a

GAO

United States Government Accountability Office

Report to Congressional Committees

February 2006 BUSINESS SYSTEMS 

MODERNIZATION

Internal Revenue 

Service’s Fiscal Year 

2006 Expenditure Plan

GAO-06-360
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

February 2006

BUSINESS SYSTEMS MODERNIZATION

Internal Revenue Service’s Fiscal Year 

Highlights of GAO-06-360, a report to 2006 Expenditure Plan 

congressional committees 

The Internal Revenue Service’s 

(IRS) Business Systems 

Modernization (BSM) program is a 

multibillion-dollar, high-risk, highly 

complex effort that involves the

development and delivery of a

number of modernized information

systems intended to replace the 

agency’s aging business and tax

processing systems. As required by

law, IRS submitted its fiscal year 

2006 expenditure plan, in October 

2005, to congressional 

appropriations committees, 

requesting $199 million from the

BSM account. 

GAO’s objectives in reviewing the 

plan were to (1) determine whether 

it satisfied the conditions specified 

in the law and (2) provide any 

other observations about the plan 

and IRS’s BSM program. 

What GAO Recommends

GAO recommends that the

Commissioner of Internal Revenue 

ensure that future expenditure

plans submitted to the 

congressional appropriations 

subcommittees provide current and 

complete program status 

information and report any changes

to prior commitments concerning

the delivery of BSM project 

functionality. In providing 

comments on a draft of this report, 

the Commissioner agreed with 

GAO’s findings and described the 

actions that IRS is taking to 

address GAO’s recommendation. 

IRS’s fiscal year 2006 expenditure plan satisfies the conditions specified in 

the law. These conditions include meeting the Office of Management and 

Budget’s capital planning and investment control review requirements and 

complying with federal systems acquisition requirements and management 

practices. 

GAO’s observations on the expenditure plan and BSM program include the 

following: 

• During 2005, IRS made further progress in implementing BSM, but some 

projects did not meet short-term cost and schedule commitments. IRS 

deployed additional releases of several modernized systems, including 

the Customer Account Data Engine (the new taxpayer information 

database), e-Services (a new Web portal and electronic services for tax 

practitioners), and Modernized e-File (a new electronic filing system). 

While three project releases were delivered within the cost and/or

schedule commitments presented in the fiscal year 2005 expenditure 

plan, others experienced cost increases or schedule delays. 

• IRS has identified significant risks and issues that confront future

planned system deliveries. The agency recognizes the potential impact of 

these project risks and issues on its ability to deliver planned 

functionality within cost and schedule estimates, and, to its credit, has 

developed mitigation strategies to address them. 

• IRS has made additional progress in addressing high-priority BSM 

program improvement initiatives. Its program improvement process 

appears to be an effective means of assessing, prioritizing, and 

addressing BSM issues and challenges. However, much more work 

remains for IRS to fully address these issues and challenges. 

• In response to GAO’s prior recommendation, IRS is developing a new 

Modernization Vision and Strategy to address BSM program changes and 

provide a modernization roadmap. IRS expects to complete a high-level

Vision and Strategy, as well as a more detailed 5-year plan for the 

modernization program, by mid-March 2006. 

• The expenditure plan submitted to the Congress contains outdated 

program status information and omits key details concerning deferred 

BSM functionality. IRS’s fiscal year 2006 plan is substantially based on 

information describing the status of BSM projects and program 

management initiatives as of April 2005, and, therefore, in key areas did 

not adequately describe progress or provide information consistent with 

the program’s status at the time the plan was submitted to the Congress 

in October 2005. Without current and complete information, effective 

congressional oversight of BSM progress and accountability is impaired. 

www.gao.gov/cgi-bin/getrpt?GAO-06-360.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact David A. 

Powner at (202) 512-9286 or 

pownerd@gao.gov. 
Page i GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Contents

Letter 1

Recommendation for Executive Action 3

Agency Comments 4

Appendixes

Appendix I: Briefing Slides from the November 30, 2005, Briefing to the 

Senate and House Appropriations Subcommittee Staffs 5

Appendix II: Comments from the Internal Revenue Service 38

Appendix III: GAO Contact and Staff Acknowledgments 40

Abbreviations

BSM Business Systems Modernization

IRS Internal Revenue Service

OMB Office of Management and Budget

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Page 1 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

United States Government Accountability Office

Washington, D.C. 20548

A

February 21, 2006 Letr

The Honorable Christopher S. Bond

Chairman

The Honorable Patty Murray

Ranking Member

Subcommittee on Transportation, Treasury, 

the Judiciary, Housing and Urban Development, 

and Related Agencies

Committee on Appropriations

United States Senate

The Honorable Joe Knollenberg

Chairman

The Honorable John W. Olver

Ranking Member

Subcommittee on the Departments of Transportation, 

Treasury, and Housing and Urban Development,

the Judiciary, District of Columbia, 

and Independent Agencies

Committee on Appropriations

House of Representatives

As required by law, the Internal Revenue Service (IRS) submitted its fiscal 

year 2006 expenditure plan, in October 2005, to the congressional 

appropriations committees, requesting $199 million from the Business 

Systems Modernization (BSM) account. Our objectives in reviewing the 

plan were to (1) determine whether the plan satisfied the conditions 

specified in the law1

 and (2) provide any other observations about the plan 

and IRS’s BSM program. 

On November 30, 2005, we briefed your respective offices on the results of 

our review. This report transmits the materials we used at the briefing and 

1

BSM funds are unavailable until IRS submits to congressional appropriations committees 

for approval a modernization expenditure plan that (1) meets the Office of Management and 

Budget’s (OMB) capital planning and investment control review requirements; (2) complies 

with IRS’s enterprise architecture; (3) conforms with IRS’s enterprise life-cycle 

methodology; (4) complies with federal acquisition rules, requirements, guidelines, and 

systems acquisition management practices; (5) is approved by IRS, the Department of the 

Treasury, and OMB; and (6) is reviewed by GAO. See Pub. Law No. 109-115, Div. A, Title II, 

November 30, 2005, for fiscal year 2006 funding.
Page 2 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

provides the recommendation that we made to the Commissioner of 

Internal Revenue. The full briefing materials, including our scope and 

methodology, are reprinted as appendix I. 

In summary, we made the following major points:

• IRS’s fiscal year 2006 plan satisfies each of the six legislative conditions.

• IRS has made further progress in implementing BSM, but some projects 

did not meet short-term cost and schedule commitments. During 2005, 

IRS deployed additional releases of several systems, including the 

Customer Account Data Engine (the new taxpayer information 

database), e-Services (a new Web portal and electronic services for tax 

practitioners), and Modernized e-File (a new electronic filing system). 

While three project releases were delivered within the cost and/or 

schedule commitments presented in the fiscal year 2005 expenditure 

plan, others experienced cost increases or schedule delays. For 

example, our analysis shows that Release 1.3.1 of the Customer Account 

Data Engine was delivered at the estimated cost and that the e-Services 

upgrade was completed on time and within the estimated project cost. 

