IRS Deep-Sixes Outsourcing Plans As Tax Season ApproachesIRS Deep-Sixes Outsourcing Plans As Tax Season Approaches

The Internal Revenue Service is shelving a plan to outsource to a private contractor the management and maintenance of more than 100,000 desktop computers at offices across the country.

The IRS says halting the plan is unrelated to its poor track record for managing large outsourcing projects. "We realized that this would be a huge and complex undertaking, and we've decided to pull back," says a spokesman. The IRS had been in preliminary talks with vendors, but no deals had been signed.

The IRS has reason to pause. In its most recent foul-up, the agency issued more than $318 million in refunds on phony returns last year because of a botched software project that had been outsourced to Computer Sciences Corp., a government report released earlier this year concluded.

The IRS also is delaying a separate plan to outsource the handling of paper tax returns to a contractor. Under a revised plan, the tax agency is reducing from seven to two the number of processing centers handed off to IAP Worldwide Services by December. IAP is now scheduled to take control of the remaining centers in June. "The January to April tax season is prime time for us, and we didn't want any interruptions," the spokesman says. The IRS's deal with IAP is valued at $103 million over five years, and the agency expects savings of $25 million to $30 million.