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Industry, Government Team To Move Masses of Tax Data

February 1999
By Robert K. Ackerman
E-mail About the Author

In addition to a new millennium, the next decade may see the dawn of a newly digitized tax collection agency.

The Internal Revenue Service is adopting a mission-oriented approach to designing its new agencywide information infrastructure. Instead of focusing on information technology, the modernized system will be business-centered to ensure that it directly addresses the agency’s requirement to manage mountains of data while collecting over $1 trillion in annual tax revenues.

The agency is embarking on a 10- to 15-year, multibillion-dollar program to update its entire information infrastructure. Work will be concurrent with its everyday functions of collecting revenue, processing returns, disseminating refunds and answering customer queries.

The first phases of the modernization will take place this year and next. These early projects will include improving service for telephone and Internet information requests, expanding electronic tax administration efforts and designing a new generation of workstations that combine rapid record retrieval with security.

The effect on the Internal Revenue Service (IRS) will extend beyond new technology-enabled capabilities, however. The effort is designed to support an agencywide reorganization into four operating divisions. The updated information infrastructure will directly support the program to overhaul all IRS business operations.

To carry out this information technology modernization, the IRS awarded a contract to a team led by Computer Sciences Corporation (CSC), El Segundo, California. Known as the Prime Alliance, the team includes IBM, KPMG Peat Marwick, Lucent Technologies, Northrop Grumman, SAIC and Unisys. The contract calls for the alliance to work with the agency to determine how to bring about this information technology change on a massive scale.

While the total cost for the project remains to be determined, industry analysts estimate it will run several billion dollars through the length of the contract. The IRS has earmarked $10.5 million for activities in the first six months, and Congress has designated $506 million for a special information technology investment account that will be tapped for the effort’s early stages.

The biggest challenge to implementing the IRS’ new information technology infrastructure lies in determining the agency’s business needs, according to CSC Vice President Donald E. Brown. Aligning these requirements with those of the information technology will be the central focus of the effort.

Brown, program manager of the Prime Alliance contract, states that alliance members first will examine the agency’s business goals and missions. The aim of this requirements assessment is to build “business cases based on information technology” to help the agency realize its operational goals, Brown explains. This activity should dominate the first year of the contract.

Part of the agency’s past problems has been that its organizations always have been information technology centered, Brown declares. The alliance plans to adopt a business-centered approach. “One way is for the information technology people to look at what they think is required, develop the information technology systems and tell the businesses what they get,” he explains. “The other way is to let the business drive the requirements and what the solutions ought to be.” In opting for the latter approach, the alliance hopes to avoid pitfalls that doomed previous efforts at information technology modernization.

This partnering arrangement is unique, Brown states. He characterizes it as a real partnership among the CSC Prime Alliance, IRS as a business and the information technology customers. All share in the responsibilities, risks and rewards. It represents a departure from conventional federal government/contractor relationships.

The first step involves establishing the necessary program management structure. This includes strategic planning, requirements, investment decision and program and project management. Then the alliance will turn to the first organization build. This will help justify the remaining work and the payback versus the cost, Brown explains. This first build will include electronic tax administration and one other area, possibly managing telephone and Internet information requests.

All the diverse information systems within the agency will evolve into a single entity. The goal is to provide rapid, easy access to data while ensuring adequate security. As an example, IRS operators currently cannot access individual taxpayers’ accounts directly from their computer terminals. These data are stored on tape, and they are updated only on a weekly basis.

The bulk of the program’s first two years will see completion of development and implementation of methodologies for managing the information technology systems throughout their life cycle. The IRS/contractor team also will build the first releases of prioritized modernization initiatives.

The new four-operating-division configuration will encompass most of the existing national and regional office structures. The four groups will be individual taxpayers with wage and investment income; small business and self-employed taxpayers; large business taxpayers; and employee plans, exempt organizations, and state and local governments. Each division’s services will be tailored to its specific customers’ needs. This breaks down management into targeted focus areas, instead of the current approach that administers the tax code across the entire spectrum of taxpayers.

Heading the IRS’ part of the information system effort is Paul J. Cosgrave, the agency’s chief information officer. As part of the modernization, the agency is establishing a business technology planning office under Deputy Commissioner for Modernization John LaFaver, who is in charge of IRS reorganization planning.

The key to fulfilling the agency’s information technology renovation is digital imaging, CSC’s Brown declares. This will enable the majority of returns to be processed electronically. The agency already is scanning returns in its effort to convert paper to digits, and part of the information technology improvement will focus on increasing this capability. Successfully integrating and exploiting these technologies will be essential to the agency’s operation under its new system.

First and foremost, however, are Internet and electronic commerce technologies. The IRS seeks a greater role for the Internet in its operations. A congressional mandate requires that the agency receive 80 percent of its returns electronically within less than 10 years. Brown describes this as a significant challenge, especially with security and privacy issues remaining to be solved. The technologies that will enable this kind of electronic filing and customer communications reside on the Internet.

The procurement also differs in its approach to identifying vital technologies. In the past, the IRS would have spent up to three years developing a specification toward which prospective contractors would bid. This specific procurement effectively begins before that process, with both the IRS and the alliance team designing these specifications as part of the process. No one can even begin to speculate about the final system configuration or its enabling technologies, Brown emphasizes.

Some elements already have been decided, however. The desktop will be a Windows NT workstation. The agency also recently purchased more than 100 Microsoft Exchange electronic mail licenses.

Pre-proposal work did highlight the potential size of the IRS database, Brown allows. If the final configuration is centered on a core mainframe driving the system, then it will be “a huge database,” he states.

One challenge particular to implementing the IRS system is that the agency cannot stop operations during any changeover. It must continue to collect tax revenue during all modernization activities. IRS Commissioner Charles Rossotti describes this as rebuilding Manhattan while people still reside on site. Replacing the legacy systems with modern technologies and architectures without interrupting agency activities will be a complex problem, Brown offers.

Participation in the IRS information system modernization is not limited to members of the Prime Alliance. Proposed solutions could include virtually any information technology company. Once it assesses requirements and develops its business case, the alliance will recommend a set of viable alternative solutions to the agency, Brown explains.

In most cases, the alliance will import solutions from the commercial financial world. This approach will help avoid unnecessary reinvention of existing systems. Brown notes that many large financial institutions deal with the same problems, ranging from providing customer service to keeping tabs on large amounts of money, faced by the IRS.

Many of the alliance partners have actively been involved with IRS information technology. Unisys is the prime contractor for an IRS effort to merge its 11 data centers into two sites. SAIC is a U.S. Treasury Department information processing support services contractor and provides year 2000 testing for the IRS. Lucent Technologies is prime contractor on the agency’s customer service call-routing project. Northrop Grumman has implemented a modernized system in the IRS environment. KPMG Peat Marwick has substantial direct IRS experience.