WASHINGTON -- Congress enacted Information Reporting and Document Matching (IRDM) legislation to narrow the Tax Gap by requiring third-party payors, such as banks and brokerage firms, to submit information returns to the Internal Revenue Service (IRS) reporting income earned by businesses on merchant payment card and the cost basis for securities transactions. In response, the IRS began creating the software infrastructure needed to implement the IRDM program and has developed and deployed four of five IRDM information technology projects.
However, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA), the IRS developed, but did not deploy its IRDM Case Management System to manage business taxpayer cases with identified underreported income.
The objective of TIGTA's audit was to determine how system development risks for the IRDM case management system were mitigated and whether established information technology management requirements and business goals were satisfied. The process of requirements management during system development and implementation is important to identify the required functionality and characteristics of the business systems to be developed.
TIGTA found that the IRDM case management system requirements were not sufficient to allow planned deployment of the completed system. After a year of testing, IRS officials acknowledged that the system could not effectively process business cases containing underreported income and could not be deployed into the IRS production environment. In the absence of the case management system, thousands of business taxpayer cases containing underreported income could not be processed.
The IRS spent approximately $8.6 million from Fiscal Years 2009 through 2013 developing the case management system needed for the IRDM program. Based on available data from the IRS, TIGTA estimated that unprocessed 2011 cases could have potentially resulted in assessed taxes of $54.9 million.
TIGTA made three recommendations to improve future IRDM case management system development. The IRS agreed with two recommendations and partially agreed with the third.