Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) Tax Systems Modernization (TSM) plan, focusing on IRS efforts to correct: (1) management and technical weaknesses that have impeded TSM; and (2) analogous technical weaknesses in its Cyberfile initiative. GAO found that: (1) although IRS has enhanced its software development capability and better defined TSM performance and management activities, it is unable to assure Congress that it can spend its 1996 and future TSM appropriations judiciously and effectively; (2) IRS has performed an electronic filing marketing analysis at the local level, developed a marketing plan to promote electronic filing, consolidated 21 electronic filing initiatives into its Electronic Filing Strategies portfolio, and initiated a project to reduce paper tax return filings by 20 percent in 2000; (3) IRS has created an executive-level investment review board to select, control, and evaluate information technology investments, and developed an investment evaluation handbook and business case handbook to strengthen management's decisionmaking concerning system investments; (4) IRS has standardized new and existing contracts and initiated plans to acquire expertise in software capability evaluations; (5) Cyberfile does not use disciplined systems development processes or provide taxpayers with data confidentiality; and (6) because IRS Cyberfile project planning is schedule driven, security policies, security architecture, and testing plans cannot be made.

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