TIGTA Assesses Development of IRS-Run E-Filing System

The Treasury Inspector General for Tax Administration (TIGTA) has released an audit initiated to assess the IRS’ compliance with a provision in the Inflation Reduction Act (IRA) of 2022 that required the agency to establish a task force to design and report to Congress on an IRS-run free, direct electronic filing (e-filing) tax return system. (Audit Report No. 2024-408-002)

The agency was compliant with the provision that required the report to be delivered to Congress by May 16, 2023, the audit said.

The IRA specifically provided the IRS with an appropriation of $15 million, to remain available until September 30, 2023. As of July 10, the agency obligated $11.1 million of the $15 million. Agency management said they plan to spend $966,000 in salaries and benefits, and $26,000 for equipment from the remaining $3.9 million unobligated funds. “However, IRS management did not have any planned spending for $2.9 million of the $3.9 million unobligated funds,” TIGTA said.

According to the audit, in carrying out its mandate, the IRS obtained taxpayer opinions on a Direct File system. “However, taxpayer interest in a Direct File tool may be overstated due to the design of the surveys conducted,” the audit said. For example, the Taxpayer Experience Survey failed to offer a “neutral” option for participants, the audit noted, adding that a survey with a five-point scale, rather than the four-point scale used, would have been preferable.

TIGTA also noted that “the survey prompt may have led taxpayers to believe that the tool would have more options than it will immediately have available, such as the ability to file State tax returns.”

The IRS decided to proceed with a Direct File pilot based upon a 72% interest in such a tool per the survey, the audit found. “However, only 28% were ‘very interested’ compared to 45% who were ‘somewhat interested,'” it said.

The audit questioned the lack of “any supporting documentation to support [the IRS’] cost estimates or how it determined there would be at least 5 million users. As a result, TIGTA had no way to identify the reasonableness of the IRS’ cost estimates.”