IRS Free File Report
IRS Free File Report
Publication 5788 (5-2023) Catalog Number 93968P Department of the Treasury Internal Revenue Service www.irs.gov
Table of Contents
3
Executive Summary
Introduction 4
4
Report Structure
Background 5
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7
IRS. “Final Monthly Treasury Statement for Fiscal Year 2022 through September 30, 2022, and other Periods.” Page 38.
https://fiscaldata.treasury.gov/static-data/published-reports/mts/MonthlyTreasuryStatement_202209.pdf
8
IRS. Research, Applied Analytics & Statistics. Tax Compliance Burden Report 2018. Page 1. https://www.irs.gov/pub/irs-pdf/p5743.pdf
9
IRS. Tax Year 2022 Instructions for forms 1040 (and 1040-SR). Page 107. https://www.irs.gov/pub/irs-pdf/i1040gi.pdf#page=107. These
cost estimates do not consider post-filing interactions with the IRS.
10
IRS. Inflation Reduction Act Strategic Operating Plan. Page 5. https://www.irs.gov/pub/irs-pdf/p3744.pdf
11
IRS. Inflation Reduction Act Strategic Operating Plan, page 28. https://www.irs.gov/pub/irs-pdf/p3744.pdf
IRS Report to Congress 5
1 TAXPAYER OPINIONS
Section
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12
NORC at the University of Chicago. “AmeriSpeak: NORC’s Breakthrough Panel-Based Research Platform.”
https://www.norc.org/Research/Capabilities/Pages/amerispeak.aspx
13
Spanish-speaking, limited English proficiency (LEP) taxpayers were oversampled from third-party, non-probability sources in order
to examine the views of this population specifically. In all, 4,219 individual taxpayers completed the Survey, including 3,885 from
the AmeriSpeak/NORC sample and 334 from the oversample of Spanish LEP respondents. All results were weighted by age, race,
education, gender, region, household income, filing status, and tax preparation method to reflect the U.S. population.
14
In conjoint analysis, participants choose between a set of options with different attributes. For more information on methodology, see
Appendix A.
15
Interviews spanned taxpayers with a range of demographics including geography (with all Census regions represented), race, gender,
income, and educational attainment. See Appendix A: Research Methodology and Questions for more information.
The MITRE survey asked respondents to choose between three hypothetical options for tax preparation and
filing: a free version of the respondent’s current commercial tax preparation software, a free IRS-provided option
in which taxpayers would manually enter their information into the IRS-provided product, and a free IRS-provided
“return-free” option in which the “IRS prepares and files the tax return for you using W-2 and 1099 information
that it receives from your employer.” When faced with these three choices – all of which assume the product is
free to the taxpayer – a majority (52%) of respondents stated that they would prefer to use one of the two IRS-
provided options (split 15% manual entry option, 37% “return-free” option), and 48% stated they would continue to
use their current commercial software at zero cost.
Taxpayers’ survey responses were based on high-level descriptions of an IRS-provided option or options.
Taxpayers’ understanding of the options may have been influenced by their preconceived notions of what an IRS-
provided filing tool would look like and the capabilities it would provide (see “Factors that May Affect Interest in
Direct File” later in this report). When considering a real IRS-provided tool, taxpayer interest could shift based on
design, functionality, and other product choices.
The survey data from TES and MITRE, along with the Task Force conducted user research, reveal a range
of taxpayer motivations underlying their tax preparation and filing preferences. Across all research methods,
taxpayers who were interested in using an IRS-provided option typically reported one of the following three
reasons as to why they would be interested.
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16
The prompt reads, “Based on the description, how interested would you be in using this online tool to prepare your taxes if it becomes
available?”
17
Combined percentages in this report may not match the combined areas of the corresponding figures (e.g., Figure 1 below) due to
differences in individual vs. combined rounding.
18
Percentages provided in all charts in this report may add up to greater than 100% due to rounding.
“At the end of the day, Others disagree. Among taxpayers who chose a free commercial option19 in
the MITRE survey, 11% cited “I don’t think it’s the IRS’s role to prepare taxes”
I am a big believer in as their most important reason; 38% indicated this as one of their top three
paying taxes but the reasons for preferring a commercial product. 13% of respondents identified
“I don’t want the IRS to prepare my return” as their most important reason
enormous stress I’m (see “Reasons taxpayers would not adopt” later in this report).
incurring with my family,
Some taxpayers hadn’t previously considered the possibility of IRS providing a
it’s not worth it, right? I Direct File option. As one interviewed taxpayer said in a user research session,
really wish things were “I don’t know why I never really thought about them doing it, so I didn’t even
look into it, but it makes sense that they would. So I would definitely, I would
much simpler.” consider using it. It just didn’t occur to me before.”
Some interviewed taxpayers also felt that the IRS should make taxes easier. One user research participant said,
“At the end of the day, I am a big believer in paying taxes but the enormous stress I’m incurring with my family,
it’s not worth it, right? I really wish things were much simpler.” A paper filer explained the thinking behind their
choice in a user research interview, “Like, what is this old dinosaur doing, sending this stuff on paper for? Well,
sorry! Okay, why don’t you provide software for us to do it? […] So here, I’m going to send it to you on this sheet
of paper instead, so it didn’t cost me any money.”
Reason 2: Cost
Taxpayers balance multiple objectives when selecting a filing method, and surveys indicate cost is major factor for
most. In one of scenarios covered in the MITRE survey, respondents were given a choice between a commercial
product costing $80 and a free IRS option. In that scenario, 70% of taxpayers chose the IRS option. Even when
the IRS option was explicitly described as offering no support for filing a state return, 59% of taxpayers preferred
the IRS option, with “filing taxes should be free” consistently cited as the top reason.
The paper filer quoted above had previously used an online self-preparation product but
described their frustration with upselling tactics, as well as cost and complexity, during their “I can just do it
interview. “I guess really it comes down to the cost. The software is not cheap. I think the on paper and
minimum you’re going to pay is $70, $80 to $100 bucks, and then I have to look further into, it costs me $0.”
you know, there’s different versions if you’re going to use this form or this form, and you
need this. […] I can just do it on paper, and it costs me $0.”
Reason 3: Security and Privacy
Taxpayers often trust the IRS to keep their data secure and recognize that the IRS will not sell or use their
information for commercial benefit. In MITRE’s survey, this was the second-ranked reason to choose an IRS-
provided tool, and was selected as the most important reason by 18% of taxpayers who chose an IRS tool from
a set of multiple-choice options (See Figure 7 below).
“I mean it’s the IRS. I Taxpayers expect to entrust government with sensitive information. As one
interviewed taxpayer said in a user research session, “Usually when it’s a
definitely would trust it. government website, I don’t feel uncomfortable. I don’t put my personal info
How would I not, because much out there, but government is okay.” (See “Trust” later in this report.)
when you [file through Some taxpayers are aware that some commercial entities sell or repurpose their
other means] they send data. Describing their expectations of an IRS tool in a user research interview,
one taxpayer said, “I think it’d be very protected. I don’t think the IRS is going
it to the IRS… I’m going to sell [my personal data] off, they’re not that interested in making money. So, I
straight to the source.” mean, not in that respect, not like a third party, where they would be.”
19
In the MITRE survey, respondents were offered scenarios in which their current commercial software were made free to use.
Level of interest
• Somewhat
Very interested 37%
• Not very interested
interested 47%
Self-preparation
• Not interested 5% 12%
•
• Somewhat
Very interested 18%
• Not very interested
interested 39%
Paid preparer
• Not interested 19% 24%
•
Comfort with self-preparation is influenced by taxpayer confidence with taxes, which depends on the complexity
of their tax situation. For example, one interviewed taxpayer stated in a user research session, “I’m self-
employed, so for me it’s a little bit more complicated than something you can file on your own.” While this
individual was currently uncomfortable doing their own taxes, they had previously self-prepared when their
situation was more straightforward. This same taxpayer continues to routinely help others prepare their taxes.
They said, “I’m lucky [I] can afford to pay this accountant, but I run into so many people who are very simple in
terms of taxes, and yet they still have to pay […].”
Taxpayer preferences are also affected by their perceptions of preparer credibility. In one user research session,
an interviewed taxpayer described a recent experience filing an inaccurate return because they relied on an
unscrupulous preparer. They were open to an IRS-provided option, saying, “I actually think that’s really cool. I
would imagine doing it directly with IRS that they’d have guidance on how to do it correctly, keep you from doing
something you’re not supposed to, getting it from a [untrustworthy] source.” This taxpayer’s view centered on
credibility and wanting to get their taxes right.
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20
“Self-preparer” describes taxpayers who prepare their return themselves, without the services of a tax preparer, regardless of
whether they file on paper or with the assistance of tax preparation software.
Level of interest
• Very interested 28%
All Taxpayers • Not very interested
Somewhat interested 45%
• Not interested 11% 17%
•
• Very interested 24%
Seniors (age 65+) • Somewhat interested 37%
• Not very interested 19%
• Not interested 20%
Theme 3: Limited English Proficiency
The TES was administered in both English and Spanish, and oversampled Spanish-speaking, Limited English
Proficiency (LEP) taxpayers who neither read nor speak English well. These LEP taxpayers were more likely to
be “very interested” or “somewhat interested” in an IRS-provided tool, 72% for the overall population versus 81%
for LEP, with “very interested” rising from 28% to 42%.
LEP taxpayers also described greater expectations of the ease of use of the tool. While 55% of all taxpayers
felt the experience would be “about the same” as other tax preparation software, 62% of LEP taxpayers felt the
experience would be “somewhat easier” or “much easier” (see “Experience expectations” later in this report).
Potential hypotheses for this expectation include that LEP taxpayers may currently be underserved by existing
preparation options, or those options may not provide appropriate language access, meriting further study.
Figure 4. Views of Spanish-speaking, limited English proficiency taxpayers
Source: 2022 Taxpayer Experience Survey
However, there are more dimensions to trust than just data security. In user research sessions, interviewed
taxpayers shared several common perspectives about the IRS potentially providing this service.