However, two project segments—Integrated Financial System Release 

1, Milestone 5, and Modernized e-File Release 3.2, Milestone 4—

experienced cost increases of 93 percent and 29 percent, respectively. 

• Future BSM project deliveries face significant risks and issues, which 

IRS is addressing. IRS has identified significant risks and issues with its 

future planned system deliveries. For example, according to IRS, 

schedule delays associated with Release 1.3.1 of the Customer Account 

Data Engine, as well as contention for key resources between Releases 

1.3.1 and 1.3.2, necessitated the deferral of some functionality to later 

releases. These requirements deferrals may negatively impact cost and 

schedule for Releases 2.1 and 2.2, which are currently scheduled to be 

deployed in August 2006 and December 2006, respectively. The agency, 

however, recognizes the potential impact of these project risks and 

issues on its ability to deliver planned functionality within cost and 

schedule estimates, and, to its credit, has developed mitigation 

strategies to address them.

• IRS has made additional progress in addressing high-priority BSM 

program improvement initiatives. Its high-priority improvement 

initiatives appear to be an effective means of assessing, prioritizing, and 

addressing BSM issues and challenges. However, much more work 
Page 3 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

remains for the agency to fully address these issues and challenges. IRS 

is currently focusing on 22 high-priority initiatives, which it plans to 

have completed by the end of March 2006. These initiatives include 

establishing requirements management standards and executing the 

implementation plan for integrated schedule and baseline management.

• In response to our prior recommendation, IRS reports having efforts 

under way to develop a new Modernization Vision and Strategy to 

address BSM changes and provide a modernization roadmap. IRS 

anticipates having an approved high-level Vision and Strategy in place in 

early fiscal year 2006, and expects to complete a more detailed 5-year 

plan for the modernization program by mid-March 2006.2

 We believe 

these actions represent good steps toward addressing our prior 

recommendation to fully revisit the vision and strategy for the BSM 

program and develop a new set of long-term goals, strategies, and plans 

consistent with the budgetary outlook and with IRS’s management 

capabilities.

• The expenditure plan submitted to the Congress contains outdated 

program status information and omits key details concerning deferred 

BSM functionality. IRS’s fiscal year 2006 expenditure plan is 

substantially based on information describing the status of BSM 

projects and program management initiatives as of April 2005, and, 

therefore, in key areas did not adequately describe progress or provide 

information consistent with the program’s status at the time the plan 

was submitted to the Congress in October 2005. Specifically, the plan (1) 

does not disclose that planned functionality for two BSM project 

releases has been deferred to future releases and (2) contains a number 

of inconsistencies between project cost and schedule data shown 

throughout the document. Without current and complete information, 

effective congressional oversight of BSM progress and accountability is 

impaired.

Recommendation for 

Executive Action

To allow for effective congressional oversight of the BSM program, we 

recommend that the Commissioner of Internal Revenue direct the Chief 

Information Officer to take the following action:

2

According to IRS, the high-level Vision and Strategy and the 5-year modernization plan are 

now both expected to be completed by mid-March 2006.
Page 4 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

• ensure that future expenditure plans submitted to the congressional 

appropriations subcommittees provide current and complete program 

status information and report any changes to prior commitments 

concerning the delivery of BSM project functionality.

Agency Comments In providing written comments on a draft of this report, the Commissioner 

of Internal Revenue agreed with our findings and stated that the report 

fairly represents BSM accomplishments as well as future risks. The 

Commissioner also described the actions that IRS is taking to implement 

our recommendation, including formulating a policy and initiating dialogue 

with the Department of the Treasury and the Office of Management and 

Budget to resolve expenditure plan development and review process 

issues. The Commissioner’s written comments are reprinted in appendix II.

We are sending copies of this report to the Chairmen and Ranking Members 

of other Senate and House committees and subcommittees that have 

appropriation, authorization, and oversight responsibilities for the Internal 

Revenue Service. We are also sending copies to the Commissioner of 

Internal Revenue, the Secretary of the Treasury, the Chairman of the IRS 

Oversight Board, and the Director of the Office of Management and Budget. 

Copies are also available at no charge on the GAO Web site at 

http://www.gao.gov.

Should you or your offices have questions on matters discussed in this 

report, please contact me at (202) 512-9286 or pownerd@gao.gov. Contact 

points for our Offices of Congressional Relations and Public Affairs may be 

found on the last page of this report. GAO staff who made major 

contributions to this report are listed in appendix III.

David A. Powner

Director, Information Technology 

Management Issues
Page 5 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Appendix I

Briefing Slides from the November 30, 2005, Apendxies

Briefing to the Senate and House 

Appropriations Subcommittee Staffs ApendxiI

Review of IRS’s Fiscal Year 2006 

Business Systems Modernization Expenditure Plan 

Briefing for the staffs of the 

Subcommittee on Transportation, Treasury, the Judiciary, 

Housing and Urban Development, and Related Agencies 

Senate Committee on Appropriations

and

Subcommittee on the Departments of Transportation, Treasury, and 

Housing and Urban Development, the Judiciary, District of Columbia,

and Independent Agencies 

House Committee on Appropriations

November 30, 2005

 Page 1 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 6 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Briefing Contents

x Introduction and Objectives 

x Results in Brief 

x Background

x Scope and Methodology 

x Results

x Conclusions

x Recommendation for Executive Action 

x Agency Comments

x Appendixes

x I – Description of Business Systems Modernization (BSM) Projects and Program-Level Initiatives 

x II – Additional Detail on IRS’s Fiscal Year 2006 BSM Expenditure Plan 

x III – IRS Reported Project Cost/Schedule Changes 

 Page 2 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 7 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Introduction and Objectives

The Internal Revenue Service (IRS) has long relied on obsolete automated systems for key operational and 

financial management functions, and its attempts to modernize these computer systems span several decades. 

IRS’s multibillion-dollar Business Systems Modernization (BSM) program, initiated in fiscal year 1999, is the 

agency’s latest attempt to modernize its systems. IRS contracted with Computer Sciences Corporation (CSC) as 

the prime systems integration support (PRIME) contractor to assist with designing, developing, and integrating a 

new set of information systems that are intended to replace IRS’s aging business and tax processing systems. 

BSM is a high-risk, highly complex program that involves the development and delivery of a number of 

modernized tax administration, internal management, and core infrastructure projects that are intended to provide 

improved and expanded service to taxpayers as well as IRS internal business efficiencies. 

As mandated by IRS’s fiscal year 2005 appropriations act,1

 BSM funds are not available until IRS submits a 

modernization expenditure plan for approval to the congressional appropriations committees. This plan must 

x meet the capital planning and investment control review requirements established by the Office of 

Management and Budget (OMB); 

x comply with IRS’s enterprise architecture;2

x conform with IRS’s enterprise life cycle methodology;3

x comply with federal acquisition rules, requirements, guidelines, and systems acquisition management 

practices;

x be approved by IRS, Treasury, and OMB; and 

x be reviewed by GAO. 

1

Pub. Law 108-447, Div. H, Title II, Dec. 8, 2004. Currently, IRS’s fiscal year 2006 funding is provided under a Current Resolution, Pub. Law 109-77,

Sept. 30, 2005, as amended by H.J. Res. 72, Nov. 19, 2005, which continues BSM’s funding subject to the “authority and conditions” provided in the fiscal 

year 2005 appropriations act.

