IRS Database System Makes Tax Deadline, Finally

Did you notice anything different about the way your tax return was handled this year by the IRS? Using a new database management system, the agency is processing most returns daily rather than once a week, as in the past. IRS Commissioner Doug Shulman says the new system enables faster processing of returns and better customer service, while cutting down on fraud.

The system, called Customer Account Database Engine 2 (CADE 2), was almost 25 years in the making. Shulman, speaking to InformationWeek on April 17, deadline day for 2011 tax returns, called the CADE 2's deployment a milestone for the IRS, which had come under sharp criticism for previous efforts to modernize its tax-processing systems.

"What CADE 2 does is allow the data to get processed more quickly," Shulman said, adding that the greatest benefit for taxpayers will be faster refunds. "There are a lot of taxpayers struggling. People depend on the refunds as a major cash infusion to help with food, healthcare, and housing."

The agency moved to daily processing of tax returns in January after more than five decades of weekly batch processing. The old tape-based system, the 1960s-era Individual Master File, was expensive to maintain and made it difficult to answer tax payer questions about the status of tax returns because of the lag between when their documents were received and processed. The mainframe-based Individual Master File and its related processes have been obsolete for decades. Plans to migrate to a relational database management system go back to 1988.

"The code was well written, but it was sequential processing, assembly language code. It had data from the '60s until the current time, and there were all these limitations where we had to build other legacy systems around the defects," IRS CTO Terry Millholland said in an interview. "We had a ton of legacy environments with very complex processing."

CADE 2 runs IBM database software and uses Informatica tools for data extraction and transformation. The system's promised benefits include faster processing, the ability to use analytics for customer service and fraud prevention, lower maintenance costs, and improved security. The performance targets for CADE 2 include processing 90% of transactions within two days and reducing the data error rate by 5% below the 2011 baseline.

More refunds are getting to taxpayers in timely fashion this tax-filing season, according to the IRS, which reports that about 60% of taxpayers who filed electronically have received refunds in eight days or less, up from 30% last year.