Trust Perspective 1: IRS is authoritative and trustworthy
Taxpayers view the IRS as the authoritative source of information about taxes and
“Their goal expect that the information presented by an IRS-provided tool would be similarly
would be to have authoritative. One interviewed taxpayer said, “It’s probably going to be good; it’s going
to tell you everything you need to know because it’s the IRS. The information should be
everyone file up to date. I would probably expect it to be more accurate doing it directly with IRS than
more correctly.” though some other company. […] Just because it’s the source. They probably more
want you to do it correctly than some other company.”
In user research sessions, interviewed taxpayers often trusted information from the IRS as much as or more
than they trust information from a third party. One said, “It’s directly from the IRS. I would trust this tool more
than a third-party tool.” For other taxpayers, their trust was more balanced: “Yes [I would trust it]. Because it’s
a government website. Their goal would be to have everyone file more correctly. I also trust [my current self-
preparation product] that I’m filing correctly.”
Trust Perspective 2: Concerns about the IRS’ role as a tax administrator
The IRS’s role as a tax administrator leads some taxpayers to be wary of any interaction with the agency. One
interviewed taxpayer said of a potential IRS-provided tool, “Maybe the IRS part is intimidating because you’re
going to the source. It’s the IRS, you don’t want to be on their radar. […] I don’t want to be on their radar. I
feel safer going through a third party. It’s funny I feel that way. My taxes are so simple. Just the whole IRS is
intimidating.”
This concern may translate to unease about taxes generally. Another interviewed taxpayer said, “I’m not really
that comfortable with [taxes]. I also don’t necessarily like it. And you have to be careful if you make a mistake, it
could be audited. You could get in trouble. […] So, I still have that mindset of the evil IRS, where you get a letter
from them or something happens, you all of a sudden lose your house and go to jail. It’s obviously not that
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21
Question wording: “Based on the description, how much would you trust this online tool to keep your information safe?”
I don’t think it’s the IRS’s role to I think the IRS is better suited
prepare taxes to filling taxes than my software
company
Since there’s no cost for any I think the IRS could provide
of the options, I’d rather use better customer service than a
commercial software commercial software company
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22
See Patterson et al., Understanding Taxpayer Motivation for Filing Method Selection to Improve Customer Service, MITRE Corporation,
2022. Asked “Why did you choose <tax filing method>?”, 78% selected “I’ve used this method before,” 61% selected “It’s easy for me
to use this method,” 33% selected “This method allows me to retain information from my previous year’s return,” and 30% selected
“This method is a lower cost than other methods,” given the choice of up to five responses.
23
“Compared to other tax preparation software, how easy or difficult to use would you expect this online tool to be?”
Expectations of experience
compared to other tax preparation software
User research sessions revealed that taxpayer expectations are informed by their experiences with other
government websites. Some interviewed taxpayers described negative experiences, like the taxpayer who relies
on a non-IRS government website that is “Always on weekends, it’s down. The browser experience wasn’t great.”
Similarly, when asked, respondents noticed and appreciated when government sites were able to provide good
customer experiences.
The factor that taxpayers are most likely to worry about when considering their experience is the accessibility of
the language used. One interviewed taxpayer said, “Jargon can be overwhelming sometimes. My mind doesn’t
absorb all that wording.” There is skepticism among some taxpayers that IRS would be able to describe taxes
using plain language. Another interviewed taxpayer said, “I’m very skeptical of a government website, where
things could be simple, because they have to cater to all scenarios and potentially, any lawsuits and things like
that. The reason why things are often very complicated is because of bureaucracy and edge cases, right? […]
So I’m very skeptical that government can have a good experience.” This reaction underscores the importance of
the objectives outlined in the IRS SOP, including updating notices and transcripts using clear, simple, and plain
language to ensure that taxpayers can seamlessly interact with the IRS in the ways that work best for them.
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24
IRS. “Free Tax Return Preparation for Qualifying Taxpayers.”
https://www.irs.gov/individuals/free-tax-return-preparation-for-qualifying-taxpayers
25
Information obtained through user research interviews.
IRS Report to Congress 16
Technology Costs
Technology and product costs include expenses related to development and maintenance, hosting, licenses,
and shared services. To estimate technology and product costs in the Direct File context, the IRS also needs to
take into account several unique features of tax filing, most notably that the tax code changes frequently. Like
all IRS systems, Direct File would have to keep pace with those changes. Just as IRS makes annual changes to
its internal systems in accordance with changes in the tax code, a taxpayer-facing Direct File tool would need to
undergo frequent updates. For the tool to be sustainable, software engineers cannot be the only ones who can
update the tool and test the underlying tax logic, the ordering of questions, and the questions themselves. This
configuration-driven approach creates a path for IRS tax experts to update the tool in response to changes in
tax law, and is already implemented in the functioning internal prototype. Leveraging this approach could reduce
costs and increase budget predictability.
Even with this configuration-driven approach, a budget that assumes a large up-front investment and smaller
ongoing operating costs is ill-suited to the challenge of this project. Instead, the technology budget was estimated
based on a continuous development approach, requiring a moderate, steady investment over time to develop
and maintain the product. A continuous development approach ensures the product meets the experience
expectations of taxpayers year after year, while also keeping costs predictable. However, for continuous
development to work, it is imperative that the program have consistent funding at adequate levels. Without
adequate funding for each release, the system would be at risk of rapidly becoming obsolete.
Figure 9. Traditional versus continuous development
10 million taxpayers
Technology & Product $25.5m 24.6% $35.5m 29.4%
Customer Support $78.1m 75.4% $85.1m 70.6%
Total $103.6m $120.6m
25 million taxpayers
Technology & Product $30.7m 13.9% $40.8m 16.4%
Customer Support $190.6m 86.1% $208.1m 83.6%
Total $221.3m $248.9m
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26
While customer support for a potential Direct File option might decrease demand to existing call centers, it would also create entirely
new types of inquiries. The ratio of 1:10,000 CSRs to taxpayers reflects the potential for users of Direct File to call IRS at a rate in excess
of current call frequency.
27
Table 1 reflects costs only does not include potential cost savings or other benefits as discussed in Potential Benefits below.
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28
IRS. Data Book 2022. Page 2. https://www.irs.gov/pub/irs-pdf/p55b.pdf
29
IRS. Tax Year 2022 Instructions for forms 1040 (and 1040-SR). Page 107. https://www.irs.gov/pub/irs-pdf/i1040gi.pdf#page=107.
These cost estimates do not consider post-filing interactions with the IRS.
30
IRS. Taxpayer Advocate Service. 2022 Annual Report to Congress. Page 105.
https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2023/02/2022-ARC_FullBook_02022023.pdf
31
IRS. Taxpayer Advocate Service. “Most Serious Problems.”
https://www.taxpayeradvocate.irs.gov/reports/2022-annual-report-to-congress/most-serious-problems/
IRS Report to Congress 19
As described in the SOP, one of the IRS’s goals is to make it easier for taxpayers to meet their tax obligations and
to meet them where they are by giving them choices in how they interact with the IRS. Direct File would be an
additional choice for taxpayers in deciding how they want to file their tax returns. The SOP also set forth a goal
to help all taxpayers to receive the credits and deductions for which they are eligible. According to a report by the
Treasury Inspector General for Tax Administration (TIGTA), roughly 5 million potentially eligible taxpayers fail to
claim EITC each year.32 Direct File could reduce barriers for taxpayers to access the tax credits and deductions
they may be eligible for, improving the customer experience.
Operational Challenges
Developing Direct File would require the IRS to develop new skills and processes to operate, maintain, and
improve complex technological products. While the IRS has experience developing successful new products such
as Modernized e-File, Direct File would present new challenges including complexity of building configuration-
driven software, updating the tool to keep pace with tax law changes, and ensuring taxpayer information is kept
private and secure.
Customer support would introduce additional challenges as well. For Direct File to be viable in the long term, it
would require continued funding to meet these service goals while maintaining resources for other valuable IRS
services and programs.
Another challenge is how to facilitate the filing of state income taxes, which are often filed in conjunction with
federal taxes. Research indicates that taxpayers expect to be able to file federal, state, and local returns in
one place. Any solution would require collaboration with state and local tax administrators to enable integration
and avoid creating additional burden for filers. This work would introduce additional cost and complexity to any
potential Direct File option.
CONCLUSION
Taxpayer survey data, user research, and the prototyping work conducted by the Direct File Task Force have
demonstrated that there is taxpayer interest in an IRS-run free Direct File option. The IRS’s ability to deliver such
a system would require ongoing funding at adequate levels, and other operational considerations and challenges
remain. With these considerations in mind, Direct File should be considered among future options for agency
technological transformation and customer experience improvement.
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32
Treasury Inspector General for Tax Administration. “The Internal Revenue Service Should Consider Modifying the Form 1040 to
Increase Earned Income Tax Credit Participation by Eligible Tax Filers.” April 2, 2018.
https://www.tigta.gov/sites/default/files/reports/2022-02/2018IER004fr.pdf
Methodology
The Taxpayer Experience Survey (TES) is the premier survey of the individual Form 1040 population. The
overarching objective of this research is to survey taxpayers about their pre-filing, filing, and post-filing needs and
preferences. The survey aims to:
Measure taxpayer awareness and use of IRS products and services,
Solicit taxpayer feedback on various aspects of the taxpayer experience, and
Obtain satisfaction ratings.
The survey was administered to individual taxpayers who filed a 2021 federal tax return in 2022. Participants
were randomly selected using NORC’s AmeriSpeak panel to obtain a representative sample of taxpayers
covering over 97% of U.S. households.33 Only one taxpayer per household was interviewed.
Respondents could take the survey online or by phone, in English or Spanish. Spanish-speaking, limited English
proficiency (LEP) taxpayers were oversampled from third-party, non-probability sources in order to examine the
views of this population specifically.
In all, 4,219 individual taxpayers completed TES, including 3,885 from the AmeriSpeak/NORC sample and 334
from the oversample of Spanish LEP respondents. All results were weighted by age, race, education, gender,
region, household income, filing status, and tax preparation method to accurately reflect the demographics of the
U.S. population.
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33
Eligible taxpayers were determined using a screener approved by the Office of Management and Budget (OMB), see (OMB Control
No 1545-2250, Expires 1/31/2025).