2

An enterprise architecture (EA) is an institutional blueprint defining how an enterprise operates today, in both business and technology terms, and intends

to operate in the future. An EA also includes a roadmap for transitioning between these environments.

3

IRS refers to its life cycle management program as the enterprise life cycle (ELC).

 Page 3 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 8 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Introduction and Objectives

Since mid-1999, IRS has submitted a series of expenditure or “spending” plans requesting release of BSM 

appropriated funds. To date, about $1.9 billion has been appropriated and released for BSM. 

On October 12, 2005, IRS submitted its fiscal year 2006 expenditure plan to the relevant House and Senate 

appropriations subcommittees, seeking release of $199 million from the BSM account. 

As agreed with IRS’s appropriations subcommittees, our objectives were to 

x determine whether IRS’s fiscal year 2006 expenditure plan satisfies the legislative conditions specified in 

IRS’s appropriations act and 

x provide any other observations about the plan and IRS’s BSM program.

 Page 4 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 9 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results in Brief

IRS’s fiscal year 2006 plan satisfies each of the six legislative conditions. 

We have five observations related to the BSM program and fiscal year 2006 expenditure plan: 

x IRS Has Made Further Progress in Implementing BSM, but Some Projects Did Not Meet Short-Term Cost 

and Schedule Commitments. During 2005, IRS deployed additional releases of several systems, including 

the Customer Account Data Engine (the new taxpayer information database), e-Services (a new Web portal 

and electronic services for tax practitioners), and Modernized e-File (a new electronic filing system). While 

three project releases were delivered within the cost and/or schedule commitments presented in the fiscal 

year 2005 expenditure plan, others experienced cost increases or schedule delays. 

x Future BSM Project Deliveries Face Significant Risks and Issues, which IRS is Addressing. IRS has 

identified significant risks and issues with its future planned system deliveries. The agency, however, 

recognizes the potential impact of these project risks and issues on its ability to deliver planned functionality 

within cost and schedule estimates, and, to its credit, has developed mitigation strategies to address them. 

x IRS Has Made Additional Progress in Addressing High-Priority BSM Program Improvement Initiatives.

IRS’s high priority improvement initiatives appear to be an effective means of assessing, prioritizing, and 

addressing BSM issues and challenges. However, much more work remains for IRS to fully address these 

issues and challenges. 

x IRS is Developing a New Modernization Vision and Strategy. In response to our prior recommendation, IRS 

reports having efforts underway to develop a new Modernization Vision and Strategy. IRS anticipates 

having an approved high-level Vision and Strategy in place in early fiscal year 2006, and expects to 

complete a more detailed 5-year plan for the modernization program by mid-March 2006.

 Page 5 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 10 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results in Brief

x The Expenditure Plan Submitted to the Congress Contains Outdated Program Status Information and 

Omits Key Details Concerning Deferred BSM Project Functionality. IRS’s fiscal year 2006 expenditure plan 

is substantially based on information describing the status of BSM projects and program management 

initiatives as of April 2005, and, therefore, in key areas did not adequately describe progress or provide 

information consistent with the program’s status at the time the plan was submitted to the Congress in October 

2005. Specifically, the plan (1) does not disclose that planned functionality for two BSM project releases 

has been deferred to future releases and (2) contains a number of inconsistencies between project cost 

and schedule data shown throughout the document. Without current and complete information, effective 

congressional oversight of BSM progress and accountability is impaired. 

To allow for effective congressional oversight of the BSM program, we are recommending that the 

Commissioner of Internal Revenue direct the Chief Information Officer (CIO) to ensure that future expenditure 

plans submitted to IRS’s appropriations subcommittees provide current and complete program status 

information and report any changes to prior commitments concerning the delivery of BSM project functionality. 

In commenting on a draft of this briefing, the Associate CIO for BSM stated that he appreciated the reasoned 

and balanced work of the GAO and believed that the briefing fairly represents BSM accomplishments as well 

as future risks. He also agreed with the recommendation and provided technical comments.

 Page 6 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 11 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Background

To date, we have reviewed and reported on 12 requests for BSM funding releases:

x Since mid-1999, we have reported4

 on the risks associated with IRS’s approach of building systems while

concurrently developing and implementing program management capabilities—for example, having a fully 

operational program management office and implementing its enterprise life cycle (ELC) methodology. 

IRS’s ELC is a structured method for managing system modernization program and project investments 

throughout their life cycles. We reported that attempting to acquire modernized systems before having the 

requisite management capability increases the risk that systems will experience cost, schedule, and 

performance shortfalls. In addition, we have noted numerous modernization management control 

deficiencies and made recommendations to correct them. 

We have also reported5

 that the risk of cost increases and schedule delays associated with building 

systems without the requisite management controls is not as severe early in projects’ life cycles when they 

are being planned (project definition and preliminary system design), but escalates as projects are built 

(detailed design and development) and implemented (deployment). In the case of IRS and its ELC, a key 

point of risk escalation is milestone 3, at the end of the system architecture phase. From this point through 

design and development (milestone 4) to system deployment (milestone 5), risk will increase significantly if 

requisite controls are not in place. In February 2002, we reported that as IRS moved forward with its BSM 

program, it faced increasing risks that it would be unable to deliver promised system capabilities on time 

and within budget. To address the escalating risks facing IRS, we recommended that the agency 

reconsider the planned scope and pace of the BSM program with the goal of better balancing the number 

of system acquisition projects underway and planned with IRS’s capacity to manage the workload. 

4

For example, see GAO, Business Systems Modernization: Results of Review of IRS’ March 2001 Expenditure Plan, GAO-01-716 (Washington, D.C.:

June 29, 2001) and Internal Revenue Service: Progress Continues But Serious Management Challenges Remain, GAO-01-562T (Washington, D.C.: April 

2, 2001).

5

For example, see GAO, Tax Systems Modernization: Results of Review of IRS’ Third Expenditure Plan, GAO-01-227 (Washington, D.C.: January 22, 

2001) and Business Systems Modernization: IRS Needs to Better Balance Management Capacity with Systems Acquisition Workload, GAO-02-356

(Washington, D.C.: February 28, 2002).

 Page 7 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 12 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Background

x In our June 2003 report,6 we identified key IRS projects that were approaching or had passed milestone 4 

that were experiencing cost, schedule, and performance shortfalls, and concluded that program risks were 

heightened. In our November 2004 report,7 we stated that key agency projects were continuing to incur 

significant cost increases and schedule delays, and that independent assessments of the BSM program 

had identified significant weaknesses and risks, consistent with our prior reviews.

x In our July 2005 report,8

 we noted that IRS had made progress in implementing our prior recommendations 

to improve its modernization management controls and capabilities; however, certain controls and 

capabilities related to configuration management, human capital management, cost and schedule 

estimating, contract management, and post-implementation reviews had not yet been fully implemented or 

institutionalized. In addition, we noted that IRS had made progress toward addressing issues raised in 

independent BSM assessments and implementing program improvement initiatives, but significant 

challenges and high-priority risks remained.

