As of today, one of the most concerning issues facing the IRS is its continued struggle with digital modernization—a problem that underpins many of its service failures and inefficiencies. Despite recent investments and promises of transformation, the agency is still heavily reliant on outdated technology, some of which dates back to the 1960s. This technological lag has serious implications not only for tax administration but also for taxpayer trust and national data security.
The IRS’s core processing system, the Individual Master File (IMF), remains on legacy code, which makes even routine updates slow and risky. Efforts to upgrade these systems, such as the IRS’s “Enterprise Case Management” and the “Customer Account Data Engine 2 (CADE 2)” projects, have been delayed repeatedly, often over budget and underdelivering. These inefficiencies compound during peak tax season, when delays in processing refunds, responding to taxpayer inquiries, and correcting errors reach critical levels.
Perhaps most troubling is the growing gap between the IRS’s capacity and the complexity of modern financial systems. As taxpayers and businesses increasingly use digital platforms for everything from cryptocurrency to gig work, the IRS lacks the modern tools to track, assess, and audit these transactions efficiently. This not only increases the tax gap—estimated to be over $600 billion annually—but it also places law-abiding taxpayers at a disadvantage, as enforcement lags behind innovation.
The bottom line: without accelerated and successful modernization, the IRS risks becoming increasingly ineffective. More than just an internal challenge, this is a national concern. A tax system built on outdated digital infrastructure cannot serve a 21st-century economy.
Until the IRS completes a full and functional overhaul of its core systems, taxpayers will continue to experience avoidable delays, confusion, and a growing lack of confidence in one of the most critical arms of the federal government.
KC Tax Tamer 