IRS Report to Congress 21
Questions
The TES questions related to the possibility of an IRS-provided online tool were as follows:
The following questions are about your expectations for and your level of interest and trust
in an IRS-provided online tool used to prepare and electronically file your tax returns directly
to the IRS, free of charge. The online preparation and filing tool would include features such
as safeguards to protect taxpayer data, ease of accessibility, and ‘interview-style’
preparation (meaning the tool will ask tax-related questions to fill in the return), in multiple
languages, with access from mobile devices. This tool would be an alternative to commercial
and IRS-provided tax preparation software currently available to taxpayers (e.g., TurboTax,
FreeTaxUSA, etc.).
Based on the description, how interested would you be in using this online tool to prepare
your taxes if it becomes available? (N = 4,193)
RESPONSE OPTIONS:
1. Very interested (28%)
2. Somewhat interested (45%)
3. Not very interested (17%)
4. Not interested at all (11%)
Based on the description, how much would you trust this online tool to keep your information safe?
(N = 4,199)
RESPONSE OPTIONS:
1. Very much (18%)
2. Somewhat (54%)
3. Not very much (20%)
4. Not at all (8%)
Compared to other tax preparation software, how easy or difficult to use would you expect this online
tool to be? (N = 4,170)
RESPONSE OPTIONS:
1. Much easier than other tax preparation software (13%)
2. Somewhat easier than other tax preparation software (18%)
3. About the same (55%)
4. Somewhat more difficult than other tax preparation software (10%)
5. Much more difficult than other tax preparation software (4%)
(If taxpayer self-prepared their 2021 federal tax return using software)
How likely are you to switch from your current tax preparation software to the described online tool if it
becomes available? (N = 1,733)
RESPONSE OPTIONS:
1. Very likely (24%)
2. Somewhat likely (44%)
3. Somewhat unlikely (21%)
4. Very unlikely (11%)
(If taxpayer answered 3 or 4 on previous question)
Why are you unlikely to switch from your current tax preparation software to the described online tool?
Select all that apply. (N = 538)
RESPONSE OPTIONS:
1. I already file for free (35%)
2. I do not think described online tool would be as good as tax software I pay for (17%)
3. I would have more confidence/trust in the previous method I used than the described online tool (30%)
4. I prefer not to make changes on the tax filing method/software I used previously (44%)
5. Another reason (please specify) (9%)
MITRE Survey
Methodology
The MITRE Corporation fielded a set of two surveys using a method called choice-based conjoint analysis
(These surveys are collectively referred to as “the MITRE survey”).34 Conjoint analysis is often used in market
research to identify which attributes of a product or service are most valued to consumers. Respondents are
presented with a set of products that have attributes that vary between them. For example, one product might
be described as coming in vivid colors, another in a minimalistic white; one product might cost $49, another $99.
By varying the attributes of a set of hypothetical products, the researcher is able to draw conclusions about how
respondents may value those individual attributes.
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34
The MITRE Corporation administers the Center for Enterprise Modernization, a Federally Funded Research and Development
Center (FFRDC) sponsored in part by both Treasury and the IRS. MITRE conducted this survey independently in its role as FFRDC
administrator. Treasury and IRS did not commission this survey, and were not involved in its development, design, or implementation.
https://www.mitre.org/news-insights/publication/mitre-taxpayer-filing-preference-surveys
Reasons for selecting Current Software (N = 475) First Second Third Top 3
Since there’s no cost for any of the options, I’d rather use commercial software 12% 9% 11% 33%
I don’t want the IRS to prepare my return 13% 14% 11% 38%
I don’t think it’s the IRS’s role to prepare taxes 11% 12% 14% 37%
I trust a commercial tax package more than I would trust an IRS tax package 9% 9% 9% 28%
I want to stay with my brand of software 17% 12% 9% 38%
I don’t think the functionality of an IRS program would be as good as 6% 6% 9% 20%
commercial software
I have audit defense and I don’t think the IRS could offer audit defense against 3% 7% 6% 15%
itself
I believe my software offers better customer service than the IRS could 9% 11% 14% 34%
I think my data is more secure with my software 8% 10% 8% 26%
I don’t want to create an IRS account using advanced identity proofing techniques 13% 10% 9% 32%
Reasons for selecting IRS Direct File (N = 157) First Second Third Top 3
I would prefer to give my financial information directly to the IRS instead of a 46% 24% 15% 85%
third party
I believe my data is more secure with the IRS 18% 28% 21% 67%
I think the IRS is better suited to filing taxes than my software company 11% 24% 28% 63%
I believe I’d be less likely to be audited 15% 15% 21% 50%
I think the IRS could provide better customer service than a commercial 10% 10% 15% 35%
software company
Reasons for selecting IRS Return-Free File (N = 368) First Second Third Top 3
The IRS already has the information, it makes sense for them to do it if it’s a 48% 21% 10% 79%
simple return
It would be easier for me for the IRS to do my taxes 19% 27% 22% 68%
I believe my data is more secure with the IRS 12% 14% 20% 47%
I think the IRS is better suited to filing taxes than my software company 7% 16% 21% 45%
I believe I’d be less likely to be audited 7% 12% 18% 38%
I think the IRS could provide better customer service than a commercial 6% 9% 9% 24%
software company
Reasons for selecting Current Software (N = 603) First Second Third Top 3
I want to be able to prepare and file my state and federal return at the same time 34% 11% 10% 55%
Since there’s no cost for any of the options, I’d rather use commercial software 9% 14% 14% 38%
I believe my software offers better customer service than the IRS could 6% 13% 13% 32%
I want to stay with my brand of software 11% 11% 9% 31%
I don’t want the IRS to prepare my return 10% 9% 11% 30%
I don’t think it’s the IRS’s role to prepare taxes 8% 12% 8% 29%
I don’t want to create an IRS account using advanced identity proofing 11% 9% 7% 27%
techniques
I don’t think the functionality of an IRS program would be as good as 4% 9% 10% 23%
commercial software
I think my data is more secure with my software 5% 6% 8% 19%
I have audit defense and I don’t think the IRS could offer audit defense against itself 2% 5% 9% 16%
Reasons for selecting IRS Direct File (N = 124) First Second Third Top 3
I would prefer to give my financial information directly to the IRS instead of a 35% 22% 15% 71%
third party
I believe my data is more secure with the IRS 13% 28% 18% 59%
I think the IRS is better suited to filing taxes than my software company 16% 14% 25% 56%
I believe I’d be less likely to be audited 12% 15% 18% 44%
I think the IRS could provide better customer service than a commercial 9% 11% 17% 37%
software company
I live in a state that does not have income tax, so I don’t file a state return 16% 10% 8% 33%
Reasons for selecting IRS Return-Free File (N = 273) First Second Third Top 3
The IRS already has the information, it makes sense for them to do it if it’s a 37% 19% 10% 67%
simple return
It would be easier for me for the IRS to do my taxes 15% 24% 19% 57%
I want the IRS to do my taxes for me 9% 15% 16% 40%
I believe my data is more secure with the IRS 7% 10% 20% 37%
I think the IRS is better suited to filing taxes than my software company 10% 9% 10% 29%
I believe I’d be less likely to be audited 6% 9% 12% 27%
I live in a state that does not have income tax, so I don’t file a state return 12% 5% 5% 22%
I think the IRS could provide better customer service than a commercial 4% 9% 8% 21%
software company
Reasons for selecting Current Software (N = 467) First Second Third Top 3
I don’t want the IRS to prepare my return 16% 15% 13% 43%
I don’t mind inputting document information 11% 11% 14% 37%
I don’t think it’s the IRS’s role to prepare taxes 12% 13% 11% 36%
I don’t want to create an IRS account using advanced identity proofing 12% 12% 11% 34%
techniques
I believe my software offers better customer service than the IRS could 9% 12% 10% 31%
I want to stay with my brand of software 13% 7% 9% 29%
Commercial software is already free for simple returns 9% 7% 10% 25%
I don’t think the functionality of an IRS program would be as good as 8% 8% 9% 25%
commercial software
I think my data is more secure with my software 6% 8% 7% 20%
I have audit defense and I don’t think the IRS could offer audit defense against itself 4% 7% 7% 18%
Reasons for selecting IRS Direct File (N = 186) First Second Third Top 3
I would prefer to give my financial information directly to the IRS instead of a third 22% 32% 19% 73%
party
I like the idea of not having to gather up/wait for/input my W2s and 1099s 46% 15% 9% 70%
I believe my data is more secure with the IRS 13% 17% 19% 49%
I think the IRS is better suited to filing taxes than my software company 7% 14% 18% 40%
I believe I’d be less likely to be audited 5% 15% 17% 37%
I think the IRS could provide better customer service than a commercial 5% 6% 18% 30%
software company
Reasons for selecting IRS Return-Free File (N = 347) First Second Third Top 3
I think the IRS could provide better customer service than a commercial software 9% 9% 9% 27%
company
I believe I’d be less likely to be audited 8% 18% 16% 42%
I believe my data is more secure with the IRS 9% 14% 21% 44%
I think the IRS is better suited to filing taxes than my software company 8% 16% 28% 52%
I want the IRS to do my taxes for me 15% 24% 16% 55%
The IRS already has the information, it makes sense for them to do it if it’s a 52% 20% 11% 82%
simple return
Reasons for selecting Current Software (N = 622) First Second Third Top 3
I want to be able to prepare and file my state return at the same time 29% 10% 8% 47%
I don’t mind inputting document information 7% 16% 14% 37%
I don’t think it’s the IRS’s role to prepare taxes 10% 13% 8% 31%
I don’t want the IRS to prepare my return 12% 10% 9% 30%
Commercial software is already free for simple returns 6% 11% 12% 29%
I want to stay with my brand of software 10% 8% 8% 26%
I don’t want to create an IRS account using advanced identity proofing 10% 7% 10% 26%
techniques
I believe my software offers better customer service than the IRS could 6% 8% 11% 24%
I don’t think the functionality of an IRS program would be as good as 6% 8% 6% 19%
commercial software
I have audit defense and I don’t think the IRS could offer audit defense against itself 2% 6% 8% 16%
I think my data is more secure with my software 4% 4% 7% 15%
Reasons for selecting IRS Direct File (N = 125) First Second Third Top 3
I like the idea of not having to gather up/wait for/input my W2s and 1099s 27% 18% 23% 68%
I would prefer to give my financial information directly to the IRS instead of a 25% 21% 14% 59%
third party
I think the IRS is better suited to filing taxes than my soft-ware company 13% 14% 19% 45%
I believe my data is more secure with the IRS 14% 17% 12% 43%
I live in a state that does not have income tax, so I don’t file a state return 10% 13% 8% 30%
I think the IRS could provide better customer service than a commercial 4% 9% 15% 28%
software company
I believe I'd be less likely to be audited 8% 9% 9% 26%
Reasons for selecting IRS Return-Free File (N = 253) First Second Third Top 3
The IRS already has the information, it makes sense for them to do it if it’s a 43% 21% 14% 78%