We also reported that although IRS had deployed the initial phases of several modernized systems and 

met short-term cost and schedule estimates, much more work remained to be done to complete the 

modernization, and challenges confronted the agency in meeting its longer-term cost and schedule 

estimates. In addition, we reported that in response to its assessment of the PRIME contractor’s 

performance and budget reductions, IRS (1) was shifting significant BSM program responsibilities from the 

contractor to the agency, and (2) had made adjustments to project funding allocations and future delivery 

schedules, including suspending work on the Custodial Accounting Project and postponing future releases 

of the Integrated Financial System indefinitely. Finally, we concluded that the BSM vision and strategy was 

no longer current given project delays, and recommended that the agency fully revisit it and develop a new 

set of long-term program goals, strategies, and plans that is consistent with the budgetary outlook and 

IRS’s management capabilities. 

6

GAO, Business Systems Modernization: IRS Has Made Significant Progress in Improving Its Management Controls, but Risks Remain, GAO-03-768

(Washington, D.C.: June 27, 2003).

7

GAO, Business Systems Modernization: IRS’s Fiscal Year 2004 Expenditure Plan, GAO-05-46 (Washington, D.C.: November 17, 2004). 8

GAO, Business Systems Modernization: Internal Revenue Service’s Fiscal Year 2005 Expenditure Plan, GAO-05-774 (Washington, D.C.: July 22, 2005). 

 Page 8 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 13 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Background

IRS’s fiscal year 2006 expenditure plan describes the agency’s efforts to 

x continue ongoing program-level initiatives (e.g., Architecture & Integration, Program Management) through 

the first week of November 2006 and core infrastructure projects (e.g., Infrastructure Shared Services) 

through the end of November 2006,

x continue five tax administration project releases (Filing and Payment Compliance Release 1.1,

Modernized e-File Releases 3.2 and 4, and Customer Account Data Engine – Individual Master File 

Releases 1.3.2 and 2) to their next milestones, and 

x begin three new tax administration project releases (Filing and Payment Compliance Release 1.2 and 

Customer Account Data Engine – Individual Master File Releases 2.1 and 2.2). 

Table 1 shows a financial summary of the plan. 

 Page 9 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 14 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Background

Table 1: Summary of IRS’s Fiscal Year 2006 BSM Expenditure Plan (in thousands of dollars)a

Amount

requested

Project categoryb

Tax administration projects $100,000

Core infrastructure projects 47,000

Subtotal 147,000

Architecture, integration & management

Architecture & integration 15,220

Business integration 5,250

Management processes 3,920

Federally funded research and development center—MITRE 7,600

Program management 4,270

Architecture, integration & management risk adjustment 740

Subtotal 37,000

Management reserve 15,000

Total $199,000

Source: IRS. 

a

See appendix I for a description of each BSM project and program-level initiative. See appendix II for additional detail on the plan. b

The two categories under this heading include seven separate projects or project releases.

 Page 10 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 15 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Scope and Methodology

To accomplish our objectives, we

x reviewed the fiscal year 2006 expenditure plan submitted by IRS in October 2005; 

x analyzed the plan against the legislative conditions to identify any variances; 

x interviewed IRS program and project management officials to corroborate our understanding of the plan 

and other BSM activities;

x reviewed and analyzed modernization program review and project management reports, briefings, and 

related documentation to assess program/project status and associated issues and risks; and 

x reviewed program management reports, briefings, and related documentation to assess the progress IRS 

has made in completing actions and implementing program management improvements related to the BSM 

Highest Priority Initiatives. 

We did not assess IRS’s progress in implementing our prior recommendations to improve its modernization 

management controls and capabilities (i.e., configuration management, human capital management, cost and 

schedule estimation, contract management, and post-implementation reviews) as a part of this review, since 

we recently reported on the status of IRS’s ongoing actions to address them.9

To assess the reliability of the cost and schedule information contained in this expenditure plan, we 

interviewed IRS officials in order to gain an understanding of the data and discuss our use of the data. In 

addition, we checked that information in the plan was consistent with information contained in IRS internal 

briefings.

We performed our work from October through November 2005, in Washington, D.C., in accordance with 

generally accepted government auditing standards. 

9

 See GAO-05-774 for details.

 Page 11 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 16 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

Objective 1: The plan satisfies the conditions in IRS’s Fiscal Year 2006 appropriations act. 

Table 2: Fiscal Year 2006 Expenditure Plan Provisions for Satisfying Legislative Conditions 

Source: IRS’s fiscal year 2005 appropriations act (Pub. Law 108-447), fiscal year 2006 Current Resolution (Pub. Law 109-77), and GAO analysis.

Legislative conditions Expenditure plan provisions

1. Meets OMB capital

planning and investment

control review

requirements

IRS’s fiscal year 2006 expenditure plan identifies funding required for managing information technology (IT)

investments as part of a single portfolio through its capital planning and investment control process. This 

includes conducting periodic reviews to select, control, and evaluate IT investments.

2. Complies with IRS’s 

enterprise architecture

The plan identifies funding required to continue definition and implementation of the enterprise architecture

(EA). For example, it identifies funding needed for 

x finalizing and publishing updates to the EA based on change requests,

x supporting the performance of EA compliance certification activities, and 

x improving the IRS enterprise transition strategies and release architecture.

3. Conforms with IRS’s

enterprise life cycle 

methodology

The plan identifies funding required for meeting the requirements in IRS’s enterprise life cycle (ELC) 

management program. For example, the plan calls for

x maintaining responsibility for coordinating, tracking, and integrating all programwide costs, schedules,

releases, issues, and risks and 

x maintaining and enhancing the ELC. 

4. Complies with the 

acquisition rules,

requirements, guidelines,

and systems acquisition

management practices of 

the federal government

As part of the ELC, IRS has defined processes, roles, and responsibilities for implementing Carnegie Mellon

University’s Software Engineering Institute (SEI) Software Acquisition Capability Maturity ModelTM practices

for the key process areas within the repeatable level (level 2) of the 5-stage model.a

 These practices are

consistent with federal acquisition requirements and management practices, and the plan calls for 

implementation of the ELC on all projects. Further, all PRIME contractor cost reimbursement task orders are

subject to a final independent audit by the Defense Contract Audit Agency to ensure that costs are incurred

only for tasks actually completed on the contract.

5. Approved by IRS,

Treasury, and OMB 

x IRS – July 22, 2005 

x Treasury – September 7, 2005 

x OMB – October 5, 2005

6. Reviewed by GAO x GAO – November 30, 2005, briefing to IRS’s appropriations subcommittees

a

These are acquisition planning, solicitation, requirements development and management, project management, contract tracking and oversight,

 evaluation, and transition to support.

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Results

Objective 2: Observations about IRS’s BSM Program and Expenditure Plan 

Observation 1: IRS Has Made Further Progress in Implementing BSM, but Some Projects Did Not Meet ShortTerm Cost and Schedule Commitments 

During 2005, IRS’s BSM program has deployed additional releases of several modernized systems that have 

delivered benefits to taxpayers and the agency, including the following: 

x Customer Account Data Engine (CADE) – Individual Master File10 Release 1.

