IRS Modernization Efforts Shift Amid Budget and Planning Revisions

The Internal Revenue Service (IRS) has undertaken significant efforts to modernize its aging technology infrastructure, with approximately $1.5 billion allocated to these initiatives in fiscal year 2024. These modernization programs, aimed at supporting critical taxpayer services and core business functions, largely adhered to established best practices for documenting plans. However, the agency paused these ongoing programs in March 2025 to reassess its priorities and develop a new IT modernization framework.

During fiscal year 2024, the IRS reported that most of its 23 active modernization programs were completed on schedule. The total expenditure for these programs was approximately $1.5 billion, which was $512 million less than initially planned. A significant portion of this underspending came from 16 of the 23 programs, which collectively reported unspent funds ranging from $5 million to $78 million. The Government Accountability Office (GAO) assessed these modernization plans against established best practices, which include detailing project milestones, describing the scope of work, and outlining the disposition of legacy systems. The GAO found that the IRS had documented plans for all 23 programs active as of September 2024, with most plans incorporating these key elements. Specifically, 20 of the 23 plans fully addressed the milestones and work description requirements, while three partially addressed them. The disposition of legacy systems was fully addressed in 10 programs, partially addressed in three, and not applicable or not addressed in eight.

The IRS’s modernization initiatives were aligned with its overall IT strategic goals and objectives, consistent with federal strategic planning guidance. However, in March 2025, the IRS informed the GAO that it had halted these programs for a reevaluation of priorities. Subsequently, the agency presented a draft of a new modernization framework that comprises nine new initiatives intended to replace the previous 23 programs. These new initiatives are designed to address specific technological needs, such as the development of a unified application program interface. A report from the Taxpayer Advocate in June 2025 indicated that to facilitate this reprioritization, many existing projects have been either paused or canceled. As the IRS finalizes its new IT modernization framework, it will be crucial for the agency to ensure that new initiatives continue to align with documented strategic objectives and that program plans comprehensively address essential elements. Furthermore, for the 23 programs that were previously underway, the IRS should consider the usability of the work that has already been completed. The IRS has been the recipient of approximately $4.8 billion through the Inflation Reduction Act of 2022 for business systems modernization, with these funds available through fiscal year 2031. In fiscal year 2024 alone, the IRS dedicated about $5 billion to IT, with $1.5 billion of that total directed toward modernization programs. The GAO’s review was mandated by Congress to examine the IRS’s IT programs, focusing on fiscal year 2024 cost and schedule performance and the development of modernization plans aligned with best practices and strategic vision. The GAO summarized IRS’s reported financial and schedule data and analyzed program plans for adherence to best practices, while also engaging with relevant IRS officials. The IRS has acknowledged GAO’s findings and has agreed to implement previously issued recommendations, although 10 of the 33 recommendations made by the GAO to address legacy system risks and improve modernization plans remain unimplemented.

Article by Mel Anara, based upon information from the U.S. Government Accountability Office.

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