IRS considers outsourcing submission processing

With customary succinctness, the Internal Revenue Service has taken a tentative step toward subcontracting its submission processing: "Pursuing the outsourcing of the program to private industry, which possesses the core competencies to re-engineer the work processes and deploy imaging and other advanced technologies, creates opportunities to reduce costs and improve efficiency and effectiveness."

The IRS concedes, in a recently released "Study of the Feasibility of Outsourcing Submissions Processing," that its paper-reliant processing system is in serious trouble. With total annual maintenance costs of over $13 million, the paper tax return data input system (DIS) and remittance processing system (RPS), which are 13 and 19 years old respectively, experience significant downtime and slow operator productivity.

One of the primary risks the IRS sees in turning over submission processing to outside contractors is that the IRS may become a captive of the contractors at the completion of the contract term. Of further concern, some parts of submission processing may be deemed "an inherent government function" and therefore not entrusted to the private sector.

The IRS is not optimistic about the timeliness of any transition to an outsourced system. Even if the effort commenced immediately, it would be unlikely that a significantly sized outsourcing could be phased in before the year 2001.

Should the IRS follow through on its proposal to turn to outside vendors, it would represent a substantial volume of work. In addition to the 200 million tax returns processed annually, the Service handles over 1 billion information returns (most filed via magnetic media) and collects over $1.4 trillion in payments.