simple return
I think the IRS is better suited to filing taxes than my software company 11% 19% 23% 54%
I want the IRS to do my taxes for me 12% 17% 14% 43%
I believe I’d be less likely to be audited 6% 13% 16% 35%
I believe my data is more secure with the IRS 6% 13% 16% 35%
I think the IRS could provide better customer service than a commercial 11% 9% 10% 30%
software company
I live in a state that does not have income tax, so I don’t file a state return 11% 7% 8% 26%
Reasons for selecting Current Software (N = 298) First Second Third Top 3
I don’t want the IRS to prepare my return 18% 15% 13% 46%
I don’t think it’s the IRS’s role to prepare taxes 12% 19% 10% 41%
I want to stay with my brand of software 17% 10% 10% 38%
I don’t think the functionality of an IRS program would be as good as 6% 12% 17% 35%
commercial software
I don’t want to create an IRS account using advanced identity proofing 15% 8% 11% 34%
techniques
I believe my software offers better customer service than the IRS could 7% 10% 18% 34%
I expect to pay for my software, cost is not an issue. 15% 7% 5% 27%
I have audit defense and I don’t think the IRS could offer audit defense against 5% 9% 9% 23%
itself
I think my data is more secure with my software 6% 9% 7% 22%
Reasons for selecting IRS Direct File (N = 702) First Second Third Top 3
I like the idea of not paying for software, filing taxes should be free. 60% 14% 8% 82%
I would prefer to give my financial information directly to the IRS instead of a 14% 33% 22% 69%
third party
I believe my data is more secure with the IRS 9% 17% 23% 49%
I think the IRS is better suited to filing taxes than my software company 9% 16% 22% 47%
I believe I’d be less likely to be audited 5% 11% 14% 30%
I think the IRS could provide better customer service than a commercial 3% 9% 11% 22%
software company
Reasons for selecting Current Software (N = 416) First Second Third Top 3
I want to be able to prepare and file my state return at the same time 38% 12% 8% 58%
I believe my software offers better customer service than the IRS could 7% 15% 16% 37%
I don’t think the functionality of an IRS program would be as good as 6% 11% 15% 32%
commercial software
I don’t want to create an IRS account using advanced identity proofing 12% 10% 9% 31%
techniques
I don’t want the IRS to prepare my return 8% 9% 12% 30%
I want to stay with my brand of software 7% 13% 9% 29%
I don’t think it’s the IRS’s role to prepare taxes 7% 9% 11% 26%
I think my data is more secure with my software 5% 9% 7% 21%
I have audit defense and I don’t think the IRS could offer audit defense against 4% 8% 7% 19%
itself
I expect to pay for my software, cost is not an issue. 6% 4% 6% 16%
Reasons for selecting IRS Direct File (N = 584) First Second Third Top 3
I like the idea of not paying for software, filing taxes should be free 50% 15% 8% 74%
I would prefer to give my financial information directly to the IRS instead of a 11% 28% 23% 62%
third party
I believe my data is more secure with the IRS 9% 15% 22% 46%
I think the IRS is better suited to filing taxes than my software company 9% 18% 19% 45%
I believe I’d be less likely to be audited 5% 11% 12% 28%
I think the IRS could provide better customer service than a commercial 5% 7% 11% 23%
software company
I live in a state that does not have income tax, so I don’t file a state return 11% 7% 4% 22%
Reasons for selecting Current Software (N =277) First Second Third Top 3
I don’t want the IRS to prepare my return 16% 13% 14% 43%
I don’t want to create an IRS account using advanced identity proofing 19% 8% 8% 35%
techniques
I don’t think it’s the IRS’s role to prepare taxes 9% 13% 13% 34%
I don’t mind inputting my income information 9% 13% 12% 34%
I believe my software offers better customer service than the IRS could 12% 9% 13% 34%
I don’t think the functionality of an IRS program would be as good as 4% 15% 11% 29%
commercial software
I think my data is more secure with my software 6% 12% 10% 28%
I want to stay with my brand of software 9% 9% 8% 25%
I expect to pay for my software, cost is not an issue. 11% 3% 5% 19%
I have audit defense and I don’t think the IRS could offer audit defense against 4% 5% 8% 17%
itself
Reasons for selecting IRS Direct File (N = 723) First Second Third Top 3
I like the idea of not paying for software, filing taxes should be free 46% 18% 11% 75%
I like the idea of not having to gather up and wait for my W2s and 1099s, or 25% 37% 12% 73%
having to input them
I would prefer to give my financial information directly to the IRS instead of a 8% 17% 29% 54%
third party
I believe my data is more secure with the IRS 8% 12% 16% 35%
I think the IRS is better suited to filing taxes than my software company 8% 10% 18% 35%
I believe I’d be less likely to be audited 6% 8% 14% 28%
Reasons for selecting Current Software (N = 406) First Second Third Top 3
I want to be able to prepare and file my state return at the same time 35% 11% 6% 53%
I don’t mind inputting my income information 10% 15% 13% 38%
I don’t want to create an IRS account using advanced identity proofing 14% 8% 10% 32%
techniques
I don’t want the IRS to prepare my return 10% 8% 13% 31%
I believe my software offers better customer service than the IRS could 4% 12% 13% 29%
I don’t think it’s the IRS’s role to prepare taxes 7% 11% 9% 26%
I don’t think the functionality of an IRS program would be as good as 4% 9% 13% 25%
commercial software
I want to stay with my brand of software 8% 9% 8% 25%
I think my data is more secure with my software 5% 9% 8% 23%
I have audit defense and I don’t think the IRS could offer audit defense against 3% 7% 7% 17%
itself
Reasons for selecting IRS Direct File (N = 594) First Second Third Top 3
I like the idea of not paying for software, filing taxes should be free. 46% 14% 12% 71%
I like the idea of not having to gather up and wait for my W2s and 1099s, or 13% 34% 15% 62%
having to input them
I would prefer to give my financial information directly to the IRS instead of a 9% 14% 20% 43%
third party
I think the IRS is better suited to filing taxes than my software company 8% 9% 17% 34%
I believe my data is more secure with the IRS 6% 8% 17% 32%
I live in a state that does not have income tax, so I don’t file a state return 10% 7% 5% 23%
I believe I’d be less likely to be audited 4% 7% 8% 20%
I think the IRS could provide better customer service than a commercial 3% 6% 6% 15%
software company
Methodology
Direct File Task Force user researchers conducted two rounds of small, focused studies to gain insight into
the preferences and concerns of taxpayers in relation to tax filing and a potential free IRS-provided Direct File
tool in particular. This was done using industry standard human-centered design methods for technical product
development and user research.
Unstructured, one-on-one interviews: A researcher engages a taxpayer in conversation. The researcher
has a list of topics they intend to cover, but questions are not fully scripted, and the researcher follows up on ideas
introduced by the taxpayer to explore their perspective.
Usability testing: Participants interact with a functioning internal prototype. A researcher provides tasks and
prompts, and observes them as they attempt to use the tool, pausing to discuss their expectations and reactions
along the way.
These techniques have also been successfully implemented across government at agencies such as the
Department of Veterans Affairs35 and the Department of Homeland Security.36
Each round of studies worked with a small number of participants. In total, 14 taxpayers participated. Keeping
each round small is the industry standard37 because these studies conducted in series throughout the process of
designing and developing products, allowing for a deeper understanding of potential user issues and helping to
iterate on design details.
The primary limitation of these methods is that, because of the smaller number of participants, each round can’t
uncover every diverse perspective that exists for the wide variety of taxpayers. However, this qualitative research
complements quantitative methods used above by illuminating potential explanations for survey results and
allowing taxpayers to evaluate a functioning internal prototype from the IRS in a controlled environment, rather
than an abstract description.
Participants were recruited by a contracted user research recruiting company. The Direct File Task Force
provided screener criteria to select individuals across a range of demographic backgrounds (age, gender,
ethnicity, income, education level, languages spoken) and a diversity of past experiences filing taxes. Each
session lasted less than an hour and participants were compensated for their time.38 Sessions were conducted
remotely via videoconference in order to include participants from across the United States (all Census regions
were represented).
––––––––––––––––––––––––
35
Department of Veterans Affairs. “Veterans with Disabilities Help Modernize VA.gov.” October 7, 2022.
https://digital.va.gov/delightful-end-user-experience/veterans-with-disabilities-help-modernize-va-gov/
36
Department of Homeland Security. “Burden Reduction at DHS.” January 9, 2023. https://www.dhs.gov/cx/burden-reduction-at-dhs
37
Nielsen Norman Group. “How Many Test Users in a Usability Study?” https://www.nngroup.com/articles/how-many-test-users/
38
Contractor selection, participant selection, and participant compensation were all compliant with the requirements of the Paperwork
Reduction Act (PRA) and other applicable laws and rules.
IRS Report to Congress 35
APPENDIX B:
OPINIONS OF AN INDEPENDENT THIRD PARTY
Overview
As required by §10301(1)(B) of the Inflation Reduction Act (IRA), the IRS sought the opinions of an independent
third-party on the overall feasibility, approach, schedule, cost, organizational design, and the IRS’s capacity to
deliver such a direct e-file tax return system. The IRS considered several options for the independent third party
required by the IRA, including contractors, non-profit organizations, academics, and other government agencies.
The agency selected New America and Professor Ariel Jurow Kleiman to work collaboratively as the independent
third-party to provide their opinions as required by the IRA. Those opinions are provided below.
Independent
Third Party
Report to Congress
Table of contents
Executive summary............................................................................................................ 3
Background....................................................................................................................... 10
Approach...........................................................................................................................21
Schedule............................................................................................................................26
Cost................................................................................................................................... 29
Organizational design....................................................................................................... 36
Capacity............................................................................................................................ 42
Conclusion.........................................................................................................................57
Appendices........................................................................................................................59
The IRS selected New America and Ariel Jurow Kleiman, Associate Professor of Law at
Loyola Law School, Los Angeles, to serve as the independent third party (“Third Party”).
