At Least The IRS Could Find 95% of the Returns…

Two items crossed my in-box within a few minutes of each other this morning. The first was a blog post from the National Taxpayer Advocate requesting that Congress give multi-year funding for modernizing IRS computer systems. The second was a TIGTA report noting the IRS couldn’t find about 5% of tax returns requested.

Do you know anyone who knows COBOL (a computer language)? If you do, the IRS wants to hear from him or her! COBOL dates from 1959 (before I was born). The IRS’s IMF and BMF (Individual and Business Master Files) are older than I am, and run in Cobol on IBM mainframes. They are the oldest computer systems still in use by the federal government! I’ll date myself: I was in the last class at Berkeley to learn computer programming on punch cards. On the bright side, the IRS uses the best of 1950’s technology….

Why doesn’t the IRS take their paper records and digitize them? Some of it has to do with the legacy systems they are run on. A lot of it has to do with inadequate funding.

Seriously, this is a problem. In our office, we don’t keep paper records. We scan everything (and return all paper to our clients). The IRS does this for electronically filed tax returns, but not for all paper returns. Indeed, the TIGTA report notes that 347 of the IRS’s 956 forms cannot be electronically filed (that’s more than 36%). The IRS has 468,000 cubic feet of storage available on their campuses. Additionally, Federal Record Centers store about five million cubic feet of IRS records! The IRS spends $57 million a year on storing and retrieving this mountain of paper.

To give an idea of how large this is, my house is 2400 square feet with (I believe) 10 foot high ceilings (because of the heat in Las Vegas). That’s 24,000 cubic feet. So IRS paper records would fill more than 227 of my sized home. It’s frightening to think of all that paper.

The Taxpayer Advocate noted the IRS needs $2.5 billion over six years to complete its (hoped for) modernization program. They received $150 million in the 2019 fiscal year and $180 million in the 2020 fiscal year for modernization. At the current rate, it will take more than 12 additional years to complete it.

The TIGTA report looked at the ability to get specific pieces of paper. Retrieving that paper is necessary for audits and many other required IRS tasks. TIGTA had requests sent through normal channels for tax returns and examination case files. Most of the time the records could be found. However, 6% of examination case files and 3% of tax returns could not be located. An additional 23% of examination case files and 10% of tax returns were not provided timely.

The TIGTA report should be looked in its entirety for a depressing picture of the reality (vis-a-vis computer systems) at the IRS. It’s not that IRS management disagrees with TIGTA on the recommendations that TIGTA made (they agreed with the four recommendations in the report); rather, the problem is that the IRS almost certainly doesn’t have the money to complete the necessary tasks.

Here’s an example from real life: A fellow tax professional’s client mailed in a Form 1040X last year. That client just received a letter stating, “We have a record of receiving your Form 1040X for the 2018 tax year. We cannot find it. Please send another signed copy by mail to this office….”

I’ve been impacted by this. I had a client a few years ago request an ITIN (Individual Taxpayer Identification Number) for his child. The ITIN unit managed to lose the paperwork (sent by certified mail) three times, including once when it was hand-carried to them by the Taxpayer Advocate Office! (Thankfully, the Taxpayer Advocate kept a copy and the fourth time was a charm!)

Do I think Congress will loosen the purse strings here? Well, maybe before I retire….

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