IRS' plan for ETA pilots displeases contractors

After the IRS decided to make its Electronic Tax Administration procurement a series of
pilots, four would-be contractors said this month they are not bidding on the ETA

Officials of the companies--Andersen Consulting of Chicago, Electronic Data Systems
Corp., H&R Block Financial Corp. of Kansas City, Mo., and TRW Inc.--said an October
draft solicitation had implied the IRS would seek integration services for a vast
electronic filing program.

But the final request for proposals, issued in February, only seeks vendors to
participate in pilots.

"We thought ETA was going to be a smaller version of the modernization blueprint
contract," a vice president for one company said.

"When the draft RFP came out, the IRS was obviously looking for an integrated
solution. They wanted partnership with the commercial side," said a senior official
from another of the companies.

IRS officials acknowledged that the draft RFP could have given vendors the impression
that the service planned to award a major contract.

"To some people that might have been disconcerting because they read a grander
opportunity than we imagined we were requesting," said Bob Barr, assistant IRS
commissioner for electronic tax administration.

But the IRS made no promises in the draft, he said.

"I cannot read into people's minds," Barr said. "All I can say is we
encouraged creative approaches. We took all the feedback we got and scoped it down and
expanded it."

The four companies that chose not to participate in the pilots still might be included
in building systems based on successful test projects, he said.

But, the vendors said, they don't like that idea, either.

"The IRS is saying: Show me a successful model, but then I will tell your
competitors what your product is and anyone who can duplicate it best will win," one
vendor said.

Barr said it is in the interests of the IRS to get the best product from any source
available. IRS officials expect to award contracts for one or more pilot programs this

No matter what, Barr said, companies that complete the pilot programs will benefit.

"First, they will get paid for the pilot. But they also will acquire experience
and, third, they will certainly have a relationship with us," he said. "From my
read, that ought to be more than sufficient."

Barr said some pilots might include building new systems to expand the IRS' online tax
filing program. Now, the service can accept only 1040 series tax forms electronically.

The service wants more tax returns filed electronically. Of the 120 million returns the
IRS gets each year, about 10 percent are filed online.

The IRS still wants to determine how to use the Internet as a filing conduit, too. So
far security concerns have hamstrung the service's Net efforts.

Although the four large vendors rebuffed the solicitation, the response to the RFP has
been overwhelming, Barr said.

IRS officials are reviewing 97 proposals and will cull the best responses in the next
few weeks, he said.

Meanwhile, the service's electronic filing program has gained prominence in the overall
IRS modernization plan.

Commissioner Charles Rossotti is pushing electronic filing as a way to provide better
services to taxpayers. In the recently released prime contractor RFP, the IRS included
plans for boosting electronic filing as part of Phase 1.

Barr said systems already in place can handle up to 100 million electronic returns.

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