Neither New America nor Professor Jurow Kleiman are receiving monetary
compensation from the IRS in exchange for providing this independent review.
A new Direct File system, as Congress has directed the IRS to explore, might create both
operational complexity for the IRS and an opportunity to improve services for taxpayers.
If the IRS decides to implement a Direct File system, it must consistently and effectively
address the following technical and operational imperatives:
● Gradual rollout: Products as complex as tax-filing software take time and must
be rolled out methodically. To be successful, the IRS would need to test, grow, and
improve functionality over multiple tax years. The IRS would need to implement
functionality in an iterative manner and avoid trying to deliver too much
functionality at one time. See Schedule for further discussion of this issue.
1
Inflation Reduction Act of 2022, Pub. L. No. 117-169, 136 Stat. 1832 (2022).
● State tax filing: Taxpayers expect tax-filing software to include state and federal
tax filing together. Additionally, a Direct File system could impact state and local
tax collection as well as the administration of state and local benefits. See State tax
filing for further discussion of this issue.
● Customer support: Customer support is a vital part of the user experience and
would also be the most significant, ongoing cost of a potential Direct File system.
The success of a potential Direct File system would depend largely on the IRS’s
capacity to provide effective, dependable customer support to users. See Customer
support for further discussion of this issue.
● Data privacy & security: Tax filing involves turning over sensitive personal
information. A potential Direct File system would need to carefully protect
taxpayer information. This includes secure systems, clear data-usage policies, and
accountability mechanisms that garner taxpayer trust. See Data privacy, security,
and fraud for further discussion of this issue.
● Funding: A Direct File system would require a stable, ongoing appropriation that
accounts for changing user needs and functionality, user numbers, and inflation.
See Long-term resilience to budget fluctuations for further discussion of this issue.
After analyzing the IRS report, interviewing 72 experts, and reviewing reports and data
from surveys, the Third Party review concludes that the feasibility of the IRS to
successfully build a Direct File product depends critically on their ability to
maintain this initiative as a leadership priority, start with limited scope, expand
over time, and address each of the aforementioned imperatives at each stage of
design and implementation.
● Schedule. The IRS has not proposed any specific schedule or timeline for the
development or launch of a potential Direct File tool. Therefore, the Third Party
cannot evaluate or recommend a schedule without further information.
● Cost. The Third Party review found that the IRS cost estimate ranges are
reasonable.
● Capacity. A potential Direct File tool must carefully protect taxpayer information,
which contains substantial sensitive personal identifying and financial
information.
The IRA does not task the Third Party with determining whether the IRS ought to develop
a Direct File system, and this report does not do so. Instead, this report documents the
process and findings used to determine the broad feasibility and operational
implications of a Direct File system, should the IRS choose to implement such a system.
The IRS selected New America and Ariel Jurow Kleiman, Associate Professor of Law at
Loyola Law School, Los Angeles, an expert in tax law and policy, to serve as the
independent third party (hereafter referred to as “Third Party”). Neither New America
nor Professor Jurow Kleiman are receiving monetary compensation from the IRS in
exchange for providing this independent review.
To answer the IRA mandate, New America convened a group of five experts with
backgrounds in government digital services, private sector software development
practices, and policy implementation to join Professor Jurow Kleiman.
The IRS’s report is required to cover “(I) the cost (including options for differential
coverage based on taxpayer adjusted gross income and return complexity) of developing
and running a free direct efile tax return system, including costs to build and administer
each release, with a focus on multi-lingual and mobile-friendly features and safeguards
for taxpayer data; (II) taxpayer opinions, expectations, and level of trust, based on
surveys, for such a free direct efile system.” The IRS report contains two sections. The
first section of the report focuses on taxpayer opinions. The second section explores the
2
costs, potential benefits, and operational challenges of building a Direct File system.
The IRA did not task the Third Party with answering the question of whether the IRS
ought to develop a Direct File system, and this report does not do so.
This report is structured around the key topics mandated by the IRA: approach, schedule,
cost, organizational design, and capacity. The report sections can be read in any order.
Each section includes a list of critical considerations structured using a uniform format:
challenge, current state, and assessment.
2
The Third Party reviewed the draft report of the IRS Direct File Task Force in order to understand the intentions, scope, and
design of “such a direct efile tax return system.” Statements in this document are based on the draft IRS report.
Direct File A potential “free direct efile tax A potential Direct File program,
return system” that could be referred to in the IRA as “direct efile,”
developed by the IRS in the future is the subject of this report.
as an additional option for The IRS team exploring this potential
taxpayers to file their federal tax system is named the Direct File Task
return.3 Taxpayers would not be Force.
required to use Direct File.
e-File, The back-end system through Over 150M individual returns4 were
Modernized which the IRS currently processes filed via e-file in fiscal year 2022.
e-File all electronically filed returns. E-file was initially piloted in 1986, and
implementation of Modernized e-File
began in 2004.5
Free File The Free File Program is a In filing year 2019, 2.5 million
public-private partnership taxpayers used Free File services.6
between the IRS and several The Free File program was created in
companies who provide online tax 2002.7
preparation services free of charge
to taxpayers who meet eligibility
requirements.
3
IRS, Internal Revenue Service Inflation Reduction Action Strategic Operating Plan (April 2023), 28,
https://www.irs.gov/about-irs/irs-inflation-reduction-act-strategic-operating-plan.
4
This figure includes individual and estate and trust income tax returns; Internal Revenue Service Data Book, 2022, Publication
55–B (Washington, DC: March 2023), Table 4, https://www.irs.gov/pub/irs-pdf/p55b.pdf (hereafter cited as IRS Service Data
Book 2022).
5
“Modernized e-File (MeF) Overview,” IRS, accessed May 3, 2023,
https://www.irs.gov/e-file-providers/modernized-e-file-overview.
6
“Complexity and Insufficient Oversight of the Free File Program Result in Low Taxpayer Participation,” Treasury Inspector
General for Tax Administration, February 3, 2020, at 3,
https://s3.documentcloud.org/documents/6768599/TIGTA-Free-File-audit.pdf.
7
“The Internal Revenue Service’s Free File Program (FFP): Current Status and Policy Issues, Congressional Research Service,”
updated January 26, 2023, https://crsreports.congress.gov/product/pdf/IF/IF11808.
● Regular information-gathering sessions with the IRS Direct File Task Force to
learn about specific aspects of their exploration of Direct File.
8
Anna Kaley, “Discovery in Agile,” Nielsen Norman Group, February 5, 2023,
https://www.nngroup.com/articles/discovery-in-agile/.
9
The Free File Alliance has seven member organizations: 1040NOW Corp., ezTaxReturn.com, FileYourTaxes, OnLine Taxes,
TaxACT, TaxHawk, and TaxSlayer; see Free File Alliance website, accessed May 5, 2023,
https://freefilealliance.org/free-file-alliance-members/. CERCA has 55 member organizations; see CERCA website, accessed
May 5, 2023, https://cerca.org/members/. Six organizations are members of both.
10
One ETAAC member currently works in both academia and the private sector; “Biographies of the Electronic Tax
Administration Advisory Committee (ETAAC) Members,” IRS, accessed May 3, 2023,
https://www.irs.gov/tax-professionals/biographies-of-the-electronic-tax-administration-advisory-committee-etaac-members.
In this section:
» Approaches to tax filing vary between the U.S. and its peer nations, as well as
between states.
» The IRS has previously and does currently prepare tax returns or calculate taxes
for certain eligible taxpayers.
» The Free File program has provided free tax filing for millions of taxpayers.
Recent government and private sector reports have identified areas in need of
improvements.
Some countries require taxpayers to prepare a return, as in the U.S., but in these
countries forms may include information that the tax agency already has, such as
third-party income information like wages. In countries that use prepopulation
(sometimes called pre-filling or auto-populating), taxpayers have the opportunity to
verify pre-filled information and make changes as necessary. According to recent OECD
11
“Table 4. Number of Returns and Other Forms Filed Electronically, by Type and State, Fiscal Year 2022,” IRS, 2023,
https://www.irs.gov/pub/irs-soi/22dbs01t04nr.xlsx.
More than 30 countries have some form of a return-free tax system, including many U.S.
13
peer nations such as Germany, the U.K., and Japan. In a return-free tax system, certain
taxpayers’ returns are prepared directly by the public tax agency, often with little or no
taxpayer input. Neither the IRS nor the independent Third Party have been asked to
assess the feasibility of such an approach in the United States.
Finally, many countries also offer public tax-filing systems (akin to a potential Direct File
system), which allow people to file their tax returns online for free directly with the tax
14
agency. Taxpayers provide information, often in response to simple question prompts.
Agency software then calculates their tax liability or refund based on this information.
Sometimes these public filing systems are provided in addition to return-free or
prepopulated systems.
12
See Figure 4.1, “Tax Administration 2022: Comparative Information on OECD and other Advanced and Emerging
Economies,” OECDiLibrary, accessed April 30, 2023, https://www.oecd-ilibrary.org/sites/1e797131-en/1/3/4/index.html; Brian
Erard, “California,” Prefilled Personal Income Tax Returns: A Comparative Analysis of Australia, Belgium, California, Québec, and
Spain, ed. François Vaillancourt, Studies in Budget & Tax Policy, Fraser Institute (June 2021), 39-62, at 41,
https://www.fraserinstitute.org/sites/default/files/prefilled-personal-income-tax-returns.pdf.
13
“What Other Countries Use Return-Free Filing?” Tax Policy Center, accessed April 27, 2023,
https://www.taxpolicycenter.org/briefing-book/what-other-countries-use-return-free-filing.
14
“Inventory of Tax Technology Initiatives,” CompareYourCountry.org, accessed May 5, 2023,
https://www.compareyourcountry.org/tax-technology-tools-digital-solutions/en/8/3280/default.
The IRS has also experimented with various types of taxpayer assistance throughout its
nearly 70-year history, including public e-filing. This section briefly describes past and
current IRS forays into tax preparation assistance.
