Rettig faces his biggest tax case yet

Charles Rettig
Charles Rettig

As President Donald Trump’s nominee IRS commissioner, Charles Rettig faces a major pay cut. A legal website reports he earned more than a million dollars as a tax attorney. Rettig has already advised the IRS on accountability issues, according to his official bio, and if confirmed he would be the first tax attorney in decades to head the agency.

Maybe it will take someone from the tax litigation world to do what Rettig promised in his confirmation hearing: modernize the IRS’ IT systems. I reckon this would be one of Rettig’s toughest cases ever, except this time he’ll be both plaintiff and defendant.

Previous commissioners and the career IT staff have made a great deal of progress over the past 30 years. Sometimes that gets lost amid the stories of “systems dating to the Kennedy administration.” Within the memory of people still working at IRS, for example, the agency used to fly reels of tape around the country to synchronize the mainframes. I once had my picture in a local New England newspaper for delivering a tax return to a post office just before a midnight deadline, but today, most individuals and businesses file online.

But the Individual Master File — that seemingly irreducible nut — remains. It’s indeed a project that dates to the 1960s. The IMF and its associated databases hold the data and perform the calculations needed to process returns and give customer service.

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The most recent Government Accountability Office study found the IRS spent $1.9 billion in fiscal 2016 on maintaining legacy systems and $800 million on development, modernization and enhancement. The IRS devoted part of that smaller piece to a long-running project called CADE 2, or Customer Account Data Engine.

If the IMF is the setting sun, CADE 2 is the rising sun. Only time practically stands still.

I’ve written about this before, but the conversion of 200,000 lines of elegant assembly code to Java is crucial to CADE 2 replacing IMF. That will probably quadruple the code and the required maintenance, but fewer and fewer programmers care to become versed in assembly. The rest won’t live forever. It’s like being an expert in carburetor adjustment when 99 percent of cars have electronic engine controls.

Between 2011 and 2017, 24 IMF programmers retired. IRS had 32 remaining assembler experts on hand for the updates required in the 2017 filing season. Now the shorthanded agency is facing a giant reprogramming effort because of last year’s tax bill that will affect the 2018 filing season.

IRS spent $182.6 million on CADE 2 in 2016 and $35 million for the first half of 2017, half the previous year’s annual rate. So GAO investigators were startled by an IRS assertion that with 50 people, five years, and $85 million per year, the agency could finish CADE and finally retire the IMF.

One more thing the IRS would need: Direct hiring authority to obtain the right skills at competitive salaries. Indeed, during his confirmation hearing, Rettig said he’s a proponent of critical pay authority for IT people.

IRS’ issues go beyond the merely technical. It has program management challenges too. In the six quarters studied by GAO, CADE 2 spending was 90 percent of budgeted. It only got 46 percent of the required functionality for the period observed. Since the advent of tax system modernization as a project a generation ago, the agency has spent billions. It’s received less than it paid for but it hasn’t received nothing. Still, as the GAO’s IT issues director Dave Powner told a congressional hearing, it’s past the time when the IRS should complete CADE 2 and decommission the IMF.