The IRS is inching forward in its efforts to modernize the system for individual tax account data, called the Individual Master File, that dates back to the 1960s.

The IRS has been trying to modernize the system — an effort the agency’s watchdog has called “one of the most complex modernization programs in the federal government” — since at least 2009.

The tax agency is currently testing a new processing engine as part of a possible replacement and that testing will inform a potential decision to switch to the new system for the next tax season. The IRS says it hasn’t made that decision yet, but the testing represents a big deal for a big system at the agency, given that internal projections target 2028 as an optimistic deadline for retiring the IMF system.

Modernizing the IMF is necessary for the IRS to accomplish its broader goal of becoming a digital government agency due to fact the IMF touches hundreds of other IRS applications because of the complicated tax code, and it has evolved over decades.

IMF is the heart of the tax season and it’s the famous ‘fix your plane while in flight"...

Funding has been an issue for the effort as well, but in 2022, the IRS received $80 billion in multi-year funding from Congress in the Inflation Reduction Act, although $20 billion of that has since been taken back as part of a debt ceiling agreement last year.

The testing of the new system follows IRS progress in converting the IMF from Assembly Language Code and COBOL — legacy computer languages that increasingly fewer programmers are proficient in — into Java. That newly converted code is called the Individual Tax Processing Engine, and the next generation IMF is called the Tax Account Management-Individual, or TAMI-I.

The hardware and software of IMF have been modernized already, and the data in the system has also been standardized. The IRS had to sort through discrepancies, like whether or not there are dashes between Social Security numbers.

Whenever the IRS does move to the modernized version as the system of record, the tax agency will be looking at moving the still on-premises IMF to the cloud, although the pace and timeline of that move is still being sorted out, said the commissioner.

The IRS will first want to have a successful period of time where we’re running on the modern IMF and the agency also won’t be turning off the old system right away. The IRS’ Strategic Operating Plan lists fiscal 2028 as a target date for IMF retirement.

The IRS also has to modernize the business account counterpoint to the IMF — called the Business Master File — and the tax agency will be taking lessons learned on agile development to that effort, which is already ongoing, the IRS commissioner said. Once the new IMF is completed, the IRS will be making public commitments on BMF modernization.

Moving away from the old IMF system will simplify how taxpayer account data is shared across the IRS and make it easier for the agency to accommodate changes Congress makes to tax law.

Inside the IRS, a modernized IMF could also enable positive changes for employees, who might currently have to log into several different systems to fix issues for a single taxpayer.

Taxpayers will see the impact with more accurate information about their situations, the Treasury document states. Modernizing the IMF will streamline the connection of individual account data with IRS online web applications. That connects the effort to one of the IRS’ core modernization goals — to become a digital government agency where taxpayers can get things done online, if they so choose.

IRS is looking forward to the day when the tax agency can retire its 1960s-era technology.