● In 1995 the IRS attempted to launch a free public tax e-filing system called
19
“Cyberfile.” The IRS canceled the project the year after its launch. A Government
Accountability Office (GAO) report preceded the program’s end, highlighting
20
mismanagement, poor planning, and security concerns. The GAO attributed
Cyberfile’s problems, at least in part, to an unrealistic development timeline.
Ultimately the IRS abandoned plans to provide e-filing services directly, deciding
instead to partner with private companies that had already developed expertise
and infrastructure.
● In 1997 the IRS launched the “Telefile” program, which allowed taxpayers to file
form 1040EZ, several other forms, and income tax returns for eight states via
21
touch-tone telephone. More than 11 million tax returns were filed via TeleFile
15
“CalFile Qualifications 2022,” California Franchise Tax Board, accessed May 4, 2023,
https://www.ftb.ca.gov/file/ways-to-file/online/calfile/calfile-qualifications.html.
16
“Individual Income Tax Electronic Filing Options,” Alabama Department of Revenue, accessed May 4, 2023,
https://www.revenue.alabama.gov/individual-corporate/individual-income-tax-electronic-filing-options/.
17
“myPATH for Personal Income Tax,” Pennsylvania Department of Revenue, accessed May 4, 2023,
https://www.revenue.pa.gov/OnlineServices/mypath/Individuals/Pages/PIT.aspx.
18
“Electronic Filing Options for Individual Income and Business Taxes,” Kansas Department of Revenue, accessed May 4,
2023, https://www.ksrevenue.gov/iiwebfile.html.
19
Ralph Vartabedian, “IRS Pulls Plug on Its Electronic Tax-Filing System,” Los Angeles Times, September 11, 1996,
https://www.latimes.com/archives/la-xpm-1996-09-11-fi-42546-story.html.
20
“Tax Systems Modernization: Cyberfile Project Was Poorly Planned and Managed,” U.S. Government Accountability Office,
August 26, 1996, https://www.gao.gov/products/aimd-96-140.
21
“Internal Revenue Bulletin: 2005-17,” IRS, April 25, 2005, https://www.irs.gov/irb/2005-17_IRB#ANN-2005-26.
● The IRS provides free tax-preparation services to low- and middle-income tax
filers as well as elderly tax filers through Volunteer Income Tax Assistance (VITA)
26
and Tax Counseling for the Elderly (TCE) programs. The IRS manages VITA and
TCE in partnership with community organizations, and both programs are staffed
by IRS-certified volunteer tax preparers. In 2022, 57,420 volunteers working with
27
the VITA and TCE programs prepared over 2.2 million tax returns.
● The VITA program also operates Facilitated Self-Assistance (FSA), which provides
hands-on support to people who are preparing their own return using online tax
28 29
software. TaxSlayer is the software provider for both VITA and TCE.
22
Carol Hatch, Amy Ibbotson, and Jeff Wilson, “TeleFile – Taxpayers’ Characteristics and Filing Behavior: A Study to Enhance
Taxpayer Assistance Blueprint Knowledge,” Taxpayer Advocate Service, 2010 Annual Report to Congress, vol. 2 (2010),
https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/11/arc10_vol2_telefile.pdf.
23
Ann Carrns, “Need Tax Help? I.R.S. May Not Be the Best Place to Go,” The New York Times, January 31, 2014,
https://www.nytimes.com/2014/02/01/your-money/need-tax-help-irs-may-not-be-the-best-place-to-go.html.
24
“IRS Summertime Tax Tip 2011-04: Need Tax Help? Visit an IRS Taxpayer Assistance Center,” IRS, July 13, 2011,
https://content.govdelivery.com/accounts/USIRS/bulletins/b1b1b.
25
“If you file by the due date of your return . . . you can have the IRS figure your tax for you on Form 1040 or 1040-SR.” IRS,
Tax Guide 2022: For Individuals, Publication 17 (Mar. 27, 2023), 104-05, https://www.irs.gov/pub/irs-pdf/p17.pdf.
26
“Free Tax Return Preparation for Qualifying Taxpayers,” IRS, January 23, 2023,
https://www.irs.gov/individuals/free-tax-return-preparation-for-qualifying-taxpayers.
27
IRS Service Data Book 2022, 22.
28
MyFreeTaxes, https://myfreetaxes.com/.
29
“Filing Season 2023: TaxSlayer Procedural Updates for SPEC Partners and Employees,” IRS, January 2023,
https://www.irs.gov/pub/irs-pdf/p5361.pdf.
The IRS has traditionally offered tax-filing options that align with widely
adopted mediums and technology of the time.
E-file
E-file refers to the back-end system the IRS developed to process electronically filed tax
30
forms. All returns filed electronically are processed through e-file, including returns
self-prepared by filers using commercial software and returns done by professional tax
31
preparers.
The e-file program was first piloted to 25,000 taxpayers in 1986 and made available
32
nationwide in 1990. In 2004 the IRS began development of Modernized e-File, a
“web-based system that allows electronic filing of corporate, individual, partnership,
33
exempt organization and excise tax returns through the Internet.” Since then, the IRS
30
“IRS E-File: A History,” IRS, June 2011, https://www.irs.gov/pub/irs-news/fs-11-10.pdf.
31
“Modernized e-File (MeF) Overview,” IRS, accessed May 3, 2023,
https://www.irs.gov/e-file-providers/modernized-e-file-overview.
32
“IRS E-File: A History,” IRS.
33
“Modernized e-File (MeF) Overview,” IRS.
Today, over 90% of individual taxpayers file their tax returns electronically, representing
35
over 150 million total individual returns in fiscal year 2022. E-filed returns require less
human interaction and are more accurate, with an error rate of 1% compared to 20% for
36 37
paper returns. And taxpayers get refunds faster when they file electronically.
Since its inception in 2003, the Free File program has prepared more than 70 million free
tax returns worth more than $2 billion to filers, according to a written response by the
34
“Modernized e-File (MeF) Overview,” IRS.
35
“Returns Filed, Taxes Collected & Refunds Issued,” IRS, accessed May 5, 2023,
https://www.irs.gov/statistics/returns-filed-taxes-collected-and-refunds-issued.
36
“IRS E-File: A History,” IRS.
37
“What to Expect for Refunds This Year,” IRS, accessed May 5, 2023,
https://www.irs.gov/refunds/what-to-expect-for-refunds-this-year.
38
“Free File: About the Free File Alliance,” IRS, accessed May 5, 2023,
https://www.irs.gov/e-file-providers/about-the-free-file-alliance.
39
“Free File Fillable Forms,” IRS, May 3, 2023, https://www.irs.gov/e-file-providers/free-file-fillable-forms.
40
“The Internal Revenue Service’s Free File Program (FFP): Current Status and Policy Issues,” Congressional Research Service,
updated January 26, 2023, https://crsreports.congress.gov/product/pdf/IF/IF11808.
41
Memorandum of Understanding on Service Standards and Disputes, IRS, December 20, 2005,
https://www.irs.gov/pub/irs-utl/2006-first-ff-mou.pdf.
42
Addendum to the Eighth Memorandum of Understanding on Service Standards and Disputes, signed December 26, 2019,
https://www.irs.gov/pub/irs-utl/FFI%20Signed%20MOU%20Addendum%2012-26-19.pdf.
Because each Free File option may have different criteria, it’s difficult for tax filers to
quickly understand which Free File options they might qualify for. A recent MITRE report
concluded that Free File services “have the most need for improvement” in
46
“transparency around ineligibility.”
In 2019 ProPublica published an investigation alleging that some members of the Free
File Alliance charged low-income taxpayers for tax-preparation services even though
47
they were eligible for free services. An audit by TIGTA estimated that over 14 million
tax filers who were eligible for Free File services paid a fee for commercial software to
48
prepare their returns. In 2022 Intuit agreed to pay $141 million as part of a settlement
49
with the New York State Office of the Attorney General.
In 2022 the Government Accountability Office (GAO) examined the Free File program in
part to “[identify] key challenges and alternative approaches that may exist for IRS to
43
“Complexity and Insufficient Oversight of the Free File Program Result in Low Taxpayer Participation,” Treasury Inspector
General for Tax Administration, February 3, 2020, at 3,
https://s3.documentcloud.org/documents/6768599/TIGTA-Free-File-audit.pdf.
44
“Complexity and Insufficient Oversight of the Free File Program Result in Low Taxpayer Participation,” 3.
45
Justin Elliott, “Senate Investigation Criticizes the IRS for Failing to Oversee Free Filing Program,” ProPublica, June 9, 2020,
https://www.propublica.org/article/senate-investigation-criticizes-the-irs-for-failing-to-oversee-free-filing-program.
46
“Independent Assessment of the Free File Program: Executive Summary,” MITRE, October 3, 2019, xiii,
https://www.irs.gov/pub/newsroom/exec-summary-free-file-program-assessment-100319.pdf.
47
Justin Elliott, “Intuit Will Pay Millions to Customers Tricked Into Paying for TurboTax,” ProPublica, May 4, 2022,
https://www.propublica.org/article/intuit-will-pay-millions-to-customers-tricked-into-paying-for-turbotax.
48
“Independent Assessment of the Free File Program: Executive Summary,” MITRE, 5,
https://www.irs.gov/pub/newsroom/exec-summary-free-file-program-assessment-100319.pdf.
49
“Press Release: Attorney General James Secures $141 Million for Millions of Americans Deceived by TurboTax,” Office of the
New York State Attorney General, May 4, 2022,
https://ag.ny.gov/press-release/2022/attorney-general-james-secures-141-million-millions-americans-deceived-turbotax.
50
See “Recommendations,” in “IRS Free File Program: IRS Should Develop Additional Options for Taxpayers to File for Free,”
U.S. Government Accountability Office, April 28, 2022, https://www.gao.gov/products/gao-22-105236.
51
See “What the GAO Found,” in “IRS Free File Program: IRS Should Develop Additional Options for Taxpayers to File for Free,”
U.S. Government Accountability Office.
52
Justin Elliott and Paul Kiel, “TurboTax-Maker Intuit Will Leave Free Tax Filing Partnership With IRS,” ProPublica, July 16, 2021,
https://www.propublica.org/article/turbotax-maker-intuit-will-leave-free-tax-filing-partnership-with-irs.
53
“IRS Free File Program: IRS Should Develop Additional Options for Taxpayers to File for Free,” U.S. Government
Accountability Office.
