IRS risks ‘catastrophic breakdown’ without funding to upgrade IT

IRS faces backlog amid new tax deadline

The IRS stopped processing paper returns at the end of March to comply with coronavirus-related social distancing and stay-at-home guidelines; Rich Edson reports.

The IRS needs billions of dollars to upgrade its technological infrastructure imminently or it risks problems that may not be easily fixed, a watchdog report warned on Thursday.

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In a blog post, National Taxpayer Advocate Erin M. Collins addressed a “desperate need” for funding to allow the agency to modernize its computer systems and infrastructure, which is has yet to receive from Congress.

“… Core IT upgrades are more than just about improving taxpayer service – they are also required to reduce the chances of a catastrophic breakdown,” Collins wrote. “Modernizing technology is no longer a luxury; it is a necessity, and it is needed now. Imagine the panic and pandemonium that would ensue if the IRS’s IT systems crashed and could not be recovered quickly.”

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In 2018, the IRS had to extend the tax filing deadline after a link to its direct-pay page went down.

Collins referenced a recent report by the Treasury Inspector General for Tax Administration, which concluded than more than 230 systems at the IRS are so-called “legacy’ IT systems – indicating that they are at least 25 years old.

Collins added that the IRS is responsible for not only processing $3.5 trillion in taxes each year, but it also administers some social benefit programs.

It is estimated that the tax agency needs $2.5 billion over the course of six years in order to update IT, but it only received $150 million in fiscal 2019 and $180 million in fiscal 2020 from Congress for those efforts.

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This year, in particular, the agency was tasked with sending out hundreds of thousands of economic impact payments – designed to provide relief to American families during the coronavirus pandemic – during tax season.

Neither effort was without its challenges, due in large part to the virus outbreak.

Operations at the IRS – like many other companies – was limited due to coronavirus-related lockdown and social distancing guidelines. Therefore, the agency is still playing catch-up on a massive backlog of mail, which has caused some individuals’ to tax returns to go unopened – meaning payments remain unprocessed and refunds are delayed.

There were also a few hiccups in sending out the economic impact payments – some taxpayers received incorrect amounts, while others did not receive checks at all. The agency is in the process of resolving these issues.

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