The mission of IRS, a bureau within the Department of the Treasury, is to provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the federal tax laws with integrity and fairness to all. In carrying out its mission, IRS annually collects over $2 trillion in taxes from millions of individual taxpayers and numerous other types of taxpayers and manages the distribution of over $300 billion in refunds. To guide its future direction, the agency has two strategic goals: (1) deliver high quality and timely service to reduce taxpayer burden and encourage voluntary compliance; and (2) effectively enforce the law to ensure compliance with tax responsibilities and combat fraud. IRS has established seven overarching priorities to accomplish its mission: facilitate voluntary compliance by empowering taxpayers with secure and innovative services, tools, and support; understand non-compliant taxpayer behavior, and develop approaches to deter and change it; leverage and collaborate with external stakeholders; cultivate a well-equipped, diverse, skilled, and flexible workforce; select highest value work using data analytics and a robust feedback loop; drive more agility, efficiency, and effectiveness in IRS operations; and strengthen cyber defense and prevent identity theft. The mission of IRS’s Information Technology organization is to deliver IT services and solutions that drive effective tax administration to ensure public confidence. It is led by the Chief Technology Officer, who reports to the Deputy Commissioner for Operations Support of the IRS. Several subordinate offices report to the Chief Technology Officer. Figure 1 shows the structure of IRS’s Information Technology organization. IT plays a critical role in enabling IRS to carry out its mission and responsibilities. For example, the agency relies on information systems to process tax returns, account for tax revenues collected, send bills for taxes owed, issue refunds, assist in the selection of tax returns for audit, and provide telecommunications services for all business activities, including the public’s toll-free access to tax information. For fiscal year 2016, IRS is pursuing 23 major and 114 non-major IT investments to carry out its mission. These investments generally support (1) day-to-day operations (which include operations and maintenance, as well as development, modernization, and enhancements to existing systems), and (2) modernization efforts in support of IRS’s future goals. The day-to-day operations are primarily funded via the operations support appropriation account, user fees and other supplemental funding. The modernization efforts are funded via the business systems modernization appropriation account. IRS expects to spend about $2.7 billion for IT, including $2.2 billion in appropriated funds, $391.9 million in user fees, and $108.2 million in other supplemental funding. Approximately $1.4 billion of IRS’s IT funding for fiscal year 2016 supports the two operational investments (TSS and MSSS), and four development investments (FATCA, ACA, CADE 2, and RRP) that we selected for review. TSS supports IRS’s network infrastructure services such as network equipment, video conference service, enterprise fax service, and voice service for over 85,000 IRS employees at about 1,000 IRS locations. According to IRS, the investment continues delivery of services and products to employees which translates into service to taxpayers. IRS allocated approximately $366.6 million to activities supporting the TSS investment. Table 1 identifies the fiscal year 2016 funding allocation for the TSS investment, as well as the types of activities being funded. MSSS provides for the design, development, and deployment of server, middleware, and large systems as well as enterprise storage infrastructures, including systems software products, databases, and operating systems for these platforms. For fiscal year 2016, IRS allocated approximately $454.2 million for activities supporting the MSSS investment. Table 2 identifies the fiscal year 2016 funding allocation for the MSSS investment, as well as the types of activities being funded. FATCA is intended to improve tax compliance by identifying U.S. taxpayers that attempt to shield or divert assets by depositing funds in foreign accounts. A law enacted in 2010 requires foreign financial institutions to report to the IRS information regarding financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers have a substantial ownership interest. IRS allocated $89.1 million to FATCA for fiscal year 2016. ACA encompasses the planning, development, and implementation of IT systems needed to support IRS’s tax administration responsibilities associated with parts of the Patient Protection and Affordable Care Act. IRS allocated $311.2 million to ACA for fiscal year 2016. CADE 2 is intended to provide daily processing of taxpayer accounts. A major component of the program is a modernized database for all individual taxpayers that is intended to provide the foundation for more efficient and effective tax administration. In Transition State 2 of the initiative, the modernized database will become IRS’s authoritative source for taxpayer account data, as it begins to address core financial material weakness requirements for individual taxpayer accounts. Existing financial reports will be modified to take into account the increased level of detail and accuracy of data in the database. CADE 2 data will also be made available