11 CADE is intended to 

replace IRS’s antiquated system that contains the repository of taxpayer information and, therefore, is the 

BSM program’s linchpin and highest priority project. In January and September 2005, IRS implemented 

Releases 1.2 and 1.3.1 of CADE, respectively, which have been used to process filing year 2005 1040EZ 

returns for single taxpayers with refund or even-balance tax returns. According to IRS, CADE has 

processed over 1.4 million tax returns and generated over $426 million in refunds so far this filing season 

(as of August 26, 2005), and has significantly reduced the cycle time for processing and issuing refunds for 

1040EZs filed electronically. 

x e-Services. This project created a Web portal and provided other electronic services to promote the goal of 

conducting most IRS transactions with taxpayers and tax practitioners electronically. In August 2005, IRS 

deployed an upgrade to the e-Services PeopleSoft software platform and approved the project’s transition 

to operations and maintenance. According to IRS, as of early November 2005, over 93,000 users have 

10CADE will include the modernized database foundation to replace the current master files processing systems, which are the agency’s repository of 

taxpayer information. There are master files for individuals, businesses, and employer retirement plans. CADE is expected to facilitate faster refund

processing and more timely response to taxpayer inquiries. 11Release 1 includes five segments. Release 1.0, the base release of 1040 EZ functionality, was deployed in July 2004. Release 1.1, also deployed in July 

2004 (concurrent with Release 1.0), contained filing season 2003 and 2004 tax law changes. Release 1.2, deployed in January 2005, included filing 

season 2005 changes. Release 1.3.1, deployed in September 2005, included new functionality to improve performance, allow address changes on tax 

returns, and implement initial filing season 2006 tax law changes. Release 1.3.2, scheduled to be deployed in January 2006, will include the remaining

filing season 2006 tax law changes and some additional functionality such as processing basic 1040 returns with no Schedules.

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Appropriations Subcommittee Staffs

Page 18 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

registered with this Web portal, and the use of on-line services by practitioners has resulted in IRS 

operational efficiencies estimated at nearly $1.8 million.

x Modernized e-File (MeF). This project is intended to provide electronic filing for large corporations, small 

businesses, and tax-exempt organizations. In March 2005, IRS completed MeF Release 3.1, which allows 

for the electronic filing of Form 7004 (Application for Automatic Extension of Time to File Corporation 

Income Tax Return) and Form 990PF (Return of Private Foundation). IRS reported that, during the 2005 

filing season, over 220,000 return submissions have been accepted using MeF.

In addition to these system deliveries, in March 2005, IRS launched the Submission and Settlement 

Harvesting Project, which is the agency’s first business rules harvesting12 initiative. This project was chartered 

to reengineer the submission and settlement process and to harvest business rules sets in support of CADE 

Release 3. According to IRS, the effort has harvested over 1000 business rules sets and identified several 

improvement opportunities to streamline the submission process and increase efficiency. This activity was 

completed in November 2005. 

While IRS made progress in meeting cost and schedule commitments for completed and ongoing project 

releases during 2005, some projects experienced significant cost increases and schedule delays. For 

example, our comparison of IRS’s reported costs and ELC milestone completion dates presented in the fiscal 

year 2005 (April 2005) and fiscal year 2006 (October 2005) expenditure plans shows that CADE Release 1.3.1 

was delivered at the estimated cost and that the e-Services upgrade and Milestone 5 exit were completed on 

time and within the estimated project costs. However, two project segments—Integrated Financial System 

Release 1, Milestone 5 and MeF Release 3.2, Milestone 4—experienced significant cost increases of 93% and 

29%, respectively, against commitments shown in the fiscal year 2005 plan. In addition, CADE Release 1.3.1 

took 24% longer to complete than expected. Appendix III provides the complete list of BSM project cost and 

schedule changes reported by IRS. 

12Business rules harvesting refers to the process of extracting, defining, and documenting tax processing criteria (e.g., income tax refunds of $x or more

are held for administrative review) from a variety of sources, including IRS subject matter experts, legacy system source code, the tax code, and various

other paper documents.

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Appropriations Subcommittee Staffs

Page 19 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

In July 2005, we reported13 that the BSM program has had a history of cost increases and schedule delays 

that have been due, at least in part, to deficiencies in various management controls and capabilities that have 

not yet been fully corrected. As noted earlier in this briefing, IRS is currently addressing our prior 

recommendations to correct these deficiencies. 

13GAO-05-774.

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Appropriations Subcommittee Staffs

Page 20 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

Observation 2: Future BSM Project Deliveries Face Significant Risks and Issues, which IRS is Addressing.

IRS has reported that significant challenges and risks confront future planned system deliveries. For example, 

x Customer Account Data Engine – Individual Master File Release 1.3.2. IRS has reported that 

unanticipated tax law changes, including 2005 disaster-related legislation, could impact the development 

and testing schedules for Release 1.3.2, which is expected to be delivered in January 2006. 

x Customer Account Data Engine – Individual Master File Release 2. According to IRS, schedule 

slippages associated with Release 1.3.1 as well as contention for key resources between Releases 1.3.1 

and 1.3.2 necessitated the deferral of some Release 1.3.2 functionality to later releases. These 

requirements deferrals may negatively impact cost and schedule for Releases 2.1 and 2.2, which are 

currently scheduled to be deployed in August 2006 and December 2006, respectively. Also, IRS has 

indicated that contention for key development resources currently working on Release 1.3.2 may impact 

Release 2.1 development activities.

x Filing and Payment Compliance Release 1.1. As a result of a court-ordered delay in procuring private 

collection agencies (PCAs), IRS is implementing a two-phase approach for delivering Release 1.1. This 

consists of delivering (1) a Partial Production Environment in January 2006 (system software delivery) and 

(2) a Full Production Environment in July 2006 (PCAs begin collection efforts). The targeted delivery date 

for the Full Production Environment hinges on the timely award of the PCA contract. IRS reports that 

schedule delays could occur if (1) PCA evaluation, selection, and contract award is delayed and/or (2) PCA

background investigations are not completed in a timely manner.

x Filing and Payment Compliance Release 1.2. IRS reports that Release 1.2, which is scheduled to be 

deployed in January 2007, faces a number of risks. For example, requirements for Release 1.2 are being 

developed using a new methodology/process that has not previously been utilized within the IRS 

modernization environment, thereby creating a risk to project schedule and cost should false starts be 

encountered during the refinement of this methodology. 

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Appropriations Subcommittee Staffs

Page 21 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

x Modernized e-File Release 3.2. Release 3.2, which is scheduled for deployment in March 2006, also 

faces high priority issues and critical risks, including project staff resources, the system’s ability to handle 

the projected volume for filing season 2006, and timely completion of transition/training activities.

IRS recognizes the potential impact of these project risks and issues on its ability to deliver planned 

functionality within cost and schedule estimates, and, to its credit, has developed mitigation strategies to 

address them. 

