA) for business systems modernization. 

So far, about $1.28 billion of those funds have been spent on staff and contractors, according to a June report by the Treasury Inspector General for Tax Administration (TIGTA). The watchdog group also suggested a shortfall in this plan in a second report:  

• Only 107 of the IRS’ 334 outdated systems have been identified by the tax agency for potential retirement
• Of the ones identified, just two have specific retirement plans

The second report comes about 18 months after the decommissioning of the IRS Technology Retirement Office. (As you might have guessed from the name, that department was responsible for retiring legacy equipment.) The office was shut down in January of last year.

Why does this matter? Without the TRO, the IRS has no firm plan to identify, prioritize, and decommission its old technology. That could threaten taxpayer security and potentially delay the processing of tax returns and refunds.  

Also, current estimates are that the IRS will deplete its funding for modernization efforts by FY 2026. That's soon when we're talking about major business systems and technology.

Tax refund delays and tax documents destroyed 

The Individual Master File (IMF) is the primary system used by the IRS during the tax season. The software is one of the oldest in the federal government, accounts for trillions of tax dollars each year, and holds about 60 years’ worth of data. 

That data houses a collection of records. This includes refunds, payments, penalties, and taxpayer status. The IRS has been trying to retire IMF for 15 years. 

In the meantime, antique programming still causes issues. 

Two years ago, the IRS infamously destroyed 30 million unprocessed information returns due to software limitations and the tax filing volume. Although the agency claimed taxpayers would not be affected, the antiquated systems could slow down tax return filings and refunds, as cited by the Government Accountability Office (GAO) in a couple of reports.

“The IRS relies extensively on its IT systems to collect taxes and distribute refunds. However, much of its IT infrastructure is outdated.” The GAO wrote in one report, and said in another, “Aging IT may be delaying your tax return and refund.” 

Perhaps this is partly why it can take up to six months for the agency to issue a tax refund. 

The GAO has also said the IRS needs to complete its modernization plans or face increased staffing issues, higher costs, and cybersecurity risks.

IRS response to legacy IT audit 

The Chief Information Officer for the IRS, Rajiv Uppal, responded to the TIGTA audit saying in a letter that a new IT roadmap will be coming in the 2025 and 2026 calendar years. 

As of July 2024, these were the technology modernization areas the agency was actively working on improving: 

• Scanning and electronically filing paper returns, including replacement of old scanners and installing mail-sorter machines
• Offering an Online Payment Plan service for tax-preparers to set up on behalf of clients who owe taxes and need to pay the IRS
• Increasing network bandwidth for employees and taxpayers 
• Updating HR IT systems
• Transitioning taxpayer data from the IMF to a new system by 2028
  

Is it safe to store financial information in the cloud? 

While the IRS has no plan to retire old technology, it has added plenty of new tech to combat obsolescence. According to a TGITA report issued September 11, the agency is "making significant technical advancements in areas of artificial intelligence, automation, [and] cloud capabilities..." 

For instance, its antiquated system, the IMF, will run concurrently with a new Enterprise Data Platform (EDP). EDP is a cloud-based system planned to overtake IMF. 

You may be wondering if hosting financial documents in the cloud is a good idea. But organizations like the Federal Trade Comission outline steps businesses can take to secure cloud computing, including maintaining security access and taking advantage of features in the cloud that can protect your data. 

However, TGITA issued a second report one day prior to its September finding stating the IRS had not followed guidance for cloud-based systems. 

More specifically, the IRS implemented policy that might not prevent errors and could increase risk of "inappropriate actions." For example:

• 70% of cloud systems the TGITA reviewed had shared roles between the System Owner and Authorizing Official (not maintaining separate security access)
  
• The report also found a system that did not have the required security documentation to run (security policy was not followed)

The IRS agreed with the TGITA's recommendation to take steps to remedy both findings. But what can you do to protect your cloud-based taxpayer data?

Old IRS technology: What you should do 

So, what does all of this mean and what can you do? Well, you can take steps to protect your identity and the data you provide to the IRS. 

Look out for smishing and tax scams, forgo unprotected public WIFI, and while it doesn’t seem connected to your taxes, be cautious when signing up for loyalty rewards cards too. Retirees in particular can end up with huge tax bills due to scams. 

And, in instances when you need to mail a paper return, try to send your tax return by certified mail. You can ask for a return receipt when the IRS receives your package. 

A lesson we can take from this audit of IRS technology is to update our devices regularly. It may be easier to delay restarts on a computer or select “not now” on a phone update notification. But that could lead to higher costs down the line. Check your phone right now — how many versions, if any, is your tech behind? 

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