In addition to enforcing the tax code and auditing tax returns, the IRS has
historically helped taxpayers prepare and file their returns and aided in tax
code interpretation.
54
Mark Lerner, “Government tech projects fail by default. It doesn’t have to be this way,” Harvard Kennedy Center Belfer
Center for Science and International Affairs “Perspectives on Public Purpose” blog, October 21, 2020,
https://www.belfercenter.org/publication/government-tech-projects-fail-default-it-doesnt-have-be-way.
55
“Affordable Care Act Marketplace,” Govini, 2021,
https://govini.com/wp-content/uploads/2022/02/Govini-ACA-Marketplace.pdf.
56
Daviel R. Levinson, “HealthCare.gov: CMS Management of the Federal Marketplace: A Case Study,” U.S. Department of
Health and Human Services Office of Inspector General, February 2016, https://oig.hhs.gov/oei/reports/oei-06-14-00350.pdf.
57
Gwanhoo Lee and Justin Brumer, “Managing Mission-Critical Government Software Projects: Lessons Learned from the
HealthCare.gov Project,” IBM Center for The Business of Government Viewpoints, Fall 2017, 69. Also available online:
https://www.businessofgovernment.org/sites/default/files/Viewpoints%20Dr%20Gwanhoo%20Lee.pdf.
58
Amanda Clarke, “Digital government units: what are they, and what do they mean for the digital era public management
renewal?” International Public Management Journal 23, no. 3 (2020): 358-79, https://doi.org/10.1080/10967494.2019.1686447.
59
“Federal Information Technology Acquisition Reform Act (FITARA),” CIO, accessed May 3, 2023,
https://www.cio.gov/policies-and-priorities/FITARA/.
60
Kirsten Errick, “OPM’s Efforts to Spur Governmentwide Tech Hiring,” Nextgov, April 21, 2023,
https://www.nextgov.com/cxo-briefing/2023/04/opms-efforts-spur-governmentwide-tech-hiring/385426/.
61
Vivek Kundra, Federal Cloud Computing Strategy, Feb. 8, 2011,
https://obamawhitehouse.archives.gov/sites/default/files/omb/assets/egov_docs/federal-cloud-computing-strategy.pdf;
Suzette Kent, Federal Cloud Computing Strategy, June 24, 2019,
https://www.whitehouse.gov/wp-content/uploads/2019/06/Cloud-Strategy.pdf.
62
Exec. Order No. 14058, 86 FR 71357 (Dec. 13, 2021). Accessible online here:
https://www.federalregister.gov/documents/2021/12/16/2021-27380/transforming-federal-customer-experience-and-service-
delivery-to-rebuild-trust-in-government.
63
Ines Mergel, “Digital Service Teams: Challenges and Recommendations for Government,” IBM Center for the Business of
Government, 2017,
https://businessofgovernment.org/sites/default/files/Digital%20Service%20Teams%20-%20Challenges%20and%20Recomme
ndations%20for%20Government.pdf. See also Clarke, “Digital government units”; and “Improving the Management of IT
Acquisitions and Operations,” High-Risk Series: Efforts Made to Achieve Progress Need to Be Maintained and Expanded to Fully
Address All Areas, GAO, GAO-23-106203, April 20, 2023, https://files.gao.gov/reports/GAO-23-106203/index.html#appendix13.
64
“Critical code: building COVID-19 vaccine finder tools,” U.S. Digital Service, accessed May 5, 2023,
https://www.usds.gov/projects/vaccines-dot-gov.
65
Paul Smith, “Why COVIDtests.gov worked where HealthCare.gov stumbled,” FedScoop, January 20, 2022,
https://fedscoop.com/why-covidtests-gov-worked-where-healthcare-gov-stumbled/.
In this section:
» To be feasible, a potential Direct File project would need to use modern, flexible
software development methods. It would not be feasible to build a Direct File
system using the traditional requirements-driven software development pattern
most common within IRS IT.
As required in the IRA, this section provides the Third Party opinion on the IRS’s
66
“approach [to]...a direct efile tax return system.” It discusses the methods and
development processes the IRS would need to adopt in order to make feasible a potential
Direct File project.
After assessing possible approaches, Third Party review research suggests that if the IRS
pursues a Direct File project, it should meet current software development practices
widely used in the private sector and increasingly used within the federal government.
For more about best practice resources that inform this section, see Appendix: Agile
software development.
Within IRS IT, the standard approach to software development involves a long initial
phase of gathering “requirements” (detailed descriptions of planned functionality),
followed by a technical implementation phase in which all functionality is built before
launching to users. Due to the pace of change in the tax code, user expectations, and
66
Inflation Reduction Act of 2022, Pub. L. No. 117-169, 136 Stat. 1832 (2022).
However, interviews with IRS officials in divisions integral to any potential Direct File
project—including Online Services (OLS), IT, and Wage & Investment—suggest that a
future Direct File team would have the ability to center user-experience and use modern,
flexible software development practices. Maintaining a commitment to such approaches
would be necessary to the feasibility of delivering any Direct File tool.
Challenge
Due to the complexity of the U.S. tax code, one of the most challenging
elements of building any tax-filing system would be creating a tool that is
simple and easy-to-use for taxpayers.
Current state
Within the IRS, Online Services (OLS) has user-experience design expertise. Third Party
interviews with IRS technical officials across divisions and with technical experts who
have collaborated with the IRS revealed that user-experience expertise in other IRS
divisions varies widely. The Direct File Task Force includes employees from across the
IRS, including from OLS.
Assessment
Achieving a usable software product requires deep understanding of users’ needs,
challenges, and situations when encountering the product, as well as an understanding
67
of how users will interact with it. Gathering this information requires regularly
listening to users, including by putting iterations of the product in front of users and
observing how they respond. See Appendix: Design thinking and iterative prototyping
for further discussion of these methods.
67
“Human Centered Design Discovery Stage Field Guide V. 1,” General Services Administration, accessed May 3, 2023,
https://www.gsa.gov/cdnstatic/HCD-Discovery-Guide-Interagency-v12-1.pdf.
69
Centering user experience would be a newer approach for an IT project within the IRS.
If a potential Direct File project deployed a more standard IT operating model within IRS,
the lack of experience in human-centered design methods would pose a risk to the
feasibility of the project. However, if a future Direct File team were composed of similar
skill sets as the exploratory Direct File Task Force, it should have sufficient
user-experience expertise to build a high-quality product.
Challenge
A potential Direct File project would require cross-functional collaboration
and constant feedback, rather than the traditional linear approach most
familiar to IRS IT.
Current state
In interviews with IT staff and other technical experts, they explained that the standard
working model of IRS IT and their business partners is one in which IRS IT receives
requirements up front and then works largely independently to fulfill those
requirements. This approach can lead to a long lead time between releases and may
result in products that don’t match the expectations or actual needs of users. Former IRS
68
IRS draft report, Appendix A.
69
For instance, a 2019 Government Accountability Office (GAO) report on IRS online services found that “[The] IRS has not
sufficiently considered taxpayer input in the prioritization process for these new services and instead prioritizes services
primarily based on the potential benefit to IRS operations or how quickly a service might be developed”; see “Taxpayer Input
Could Strengthen IRS’s Online Services,” GAO, December 2019, https://www.gao.gov/assets/gao-20-71.pdf. A more recent
GAO report on IRS cloud computing implementation noted that “[k]ey shortfalls included IRS not conducting regular
evaluations of customer experiences and user needs”; see “IRS Needs to Complete Modernization Plans and Fully Address
Cloud Computing Requirements,” GAO, January 2023, https://www.gao.gov/assets/gao-23-104719.pdf.
Interviews with IRS technical staff indicated that, if the IRS were to proceed with a Direct
File tool, IRS IT indicated it would only be responsible for the underlying infrastructure,
such as hosting, security, and integration. Actual development of a potential Direct File
tool, including software engineering, would be led by a cross-functional team with
members from across the IRS providing different skills. IRS experts from Online Services
(OLS) could provide human-centered design support for this team.
Assessment
Successfully developing a potential Direct File program would require the IRS to
continue to evolve its existing practices of software development. Under the standard IRS
development lifecycle, an entire product is first designed and then built one part at a
time. This approach can lead to poor user experience outcomes because development
teams don't get meaningful feedback on how their product works in practice until the
very end of the process. As a result, fundamental design decisions may need to be
changed, requiring an entire rebuild of the system.
70
For instance, a recent GAO review found that the pace, cost, and performance record for certain recent technology
modernization efforts have been “troubling”; see “Information Technology: Cost and Schedule Performance of Selected IRS
Investments,” GAO, GAO-22-104387, Oct. 19, 2021, https://www.gao.gov/products/gao-22-104387.
71
“The Child Tax Credit Update Portal Was Successfully Deployed, but Security and Process Improvements Are Needed,”
Treasury Inspector General for Tax Administration, May 18, 2022,
https://www.oversight.gov/sites/default/files/oig-reports/TIGTA/202227028fr.pdf.
72
Jason Bramwell, “IRS: Taxpayers Can Now Upload Documents for These 9 Notices,” CPA PracticeAdvisor, February 21, 2023,
https://www.cpapracticeadvisor.com/2023/02/21/irs-taxpayers-can-now-upload-documents-for-these-9-notices/76959/.
If the IRS moves forward with a Direct File program, it would only be feasible long-term
if the IRS retains its commitment to this modern software development lifecycle, rather
than incorporating this project into its legacy software development approach. If the IRS
were to engage development support external to the IRS—whether from within the
federal government or from the private sector—it should ensure that it engages an entity
committed to a modern, flexible approach to software development.
See Appendix: Framework to evaluate delivery of Direct File for a framework that the
IRS could use to monitor and evaluate progress of a potential Direct File project and
determine whether and how it follows modern software development best practices. It is
informed by industry best practices, the Digital Services Playbook, and the TechFAR
74
Handbook.
73
“Build the service using agile and iterative practices,” Digital Services Playbook, U.S. Digital Services, accessed April 28,
2023, https://playbook.cio.gov/#play4.
74
Digital Services Playbook, U.S. Digital Service, accessed April 28, 2023, https://playbook.cio.gov/; The TechFAR Handbook,
U.S. Digital Service, accessed April 28, 2023, https://playbook.cio.gov/techfar/; Appendices: Agile software development,
Design thinking and iterative prototyping.