 Page 17 of 33 
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Briefing Slides from the November 30, 2005, 

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Appropriations Subcommittee Staffs

Page 22 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

Observation 3: IRS Has Made Additional Progress in Addressing High-Priority BSM Program Improvement 

Initiatives.

As a result of continued cost overruns and schedule delays in the BSM program, during the summer of 2003, 

IRS and the PRIME contractor, CSC, initiated three external independent studies and one IRS internal 

analysis to assess the effectiveness of the BSM program and to review the CADE project. 

During 2004, after assessing various aspects of the BSM program and reviewing the four BSM studies as well 

as prior GAO and TIGTA reports, the Associate CIO for BSM identified key barriers to success in the BSM 

program and created a plan to address these barriers.

The Associate CIO established the following seven key focus areas for improving IRS’s capability to design, 

develop, and deliver modernized IT systems: 

x Staffing and Skill Sets,

x Contractor Management, 

x Requirements and Demand Management, 

x Systems Engineering, 

x Project Management Disciplines, 

x Communication and Collaboration, and

x Empowerment/Accountability.

He then mapped (1) GAO/TIGTA recommended corrective actions for improving modernization management 

controls and processes, and (2) several additional IRS-defined improvement initiatives to these key focus 

areas to form a BSM program improvement framework.

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Appropriations Subcommittee Staffs

Page 23 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

In August 2004, the Associate CIO identified 16 “highest priority initiatives” from the program improvement

framework that were to be completed by the end of January 2005. In March 2005, IRS reported that 12 of the 

16 initial highest priority initiatives had been completed and closed. The remaining 4 initiatives were carried 

forward with 13 newly selected highest priority improvement initiatives for a total of 17, which were planned to 

be completed by early September 2005. 

In October 2005, IRS reported that 15 of the 17 highest priority initiatives had been completed and closed, 

including several initiatives related to the shift in the role of systems integrator from the PRIME contractor to 

IRS as well as efforts to complete a human capital strategy and recruiting plan, strengthen IRS’s systems 

engineering capability, hire a technical lead for the BSM program, and establish the requirements 

management and business rules management14 operations. The remaining 2 ongoing initiatives related to (1) 

ensuring that BSM staff are trained in required project management skills (e.g., schedule analysis, earned 

value, testing monitoring) and (2) revising the change request process to reflect IRS’s role as systems 

integrator have been carried over to the next 6-month cycle. 

In addition to the 2 initiatives carried forward, IRS is currently focusing on 20 newly selected highest priority 

improvement initiatives for a total of 22, which are planned to be completed by the end of March 2006. These 

initiatives include 

x building on the current effort to develop a new Modernization Vision and Strategy, 

x establishing requirements management standards, 

x upgrading the enterprise life cycle methodology to provide more guidance to projects,

14In conjunction with the business rules management initiative, IRS completed a Business Rules End-to-End Prototype project. The objectives of this effort 

were to (1) validate the business rules development and management methodology and (2) assess when a business rules engine is an appropriate

solution for CADE and when other programming languages (e.g., C++) should be used. A business rules engine translates business rules or processing

criteria into executable computer code that processes transactions related to a tax form, and selects and executes correct rules based on the tax year and

tax form. The prototype project determined that applying the full business rules management methodology for harvesting business rules would significantly

challenge IRS’s capacity, costs, and timelines to complete the CADE project (e.g., an estimated 100 staff years are required to do full harvesting and 

create the full set of models for the estimated 25,000 business rules embedded in the current individual master file), and recommended using a 

streamlined approach whenever possible to capture and document existing business rules. This effort also determined that business rules can be 

implemented effectively without a business rules engine, and recommended that a business rules engine not be used for any CADE applications, except 

for possibly implementing the fraud detection rules.

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Appropriations Subcommittee Staffs

Page 24 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

x executing the implementation plan for integrated master schedule and baseline management, and 

x awarding a contract to acquire a business rules management repository. 

This program improvement process appears to be a reasonable means of regularly assessing and prioritizing 

and, hopefully, addressing BSM issues and challenges. It should be noted, however, that it is an incremental 

approach and that it can take several iterations of initiatives to fully address issues within the key focus areas 

for program improvement established by the Associate CIO for BSM. For example, as noted above, IRS 

reported that it recently completed and closed an initiative to establish a Requirements Management Office, 

and is currently focusing on a follow-on initiative to further develop its requirements management capabilities. 

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Briefing Slides from the November 30, 2005, 

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Appropriations Subcommittee Staffs

Page 25 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

Observation 4: IRS is Developing a New Modernization Vision and Strategy.

In July 2005, we reported15 that the significant delays and other substantive changes that the BSM program 

had experienced since the development of the initial BSM vision and strategy in 2000 and 2001 indicated a 

need for IRS to revisit its long-term goals, strategies, and plans for the modernization program. To address the 

many changes associated with the BSM and clearly describe what the modernization program is intended to 

accomplish, when it will be completed, and at what cost, we recommended that IRS fully revisit the vision and 

strategy for the BSM program and develop a new set of long-term goals, strategies, and plans consistent with 

the budgetary outlook and IRS’s management capabilities. 

In commenting on a draft of our report, IRS agreed with our recommendation and indicated that it had begun a 

planning effort to revise its IT modernization strategy and approach. The agency also stated that it would be 

updating the Enterprise Transition Strategy and Release Architecture portions of the IRS Enterprise 

Architecture as a part of this effort. At that time, IRS intended to have the high-level strategy, goals, and plans 

in place by the end of fiscal year 2005, and to complete a more detailed engineering analysis and sequencing 

strategies during the first quarter of fiscal year 2006. 

As of October 2005, IRS reported that it had (1) developed a set of IT modernization goals for the year 2010 

that align with and support the agency’s strategic plan, and (2) formed a multi-disciplinary team of IT and 

business specialists to develop a modernization roadmap to guide the agency toward meeting its goals 

incrementally, while providing near-term business value. IRS stated that this roadmap will consider the current 

state of IRS’s IT infrastructure and take a realistic view of the IT funding profile through 2010. Once approved, 

this plan is intended to enable IRS to move forward with a set of well-coordinated modernization initiatives, 

and will serve as the framework for approving new IT projects.

According to the Associate CIO for BSM, IRS’s new Modernization Vision and Strategy focuses on promoting 

investments that provide value in smaller, incremental releases that are delivered more frequently, with the 

15GAO-05-774

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Appropriations Subcommittee Staffs

Page 26 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

goal of increasing business value while investing in solutions that reduce complexity and costs. It is organized 

and prioritized around “domains” that represent a functional, rather than organizational, view of the business. 

The domain priorities have been established to focus on front-line tax administration, emphasizing 

enforcement and customer service needs.

IRS’s new Vision and Strategy is intended to include a 5-year plan that will establish a technical strategy and 

identify investment priorities and a timeline for implementation. According to IRS, the business focus areas for 

modernization in the next five years include: 

x addressing the tax gap;

x expanding electronic filing; 

x increasing accuracy, maintaining service levels, and reducing customer service costs; and

x enabling IRS systems to change quickly in response to business needs. 

