GAO reviewed the Internal Revenue Service's (IRS) efforts to have its information systems function correctly when processing dates beyond December 31, 1999, focusing on: (1) IRS' progress in converting its systems according to the guidelines in GAO's year 2000 assessment guide; (2) the risks IRS faces to completing the year 2000 effort on time; and (3) risks to the continuity of IRS operations in the event of year 2000-induced system failures.

GAO noted that: (1) according to IRS, before January 1999, it needs to complete 12 steps of its 14-step process for converting: (a) the applications for its existing systems; (b) the telecommunications networks; and (c) systems software and hardware for mainframes, minicomputers/file servers, and personal computers; (2) in addition, before January 1999, IRS needs to: (a) ensure that external data exchanges will be year 2000 compliant; (b) implement the Integrated Submission and Remittance Processing System and, at a minimum, the year 2000 portions of mainframe consolidation; and (c) modify application software to implement tax law changes for the 1999 and 2000 filing seasons; (3) if these efforts are not completed, IRS' tax processing and collection systems may fail to operate or may generate millions of erroneous tax notices, refunds, interest calculations, and account adjustments; (4) for the conversion of its existing systems, IRS has made more progress on its applications than on its information systems infrastructure; (5) specifically, as of April 24, 1998, IRS reported that it had completed the first 12 steps of its 14-step conversion process for applications for about 46 percent of the 127 systems it has deemed as mission-critical; (6) IRS expects to convert the applications for the remaining 54 percent of the mission-critical systems by January 1999; (7) the two major systems replacement efforts, which are also expected to follow IRS' 14-step conversion process, are experiencing some schedule slippages; (8) IRS officials said they expect to complete the year 2000 portions of the mainframe consolidation by the original completion date of December 1998; (9) GAO identified two risk areas for IRS' year 2000 effort: (a) the lack of an integrated master conversion and replacement schedule; and (b) a limited approach to contingency planning; (10) since GAO's briefing, IRS has decided to have a contractor develop an integrated schedule of its year 2000-related efforts, including making all of the necessary tax law changes for 1999; (11) IRS officials said they hope to have a baseline, master integrated schedule in June 1998; and (12) in part, due to IRS officials' concerns that the same resources that are doing year 2000 conversion work would be needed to do contingency planning, IRS officials decided to develop a process that would minimize the number of contingency plans that would have to be developed.

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