COBOL Modernization: Lessons From the Government
Tax season in the U.S. served as another reminder of COBOL's critical role in government systems and the ongoing efforts to modernize the language
Fresh off another tax season, U.S. workers are again reminded that much of their government’s infrastructure still runs on COBOL-based systems that have supported tax processing for decades.
While the legacy language may feel dated to some, it retains a critical place, meaning COBOL skills will remain in demand while modernization efforts continue.
Consider recent government initiatives to modernize COBOL:
- The U.S. Department of Health and Human Services announced early 2026 it replaced a legacy COBOL-based payroll system with a secure, cloud-based solution.
- Conversely, the IRS spent about $1.5 billion in 2024 to modernize systems, only to pause in 2025 to reprioritize, according to a Government Accountability Office report.
The Risks of All-or-Nothing Replacement
No matter the type of mission-critical transactional processing that relies on COBOL, the language can be used with modern technologies—including hybrid cloud, newer languages, APIs and AI/ML. However, the challenge with COBOL applications is that they rarely exist in isolation, cautions Scot Nielsen, vice president of product management at Rocket Software. They are generally embedded across business processes and systems in ways that might not fully be realized.
“These applications are often among the largest in the IT portfolio, sometimes running to millions of lines of code,” he says. “Approaching them as straightforward rewrite projects can underestimate the scale, complexity and potential for disruption involved.”
With many applications in use today created close to 50 years ago, all-or-nothing modernization may look attractive. Rather, Nielsen recommends incremental, strategic updates that reduce risk and disruption to modernization efforts and daily business activities.
“If the assumption is that these systems are a problem to be eliminated, that framing can shape decisions in ways that don’t always lead to the intended outcomes,” Nielsen notes. “A more effective approach is to begin with a clear understanding of the role these systems play in the business.”
The solution, he recommends, is an incremental approach that focuses on addressing technical debt, updating systems and broadening expertise organization-wide: “The starting point should be recognizing what you have as an asset, not a liability.”
How to Plan for Modernization
A COBOL modernization plan should be treated as a multistep approach that spans across the tech stack and business setting. IBM notes reasons to modernize COBOL-based applications that include:
- Compliance and security: Legacy code might not adhere to current data privacy controls and policies, or include the latest security patches, opening it to vulnerabilities.
- Interoperability: Communicating with modern business applications can ensure innovation and business value.
- Maintainability: COBOL codebases can be bloated and outdated. Their tightly coupled components make debugging and upgrades difficult, causing teams to spend time finding and addressing issues.
When considering modernizing COBOL-based applications, Nielsen encourages strategic planning in the following order:
- Gain visibility: Organizations need to understand what they have, what the code does, how it connects to business processes and where dependencies exist.
- Define the business goal: Whether it is faster feature delivery, regulatory compliance, improved integration or cost optimization, the objective should guide the approach.
- Recognize skills and institutional knowledge: Understand who maintains these systems today, how that knowledge is distributed and how to build broader expertise across the organization.
“It’s important to understand what you already have,” Nielsen says. “Before any modernization step, organizations need visibility into their COBOL estate, including what the code does, how it connects to business processes and where potential risks lie.”
Only then should organizations move into technical execution, including architecture, tooling and whether to take an incremental or larger-scale approach.
Bridging the COBOL Skills Gap with AI-Assisted Tooling
When it comes to concerns around skills related to COBOL, Nielsen notes that understanding the language is often cited, where the reality is in understanding the scale and complexity of the applications on which it runs. “Understanding how the application supports the business and making changes confidently at that scale are where the real challenge lies,” he cautions.
As a parallel challenge, engineers who may have been around when these long-ago applications were first created are retiring, resulting in loss of both COBOL syntax knowledge and how the business systems operate. Because of this, before beginning modernization efforts, Nielsen recommends first ensuring proper tooling and documentation.
“Once the application becomes more accessible and better understood, developers from different backgrounds can contribute more effectively, and the perceived skills gap often begins to narrow,” he highlights.
Nielsen encourages teams to lean into modern AI-assisted tooling to document and ingest COBOL codebases at scale. Beyond quickly understanding these applications, he notes the benefits to include accelerated onboarding of new team members and cross-team knowledge sharing, rather than having this information leave with retirees.
“Bringing developer toolsets up to par with current best practices is an early and high-value step that lowers the barrier to entry for new developers,” he says. “The result is a single, unified engineering team — COBOL developers working alongside Java, Python or cloud-native colleagues using the same tools, workflows and delivery cadence.”
The Path to Continuous Value Delivery
Teams should view COBOL modernization as an incremental approach that is a continuous practice that delivers value along the way, rather than an all-in-one destination, Nielsen advises. Each step should improve value and reduce risk over time and make progress, even as priorities, experiences, or staffing evolve.
“The IRS example is a cautionary tale decades in the making, and one that any organization managing large-scale COBOL systems should study carefully,” he says. “What looks like a 2024 pause is, in reality, the latest episode in a 25-year pattern of attempts to replace systems the organization may have never fully understood in the first place.”