From an IT perspective, the plan will focus on using existing systems to deliver business functions and 

capabilities, including: 

x decision analytics; 

x tools and data management capabilities to manage cases; 

x applications that allow taxpayer self-service and communications with IRS via the Internet; and 

x standard, reusable tools to access and update tax administration data. 

IRS anticipates having an approved high-level Vision and Strategy in place in early fiscal year 2006, and 

expects to complete its more detailed 5-year plan for the modernization program by mid-March 2006. We 

believe these actions represent good steps towards addressing our prior recommendation to fully revisit the 

vision and strategy for the BSM program and develop a new set of long-term goals, strategies, and plans 

consistent with the budgetary outlook and IRS’s management capabilities.

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Briefing Slides from the November 30, 2005, 

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Appropriations Subcommittee Staffs

Page 27 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

Observation 5: The Expenditure Plan Submitted to the Congress Contains Outdated Program Status 

Information and Omits Key Details Concerning Deferred BSM Project Functionality.

As we have previously reported,16 to permit meaningful congressional oversight, it is important that expenditure 

plans describe how well the BSM program is progressing against the commitments made in prior expenditure 

plans. However, IRS’s fiscal year 2006 expenditure plan is substantially based on information describing the status 

of BSM projects and program management initiatives as of April 2005, and, therefore, in key areas did not 

adequately describe progress or provide information consistent with the program’s status at the time the plan was 

submitted to the Congress in October 2005. In particular, the fiscal year 2006 expenditure plan:

x does not disclose that planned functionality for two major BSM project releases—CADE Release 1.3.2 and 

Modernized e-File Release 4—has been deferred to future releases, thereby postponing the delivery of 

taxpayer benefits. 

x contains a number of inconsistencies between project cost and schedule data shown throughout the 

document. For example, the information provided in a program results summary table in the Executive 

Summary does not match the cost and schedule data provided in the plan’s detailed project profiles for the 

Filing and Payment Compliance and Modernized e-File projects, respectively. In addition, changes to cost 

estimates for the Integrated Financial System and Custodial Accounting Project noted in a summary table at 

the end of the plan are not reflected in the respective project profiles. 

IRS officials acknowledged the weaknesses we identified with their expenditure plan and subsequently revised 

the plan to include updated information, clarifications, and corrections where appropriate. However, they did 

not provide the updated plan to the Congress. IRS also acknowledged the importance of providing timely data 

and has initiated efforts to establish and implement a policy and process to allow for near real-time updating of 

16See GAO, Tax Systems Modernization: Results of Review of IRS’ Initial Expenditure Plan, GAO/AIMD-99-206 (Washington, D.C.: June 15, 1999),

GAO-01-227, and GAO-02-356.

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Briefing Slides from the November 30, 2005, 

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Appropriations Subcommittee Staffs

Page 28 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Results

the expenditure plan while it is being reviewed by both internal and external stakeholders. They did not, 

however, identify specific timeframes for putting this policy and process in place. Without current and complete 

program status information, meaningful congressional oversight of BSM progress and accountability is 

impaired.

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Briefing Slides from the November 30, 2005, 

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Appropriations Subcommittee Staffs

Page 29 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Conclusions

IRS’s fiscal year 2006 plan satisfies the legislative conditions. 

IRS has made further progress in implementing BSM during 2005, but some projects did not meet short-term 

cost and schedule commitments. Future project deliveries face significant risks and issues, which the agency 

is actively working to mitigate. In addition, IRS has significant program challenges and issues that it must 

resolve, and has established an incremental program improvement process to assess, prioritize, and address 

them. The new vision and strategy that IRS is currently developing represents a good step towards developing 

information for the Congress on future plans for the modernization program. However, key information 

provided in the fiscal year 2006 expenditure plan submitted to the Congress is outdated and incomplete, which 

inhibits effective congressional oversight of BSM progress.

 Page 25 of 33 
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Briefing Slides from the November 30, 2005, 

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Appropriations Subcommittee Staffs

Page 30 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Recommendation for Executive Action

To allow for effective congressional oversight of the BSM program, we recommend that the Commissioner of 

Internal Revenue direct the CIO to take the following action: 

x ensure that future expenditure plans submitted to IRS’s appropriations subcommittees provide current and 

complete program status information and report any changes to prior commitments concerning the delivery 

of BSM project functionality. 

 Page 26 of 33 
Appendix I

Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 31 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Agency Comments

In providing oral comments on a draft of this briefing, the Associate CIO for BSM stated that he appreciated 

the reasoned and balanced work of the GAO and believed that the briefing fairly represents BSM 

accomplishments as well as future risks. He agreed with the recommendation addressing the timeliness and 

completeness of the expenditure plan data and the importance of timely data for meaningful oversight. He 

stated that IRS plans to propose a new policy to increase the visibility and timeliness of changes to the plan 

and expedite its review process. He also provided specific technical comments that we have incorporated into 

the briefing, as appropriate.

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Briefing Slides from the November 30, 2005, 

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Appropriations Subcommittee Staffs

Page 32 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Appendix I: Description of Business Systems Modernization (BSM) 

 Projects and Program-Level Initiatives

Proposed modernization initiative Description

Tax administration projects 

e-Services Is to create a Web portal and other e-Services to promote the goal of conducting

most IRS transactions with taxpayers and tax practitioners electronically.

Filing and Payment Compliance (F&PC) Is a series of projects providing support for detecting, scoring, and working 

nonfiler (filing compliance) and delinquency (payment compliance) cases. The 

first phase of F&PC is Private Debt Collection, which will use advanced software 

to analyze tax collection cases and divide them into the complex cases requiring

IRS involvement from the simpler (“balance due”) cases that can be handled by 

private collection agencies.

Modernized e-File Is to provide a single standard for filing electronic tax returns. Initial releases will 

address large corporations, small businesses, and tax-exempt organizations. Its 

ultimate goal is the conversion of IRS’s 1040 e-file program. 

Customer Account Data Engine – Individual

Master File 

Is to build the modernized database foundation to replace the existing master 

file processing systems that contain a repository of information on individual

taxpayers.

Internal management projects

Custodial Accounting Project Is to provide integrated tax operations and internal management information to 

support evolving decision analytics, performance measurement, and 

management information needs. 

Integrated Financial System Is to provide a single ledger for administrative and financial data and a platform 

to integrate core financial data with budget, performance, and cost accounting

data.

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Page 33 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Appendix I: Description of Business Systems Modernization (BSM) 

 Projects and Program-Level Initiatives

 (continued from previous page) 

 Source: IRS.

Proposed modernization initiative Description

Core infrastructure projects 

Development, Integration, & Testing

Environments

Is to provide oversight for laboratory environments that support evaluation,

development, and testing of components from multiple projects: (1) Virtual

Development Environment provides a software development environment and a 

standardized set of tools; (2) Enterprise Integration and Test Environment provides an

integration and testing environment for all projects.

Infrastructure Shared Services Is to establish a program to build and deliver an infrastructure that is scalable, 

interoperable, flexible, manageable, and features standardized operations and a single

security and enterprise systems management framework. 

Architecture, integration & management

Architecture & Integration Is to ensure that systems solutions meet IRS business needs and that the projects are

effectively integrated.

