The IRS is making “major progress” on its long-term IT modernization plans, according to the Treasury Department, and is expected to produce a new strategy outlining its tech priorities next year.

An agency watchdog, however, said the IRS has yet to decommission any of its legacy IT systems — one of the ultimate goals of this initiative. But agency officials tell auditors that they are getting closer to that target.

The IRS operates some of the oldest IT systems still running in the federal government, which are often coded in outdated programming languages that few tech workers still know how to support.

The Treasury Department announced this week that it has awarded several contracts to continue modernizing IT at the IRS.

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The IRS has awarded a contract to Palantir to enable a “common API layer” that will allow the agency to automate more of its workflows and improve its data analysis capabilities. It also extended a contract with Salesforce to “modernize taxpayer-facing services.”

Treasury’s contract award to Palantir bears a resemblance to an IT modernization project that Federal News Network reported on back in July. Internal documents show the agency is working on a “future state” of its Integrated Data Retrieval System (IDRS), a massive clearinghouse of taxpayer data.

IDRS allows IRS employees to review an individual’s tax information when they call asking for help, or send tax notices to individuals. The system also makes it possible for taxpayers to track the status of their federal tax return refund check.

The IRS expects that this modernization project, once complete, will make it much easier for employees to retrieve a taxpayer’s records when they contact the agency asking for help. Department of Government Efficiency officials have access to data from IDRS, and there are several ongoing lawsuits challenging DOGE’s access to sensitive data at the IRS and other agencies.

Courtney Bowman, global director for privacy and civil liberties at Palantir, speaking at an American Enterprise Institute event in July, said Palantir is working with the IRS on a “unified API” that will make it easier for the agency to help taxpayers.

“The IRS and part of their processing tax returns is working across a multitude of different systems that are not currently interoperable. And so, in order for a customer service representative within the IRS to get the information that they need, in order to be responsive to a taxpayer’s request, they have to swivel between 10 or 15 different systems and then munge all of that information together in a Word document or an Excel document, and then they have all these random information sources floating around,” Bowman said.

Federal News Network has reached out to the IRS, Treasury Department and Palantir for comment on the contract award.

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The IRS also continues to roll out its “zero paper initiative,” a strategy to move to digitize more of its work and move away from paper-based processes. It’s extended contracts with Iron Mountain, as well as GovCIO, VASTEC and 22nd Century.

The IRS faced a massive backlog of paper tax returns and correspondence after shutting down offices at the beginning of the COVID-19 pandemic. IRS employees also returned to the office much sooner than the rest of the federal workforce.

House Ways and Means Committee Chairman Jason Smith (R-Mo.) said in a statement on Thursday that the IRS “will ensure that working American families will be able to get the service they need.”

“Democrats failed to deliver on the improvements they promised when they gave the IRS a $80 billion windfall,” Smith said.

The IRS originally received $80 billion in multi-year modernization funds through the Inflation Reduction Act, but Republican lawmakers have clawed back about half of those funds in recent years.

The Government Accountability Office recently found that the IRS kept on track with its IT modernization goals for fiscal 2024, and stayed under budget to complete the projects.

The IRS told GAO it spent about $2 billion on IT modernization projects in FY 2024, all using funds it obtained through the Inflation Reduction Act.

In March, IRS leaders paused an IT modernization strategy that began under the Biden administration, and said it was “reevaluating its priorities.” GAO said the IRS stopped sending quarterly updates on IT modernization efforts in April, but the agency is “currently working to restart them.”

The IRS shared a draft modernization framework with GAO that includes 9 initiatives, compared to 23 programs under the previous plan. The National Taxpayer Advocate told Congress in a report this summer that many IT modernization projects have been paused or cancelled as part of this reprioritization.

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Ongoing projects include a long-awaited update to the Individual Master File, the system at the heart of IRS tax filing season operations. The agency began this project in 2009, and expects to complete it in fiscal 2028.

The IRS is also in the process of moving to a single enterprise case management system that would make it easier for employees to provide help to taxpayers, and easier to decommission legacy IT systems. The agency initiated the program in October 2015 and plans to complete it by the end of fiscal 2026.

The Treasury Inspector General for Tax Administration also found that despite this work on enterprise case management modernization, the IRS hasn’t decommissioned any of its legacy systems yet.

According to TIGTA, about 63% of IRS IT systems are considered legacy systems. TIGTA wrote that the IRS spent over $39 million in fiscal 2024 to maintain and operate these legacy systems, and “will continue spending funds until these systems are decommissioned.”

IRS Chief Information Officer Kaschit Pandya told TIGTA that more than 9,000 IRS employees are now using a modernized ECM platform “to support a growing number of business workflows.”

The IRS said it will “continue ongoing efforts to migrate high-value business workflows to the ECM platform and will decommission case management systems or components.”

If you would like to contact this reporter about recent changes in the federal government, please email jheckman@federalnewsnetwork.com, or reach out on Signal at jheckman.29

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