Rules of the Road

The IRS wants to modernize how it works along with the tools it uses.

Feeling celebratory about recent get-tough moves by the Internal Revenue Service, Commissioner Mark W. Everson called a press conference in March 2005. He was there to tout how the IRS had netted more than $3 billion-now closer to $4 billion-in unpaid tax revenue, interest and fines by cracking down on an illegal tax shelter called Son of Boss.

"For those who didn't come forward, we know who they are," Everson warned tax dodgers who didn't take the IRS' settlement offer and avoid prosecution. "We are going after them."

At the same time, a group of IRS employees had just begun an eight-month effort to investigate a new way to update the agency's tax-processing technology.

The approach was a business rules engine, a technology for translating business logic into executable computer code.

The idea behind it is to meticulously define a process-such as how to deduct any outstanding balances from a married couple's tax refund check-and write down all the rules necessary to make it happen. The IRS discovered that the seemingly simple process requires 163 business rules. A basic business rule is "1040 Forms are due three months and 15 days after the end of the tax period." That's April 15 to you and me.

Such statements are fed into a business rules engine that converts them into computer code. The advantage is flexibility. Rather than hard-coding those requirements into a computer language such as C++, the IRS can maintain a library of business rules and change them as tax law or other circumstances change.

There are disadvantages too. Business rules engines require larger, faster computers. Hammering out the rules is hard work. The business rules engine market is uncertain. A lack of industrywide standards means products are incompatible. Companies start up and disappear frequently.

A business rules engine was part of the IRS' original plan for modernization. In March 2001, the business case for the information technology centerpiece of modernization, the Customer Account Data Engine, stated with certainty that using a rules engine "is better than the traditional programming approach." But that assurance softened and the IRS decided instead to conduct a limited pilot test. The agency chose the spousal offset process for the experiment and delivered results in mid-August 2005.

"I guess it surprised some people," says Linda Gilpin, IRS associate chief information officer for enterprise services. The IRS will not build CADE around a business rules engine. "But we're not going to exclude a business rule engine, either," she adds.

It turns out that business rules engines are too expensive in most cases. They are useful for fraud detection, however.

New schemes for illegal tax shelters, such as Son of Boss, can pop up at any time, says Tom Lucas, senior IRS technical adviser. In fact, they can crop up at a faster pace than the IRS creates computer code to check for tax dodges. Business rules engines offer fast turnaround. They're best for highly volatile areas where business needs change often.

IRS officials say despite the fact they won't be buying a large rules engine, they've gained a lot by investigating. Besides the pilot test, the IRS conducted another project to define the business rules for processing tax return submission and settlement.

Rules engines are just technology-a means to an end-says Gina Garza, IRS deputy associate chief information officer for business integration and process management. What the IRS discovered is that the methodology for identifying business rules helps streamline business processes, not just technology.

"Right now our systems are antiquated, but so are some of our processes," Garza says. Working around old technology requires ingenuity, but all the clever solutions add up to inefficient ways of doing business.

Today, data can be uploaded only once a week to the 40-year old master file that contains the records for every taxpayer. That, combined with a few other hard facts of life with old technology, means that programmers have had to add extra satellite systems. In working through the business rules for tax return submission, Garza's team discovered that the agency checked the identity of a single taxpayer 16 different times.

"What if we just did it once or at least had it in one place?" Garza asks. The whole point about modernization, after all, is not just to duplicate old business processes with new technology.

The IRS is in the process of updating its vision and strategic plan for modernization and the business rules methodology is helping, Gilpin says. Working up business rules lets the IRS understand where it is and where it wants to be, she says: "Then you figure out what technology would enable that."