The IRS set to overhaul decades-old tax IT system that is also under DOGE scrutiny

Monday, July 28, 2025 - The IRS is trying to modernize a more than 50-year-old IT system that’s critical to its work every filing season.

Internal documents obtained by Federal News Network show the agency is working on a “future state” of its Integrated Data Retrieval System (IDRS), a massive clearinghouse of taxpayer data.

IDRS allows IRS employees to review an individual’s tax information when they call asking for help, or send tax notices to individuals. The system also makes it possible for taxpayers to track the status of their federal tax return refund check.

The IRS expects that this modernization project, once complete, will make it much easier for employees to retrieve a taxpayer’s records when they contact the agency asking for help.

Delivering on this goal would be a long-awaited win for the agency, which has some of the oldest legacy IT systems in the federal government and has struggled to get the funding and staffing necessary to complete this project.

However, the project also comes at a time when the IRS is sharing its sensitive data with officials from the Department of Government Efficiency (DOGE) and immigration officials at the Department of Homeland Security — unusual decisions for an agency with strict policies restricting data sharing.

The New York Times reported in May that multiple agencies, including DHS and the IRS, are working with the tech company Palantir to create a massive interagency database. Wired reported in April that Palantir is working with DOGE in building a new “mega-API” for accessing IRS records.

Former acting IRS Commissioner Melanie Krause stepped down from the agency in April, following the agency’s data-sharing agreement with the DHS to support the Trump administration’s efforts to deport undocumented immigrants.

Officials from the Department of Government Efficiency also have access to IDRS. There are at least 15 ongoing federal lawsuits challenging DOGE’s access to sensitive data at the IRS and across many other agencies.

Courtney Bowman, global director for privacy and civil liberties at Palantir, denied that the company has any role in developing a “master list” of data from multiple agencies.

“Just to clear the air on this topic, Palantir is not building a master list across federal agencies. We don’t have contracts with DOGE. We haven’t been asked to build this type of cross-agency information system,” Bowman said in a July 16 panel discussion hosted by the American Enterprise Institute.

It’s not entirely clear how far along the IRS is in modernizing its legacy IDRS system, or who will have access to its data. The Treasury Department and IRS did not respond to requests for comment.

Internal documents show the IRS plans to merge several of its systems, including those that handle the processing of tax returns for individuals and businesses “into one tax processing engine.”

Internal documents show a modernized IDRS will allow for “national real-time tax processing,” and that the agency will be able to “establish processes to intercept or claw back erroneous payments.”

The IRS, according to these internal documents, plans to “decommission” legacy mainframe systems once the migration is complete and retire legacy applications “once modern processes replicate the legacy outputs.”

Former IRS Commissioner Danny Werfel told Federal News Network that IDRS modernization was in the works under his leadership as part of Taxpayer 360, “an effort to pull all information for customer service agents at their fingertips on a single plan so that when helping a taxpayer, they don’t need to ping multiple system and look across many screens to get a clear picture.”

Werfel said the Trump administration’s fiscal 2026 budget request indicates IDRS modernization remains a “priority” for the IRS.

The internal documents show the IRS is working with several tech companies on this project, including Salesforce, Amazon Web Services and Palantir.

Bowman said Palantir is working with the IRS on a “unified API” that will make it easier for the agency to help taxpayers.

“The IRS and part of their processing tax returns is working across a multitude of different systems that are not currently interoperable. And so, in order for a customer service representative within the IRS to get the information that they need, in order to be responsive to a taxpayer’s request, they have to swivel between 10 or 15 different systems and then munge all of that information together in a Word document or an Excel document, and then they have all these random information sources floating around,” he said.

Bowman said Palantir is helping the IRS “execute on something that the public assumes they’re already doing.”

“We think that our law enforcement and our federal agencies are operating in highly sophisticated digital technology environments, but they’re not. They’re oftentimes still working with mainframe green screen systems from the 1970s and 1980s, and part of the modernization effort is just getting to a base level of information that presumably these institutions and their agents should already have access to,” he added.

The IRS has strict controls over who has access to IDRS. Agency guidance states, “IDRS users are authorized to access only those accounts required to accomplish their official duties.”

The IRS prohibits employees with IDRS access from looking up their own taxpayer account, or those of their spouse, friends, co-workers, “or any account in which they have a personal or financial interest.”

Werfel, during the AEI panel, said “the law is set up so that the default for the IRS is you are not allowed to share people’s taxpayer data outside this agency.”

“There may be good reasons to bring data together, and we shouldn’t take a decade to decide it, but we also shouldn’t do it without public engagement,” Werfel said, adding that transparency is needed to “make sure everyone has a substantive understanding of what the risks are.”

“If those risks are understood, then the federal agencies involved can put in mitigators to address those risks right now, we’re moving so quickly that we don’t even understand yet the full nature of the risks, and certainly nobody should have any confidence that we’re putting in mitigators if we don’t really understand the full extent of the risks,” Werfel said.

Alex Gibbons, CEO of the Center for Democracy and Technology, raised concerns over DHS “having an unprecedented agreement with the IRS to access taxpayer records for immigration enforcement purposes.”

“We’ve been gravely concerned by recent trends under the Trump administration to access and consolidate data in new ways, often breaking established laws and well-established norms that protect people’s data and keep it siloed and protected for specific and intentional reasons,” Gibbons said.

In March, President Donald Trump signed an executive order calling on agencies to remove “unnecessary barriers” to share data across the federal government.

Gibbons said these data-sharing decisions are being made largely without the consultation of privacy and civil liberties officials, inspectors general and technical staff who have left or been fired from agencies “right at a time when we need them most.”

Werfel said widely sharing large volumes of IRS data also raises cybersecurity concerns.

“It gets attacked all the time, and it is extraordinarily sophisticated, super resilient, and it’s an impressive group of people that are protecting your IRS data. But what if that IRS data moves to a different environment, en masse?” he said. “My point is that as we are bringing data together, we have to do it thoughtfully.”

IDRS has been running since 1973, according to the Government Accountability Office. IDRS runs on COBOL, and the IRS is having problems finding employees who know how to work in this outdated programming language.

GAO found in June 2018 that the IRS faced a shortage of 20 developers required to modernize IDRS, and identified 10 “single points of failure,” meaning only a single employee was available to support some of its functions.

IRS officials told GAO that the attrition of staff may result in a delay in updating systems to reflect tax law changes and could result in an “inability to complete critical IDRS project activities on time.”

GAO wrote that the IRS faces “significant risks due to their reliance on legacy programming languages, outdated hardware, and a shortage of human resources with critical skills.”