for access by downstream systems such as the Integrated Data Retrieval System for online transaction processing by IRS customer service representatives. IRS allocated $129.9 million to CADE 2 for fiscal year 2016. RRP is intended to deliver an integrated and unified system that enhances IRS’s capabilities to detect, resolve, and prevent criminal and civil tax noncompliance. In addition, it is intended to allow analysis and support of complex case processing requirements for compliance and criminal investigation programs during prosecution, revenue protection, accounts management, and taxpayer communications processes. IRS allocated $91.7 million to RRP for fiscal year 2016. Over the past several years, we have issued a series of reports which have identified opportunities for IRS to improve the management of its major IT investments. We reported in June 2012 that while IRS reported on the cost and schedule of its major IT investments and provided chief information officer ratings for them, the agency did not have a quantitative measure of scope–a measure that shows functionality delivered. We noted that having such a measure is a good practice as it provides information about whether an investment has delivered the functionality that was paid for. We recommended that IRS develop a quantitative measure of scope, at a minimum for its major IT investments, to have more complete information on the performance of these investments. In December 2015, IRS officials told us that they were exploring options to report scope and proposed an option in a December 2015 quarterly report on IT to Congress. We examined the suitability of proposed solutions for a quantitative measure of scope as part of this review. Further, in April 2013 we reported that the majority of IRS’s major IT investments were reportedly within 10 percent of cost and schedule estimates and eight major IT investments reported significant cost and/or schedule variances. We also reported that weaknesses existed, to varying degrees, in the reliability of reported cost and schedule variances, and key risks and mitigation strategies were identified. As a result, we made recommendations for IRS to improve the reliability of reported cost and schedule information by addressing the identified weaknesses in future updates of estimates. We also recommended that IRS ensure projects consistently follow guidance for updating performance information 60 days after completion of an activity and develop and implement guidance that specifies best practices to consider when determining projected amounts. IRS agreed with three of our four recommendations and partially disagreed with the fourth recommendation. The agency specifically disagreed with the use of earned value management data as a best practice to determine projected cost and schedule amounts, stating that the technique was not part of IRS’s current program management processes and the cost and burden to use it outweighed the value added. While we disagreed with IRS’s view of earned value management because best practices have found that the value generally outweighs the cost and burden of implementing it, we provided it as one of several examples of practices that could be used to determine projected amounts. We also noted that implementing our recommendation would help improve the reliability of reported cost and schedule variance information, and that IRS had flexibility in determining which best practices to use to calculate projected amounts. Finally, our February 2015 report found that most of IRS’s major IT investments reported meeting cost and schedule goals; however, selected investments experienced variances from initial cost, schedule, and scope plans that were not transparent in reports to Congress because IRS had yet to address our prior recommendations. Specifically, IRS had not addressed our recommendation to report on how delivered scope compares to what was planned, and also did not address guidance for determining projected cost and schedule amounts, or the reporting of cumulative cost and schedule performance information. IRS has identified priorities for operations and modernization but does not have a structured process for prioritizing among modernization efforts. Specifically, IRS has developed eight priority groups for operations, such as the delivering essential tax administration and taxpayer services group, and identified eight priority projects for modernization, including CADE 2 and RRP, to help reach IRS’s future state vision. In addition, IRS has developed a structured process for allocating funding to its operations support activities which is consistent with best practices. However, IRS has not fully documented this process. In addition, IRS does not have a similar structured process for prioritizing funding among its modernization activities, stating it does not have such a process because there are fewer competing activities than for operations support. A documented process for both operations support and modernization activities that is consistent with best practices would provide transparency into the process and provide greater assurance it is consistently applied. IRS has identified eight priorities—referred to as repeatable priority groupings—for its operations support activities. Officials told us that these priorities evolved from lessons learned in using priorities established the prior year and noted that they will continue to be refined over time.