Business Integration Is to ensure that IRS’s BSM program is aligned with the business units’ vision and 

delivers the desired business results. It provides support to the business owners with 

key activities such as transition management, business rules enterprise management,

and business transformation. 

Management Processes Is to provide sustaining support for program-level management processes, including 

quality assurance, process improvement, training, program control, and ELC

maintenance and enhancements.

Federally Funded Research and 

Development Center—MITRE 

Is to provide program management and systems engineering support to BSMO.

Program Management Is to ensure that projects achieve their objectives; provide the management information 

and IT infrastructure that supports risk management, project cost and schedule 

estimating, and financial management; and provide procurement management for the 

CSC contract and associated task orders.

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Briefing Slides from the November 30, 2005, 

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Appropriations Subcommittee Staffs

Page 34 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Appendix II: Additional Detail on IRS’s Fiscal Year 2006 BSM

Expenditure Plan (in thousands of dollars)

Proposed modernization initiative ReleaseaMilestoneb Milestone

date

Amount

requested

Tax administration projects 

Filing & Payment Compliance (F&PC) R1.2 4b Jan. 07 $10,000

F&PC Risk Adjustment 0

 Subtotal – F&PC project 10,000

Modernized e-File (MeF) R4 4 Mar. 07 26,900

MeF Risk Adjustment 3,100

Subtotal – MeF project 30,000

Customer Account Data Engine – Individual Master File (CADE IMF) 

Operations and

Maintenance N/A Dec. 06 7,500

CADE IMF R2.1 4b Aug. 06 25,800

CADE IMF R2.2 4b Dec. 06 13,955

CADE IMF 

Program Mgmt. and 

Transition Mgmt. N/A Dec. 06 9,045

CADE Risk Adjustment 3,700

Subtotal – CADE project 60,000

Subtotal – tax administration projects 100,000

Core infrastructure projects 

Development, Integration & Testing Environments (DITE) FY 06c Nov. 06 14,934

Infrastructure Shared Services (ISS) FY 06c Nov. 06 29,066

DITE/ISS Risk Adjustment 3,000

Subtotal – core infrastructure projects 47,000

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Appendix I

Briefing Slides from the November 30, 2005, 

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Appropriations Subcommittee Staffs

Page 35 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Appendix II: Additional Detail on IRS’s Fiscal Year 2006 BSM

Expenditure Plan (in thousands of dollars)

(continued from previous page)

Proposed modernization initiative Releasea Milestoneb Milestone

date

Amount

requested

Architecture, integration, & management

Architecture & Integration FY 06 c Nov. 06 $15,220

Business Integration FY 06 c Nov. 06 5,250

Management Processes FY 06 c Nov. 06 3,920

Federally Funded Research and Development Center—MITRE FY 06 c Nov. 06 7,600

Program Management FY 06 c Nov. 06 4,270

Architecture, Integration & Management Risk Adjustment 740

Subtotal – architecture, integration, & management 37,000

Management reserve 15,000

Total fiscal year 2006 BSM program $199,000

Source: IRS. 

a

Releases are software versions that provide a subset of the total planned project functionality.

b

Milestones correspond to phases within IRS’s ELC (1 – Enterprise Architecture, 2 – Domain Architecture, 3 – System Architecture, 4a – System Design,

4b – System Development, 5 – System Deployment).

c

Core infrastructure projects and management initiatives are funded on a fiscal year (FY) basis rather than by milestone.

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Briefing Slides from the November 30, 2005, 

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Appropriations Subcommittee Staffs

Page 36 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Appendix III: IRS Reported Project Cost/Schedule Changes 

Project segment

Commitment date 

and funding as of 

4/2005

($000)

Revised commitment

date and funding as 

of 10/2005

($000)

Change

(%) IRS explanation of change

Modernized e-File 

Release 3.2 

Milestone 4 

3/31/06

$23,773

3/31/06

$30,623 +$6,850

(+29%)

Cost increase is due to unplanned 

functionality related to security and 

large file/mandate requirements. 

$2.65 million has been transferred to 

the project from the FY 2005 Risk

Adjustment. An additional $4.2 million 

is expected to be realigned from FY 

2005 Management Reserve to 

complete the development, testing, 

and implementation of Release 3.2.

Modernized e-File 

Release 4 

Milestone 3 

10/31/05

$8,000

11/30/05

$3,800

+1 month 

(+14%)

-$4,200

(-53%)

The start of Release 4, Milestone 3 

was delayed by 2 months due to the 

uncertainty of FY 2005 BSM funding.

However, the estimated time to 

complete this work was reduced from

7 months to 6 months. 

The initial $8 million cost estimate was 

based on delivering the functionality for 

Forms 1065, 1041, and 990T. The 

subsequent budgetary decision to 

defer Forms 1041 and 990T to a later 

release resulted in the estimated cost 

being reduced to $3.8 million.

Customer Account 

Data Engine 

Release 1.3.1 

7/07/05

$16,300

9/19/05

$16,300

+2.4 months

(+24%)

Schedule slippage was caused by 

problems with a variety of database 

conversion, requirements definition, 

documentation, and test environment 

issues.

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Briefing Slides from the November 30, 2005, 

Briefing to the Senate and House 

Appropriations Subcommittee Staffs

Page 37 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Appendix III: IRS Reported Project Cost/Schedule Changes 

Project segment

Commitment date 

and funding as of 

4/2005

($000)

Revised commitment

date and funding as 

of 10/2005

($000)

Change

(%) IRS explanation of change

Customer Account 

Data Engine 

(CADE)

Business Rules 

(Currently referred 

to as CADE 

Requirements

Management/

Engineering)

12/31/05

$28,902

12/31/05

$30, 902 +$2,000

(+7%)

$2 million was transferred from the FY 

2004 CADE Risk Adjustment to

support Submission and Settlement 

Harvesting Project (SSHP) activities, 

which began in March 2005. The 

SSHP project’s objective is to capture 

all of the business rules sets derived 

from the submission and settlement 

process and redesign this process to 

ensure business rules are executed in 

the most efficient manner, in support of 

CADE Release 3.

Integrated

Financial System

Release 1 

Milestone 5 

11/30/05

$15,000

11/30/05

$29,000 +$14,000

(+93%)

Milestone 5 costs are higher than 

originally planned due to additional 

contractor hours required to address 

and respond to defect repairs and 

service requests, contractor efforts 

associated with legacy system related 

changes, and unplanned software 

maintenance costs. Realigned FY 

2004 Milestone 4, Risk Adjustment, 

and Management Reserve funding. Source: IRS.

 Page 33 of 33 
Page 38 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Appendix II

Comments from the Internal Revenue Service ApendxiI
Appendix II

Comments from the Internal Revenue Service

Page 39 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan
Page 40 GAO-06-360 IRS’s Fiscal Year 2006 Expenditure Plan

Appendix III

GAO Contact and Staff Acknowledgments ApendxiI

GAO Contact David A. Powner, (202) 512-9286

Staff 

Acknowledgments

In addition to the contact named above, Timothy D. Hopkins and Sabine R. 

Paul made key contributions to this report. 

(310809)
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