The Internal Revenue Service spent millions of dollars earmarked for business systems modernization on the operations and maintenance of legacy IT systems, according to a watchdog report released last week.
The Treasury Inspector General for Tax Administration found that from August 2022 through September 2023, $4.6 million in Inflation Reduction Act funds that were supposed to go toward modernization were “inappropriately” diverted instead to three legacy systems.
Based on those findings, TIGTA estimated that the actual tally of IRA modernization funds used for legacy ops and maintenance was roughly $21 million across 14 systems. The IRA, which was signed into law in 2022, stipulated that funding for IRS modernization could not be redirected to legacy systems.
The IRA’s IRS modernization priorities, including the development of technology to provide more personalized customer service, were to be implemented by the tax agency’s IT organization management. But over the course of its investigation, TIGTA found that those IT managers “were not aware of the IRA prohibition.”
“Information Technology organization management then explained they have a process in place that would ensure that IRA [business system modernization] funding is spent only on modernization programs and not legacy systems,” the report noted. “They stated that internal order codes are used to distinguish between the [operations and maintenance] and development, modernization, and enhancement spending, and that these internal order codes are reviewed and validated to ensure that purchases of products or services use appropriate funding.”
The watchdog called that process “ineffective” due to the fact that internal order codes are assigned to modernization programs at the IT investment level, as opposed to the system level. TIGTA also pointed out that the process lacked any review mechanism to figure out whether certain tasks were meant for operations and maintenance or development, modernization or enhancement.
“Not being able to identify IRA information technology contracts could result in noncompliance with IRA funding restrictions,” the report continued. “It also demonstrates that the IRS did not effectively implement the IRA provisions, which resulted in BSM funding spent inappropriately for O&M costs of legacy systems. IRA BSM funding is limited and is estimated to be exhausted by Fiscal Year 2026. With the IRS misspending it on legacy systems, it may not be able to complete some of its modernization efforts.”
TIGTA delivered three recommendations to the IRS’s chief information officer aimed at effectively identifying funding sources for IT contracts, training stakeholders on compliance with the disbursement of IRA monies, and updating internal guidelines for modernization spending. The IRS agreed with all three recommendations.