In this section:
» Because schedule is a function of scope and cost, the IRS would need to be
prepared to adjust the cost and scope of the project to remain on schedule.
The IRS has not proposed any specific schedule or timeline for the development or
launch of a potential Direct File tool. The appropriate and feasible schedule for software
development projects can vary significantly depending on the intended scope, expected
user base, and development team, none of which has been identified. Therefore, the
Third Party cannot evaluate or recommend a schedule without further information.
There are existing scheduling patterns in successful private sector and government
software development projects that would increase the success of any potential Direct
File project. These methods are designed to reduce the risks inherent in launching new
software and to ensure that the release process efficiently addresses user needs.
Challenge
Trying to rapidly launch new, complex software products to large groups of
users is high-risk.
After an initial pilot, further functionality could be added at regular intervals, allowing
for continuous feedback and adjustment. This allows for potential surprises, including
user experience challenges, customer support needs, infrastructure bottlenecks, and
software bugs, to be discovered quickly and addressed before they cause harm.
Assessment
The IRS has used pilots in the past to successfully roll out new IT systems, including the
77
e-file program pilot in 1986. However, successful pilots require clearly defining a scope,
including the limits of functionality and target audience. Stating clear and measurable
goals up front is also critical for accurately assessing which aspects of a pilot product are
78
working and which are in need of improvement.
If the IRS moves forward with a Direct File project, it would be critical to plan around
tax-filing seasons and be ready to launch, support, and gather feedback about a specific
scope of Direct File system in time for filing season each year. With this constraint in
mind, the IRS could set an initial delivery date for the 2024, 2025, or 2026 filing years,
depending on the scope defined for the first release. The earliest possible delivery date
for a potential Direct File tool would be filing year 2024, but successfully meeting such a
date would require that the IRS rapidly address the primary challenges identified herein.
Whatever the delivery date, it is important to avoid launching too much at one time and
75
Aaron De Smet, “Get agile faster through pilot programs,” People & Organization Blog, McKinsey & Company, February 16,
2018,
https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/the-organization-blog/get-agil
e-faster-through-pilot-programs.
76
“Learning Before Going to Scale: An Introduction to Conducting Pilot Studies,” Regional Educational Laboratory Appalachia
at SRI International, May 2021,
https://ies.ed.gov/ncee/edlabs/regions/appalachia/resources/pdfs/Pilot-Study-Resource_acc.pdf.
77
“IRS E-File: A History,” IRS.
78
“Google for Education, Pilot Framework,” accessed May 5, 2023,
https://static.googleusercontent.com/media/edu.google.com/en//pdfs/google-pilot-framework-design.pdf.
One critical consideration in planning the initial launch of a potential Direct File tool is
79
the time required to obtain a signed Authority to Operate (ATO). Obtaining an ATO can
take months and requires development effort as well as documentation. The IRS’s
roadmap and schedule would need to account for this. See Hosting and security for
Direct File for further discussion of ATO timing.
79
An ATO is “The official management decision issued by a designated accrediting authority (DAA) or principal accrediting
authority (PAA) to authorize operation of an information system and to explicitly accept the residual risk to agency
operations (including mission, functions, image, or reputation), agency assets, or individuals”; “ATO,” NIST Computer Security
Resource Center: Glossary, accessed May 5, 2023,
https://csrc.nist.gov/glossary/term/ato#:~:text=Authorization%20to%20Operate%3B%20One%20of,or%20Derived%20Creden
tial%20issuance%20services.
In this section:
» Customer support would be the primary cost driver of a potential Direct File
tool.
» The IRS cost estimates are in line with the Third Party estimate.
This section addresses the cost portion of the IRA language by calculating estimated costs
based on Third Party assumptions, comparing them to the IRS’s own cost estimates, and
discussing discrepancies. It also considers the long-term resilience of a potential Direct
File program in light of possible budget fluctuations.
Costs of a potential Direct File program were evaluated along two dimensions:
1. Immediate and ongoing costs: If the IRS proceeds with a Direct File program, it
would need accurate estimates of costs to develop a potential Direct File tool,
adjust the product’s scope via iterative development, continually update the tool
to reflect current law, and support users. See Third Party cost estimate for more
about methodology and specific estimated costs.
● Program staff, which could include federal and contract employees, would be
responsible for the development of the application and the operation of the
program. The largest portion of program staff costs would be the cost of
development teams. The Third Party estimate assumes development teams would
be organized in three to five agile Scrum teams of eight to ten people each, in
80
accordance with Scrum methodology best practices. It also assumes between ten
and twenty federal support staff to manage and coordinate software development
and customer support.
80
“The 2020 Scrum Guide,” Nov. 2020 version, https://scrumguides.org/scrum-guide.html#scrum-team.
81
“Modernized e-File (MeF) Overview,” IRS, accessed May 3, 2023,
https://www.irs.gov/e-file-providers/modernized-e-file-overview.
82
IRS draft report, Section 2.
83
“Why Customer Assistance Ratio is the Best KPI to Track Contact Center Utilization,” Burnie Group,
https://burniegroup.com/customer-assistance-ratio-best-kpi-for-contact-center-utilization/.
This estimate makes two sets of assumptions for areas of cost uncertainty—one
conservatively high and one aggressively low—resulting in a range of potential estimated
costs. Uncertainty in estimating long-term costs is unavoidable in the planning stages of
this type of project. Running a pilot of a potential Direct File tool would resolve much of
84
this uncertainty and allow for a narrower range of estimated costs.
The Third Party estimate covers a range of possible uptake from one million to 25 million
users. The following are the estimated annual costs for each area:
84
“What is the difference between a trial and a pilot?” Association for Project Management, accessed May 5, 2023,
https://www.apm.org.uk/resources/find-a-resource/what-is-the-difference-between-a-trial-and-a-pilot/.
2 million filers
5 million filers
10 million filers
25 million filers
Challenge
Once IRA resources sunset, a potential Direct File system would require a
stable, ongoing appropriation that accounts for changing user needs, tax
policy, functionality, user numbers, and inflation. Without this, the quality of
service delivered to taxpayers would decrease.
Current state
One challenge and concern raised by parties both within and outside the IRS was that
prior to IRA funding, the IRS typically operated in a budget environment defined by
scarcity. IRS leadership would regularly have to make difficult decisions on how to cover
increasing operating expenses with a decreasing budget resulting from budget cuts,
impacts of inflation, and an increase in the size of the taxpayer base.
This section analyzes the effects of possible future budget cuts on a potential Direct File
system after initial launch. The largest and most obvious target for cuts would be in
customer support, which is the most substantial part of the budget.
The other primary target for cuts would be reducing the size of the development team.
This would impact the ability of the team to iteratively improve the user experience,
integrate changes in tax law, and respond to changing IRS or congressional priorities for
Direct File.
Assessment
Future reductions to funding after it has been established would reduce the quality of a
potential Direct File program.
IRS staff indicated that past cuts have had negative impacts on customer service
capabilities and call center capacity. According to an IRS executive, the cost to maintain
existing IRS technical systems goes up every year, and as a result the customer support
budget is often reduced in order to make up the difference. Cuts to the customer service
budget for a potential Direct File program would likely lead to longer wait times for
Similarly, IRS staff also indicated that budget cuts in the past have limited modernization
efforts on existing systems. Similar cuts to the development team of a potential Direct
File program would reduce the ability of the IRS to continually improve the tax filer
experience and, over time, negatively affect the user experience.
Based on the proposed IRS approach, development team budget cuts would not be likely
to put the accuracy of tax return filing at risk, as substantive changes to the tax
calculations would be managed via a configuration-based system, requiring minimal
85
technical intervention and cost.
85
IRS draft report, Section 2.
In this section:
» The IRS needs a consistent, funded public communications strategy about IRS
tax-filing options.
» The IRS may need to increase technical design and development staffing
through partnerships, procurement, and hiring to deliver a potential Direct File
tool.
This section summarizes the key organizational design challenges that the IRS would
need to consider in order to deliver a potential Direct File tool.
If the IRS moves forward with a potential Direct File project, success would depend on
the following organizational capabilities:
● Clear, decisive, and empowered product ownership within the IRS to manage the
scope, stakeholders, and success of a potential Direct File tool. See Full-time
product ownership within the IRS.
Challenge
A potential Direct File system would require a full-time, dedicated person to
provide direction for program and product development, lead iterative
software improvements over time, and collaborate with other IRS divisions
and organizations.
Current state
The complexity of modern software projects means that scope, trade-offs, priorities,
functionality, risks, and success metrics must be continuously evaluated, defined, and
shared in order to manage costs, timelines, and outcomes. The industry best practice for
accomplishing this ongoing work is to identify and empower a single leader, or “product
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owner,” to be accountable for the success or failure of a software product.
The IRS has not yet identified the division or department that would supply such a
full-time product owner, because they have not made a decision on whether to move
forward with a Direct File program.
Assessment
Establishing strong, full-time product ownership is the first and most important
organizational design challenge that must be resolved in order for the IRS to successfully
deliver Direct File. A potential Direct File product owner would need to be appropriately
situated within a department or division at the IRS, with leadership support and access
to teams across the IRS in order to collaborate on critical areas.
Much of the necessary experience and expertise—in tax policy, procurement, agile
software development, human-centered design, customer service, and IRS information
systems—exists at the IRS. An empowered product owner would be charged with
bringing these areas together into a cohesive, cross-functional unit focused on designing,
86
“Play 6: Assign one leader and hold that person accountable,” Digital Services Playbook, U.S. Digital Service, accessed April
28, 2023, https://playbook.cio.gov/#play6.
Challenge
Many groups and organizations both internal and external to the IRS would
be directly impacted by any future Direct File project. Lack of alignment and
failure to consider stakeholders’ needs could negatively impact the taxpayer
experience. Choices made in designing the system could have an especially
significant impact on state entities.
Current state
If exploration into a potential Direct File system continues, the Direct File Task Force
would need increased collaboration with other groups within the IRS. Based on
interviews with IRS staff in the divisions that a potential Direct File project would depend
on, these divisions have not engaged deeply with the Direct File Task Force yet but would
expect to collaborate closely if the project moves forward.
In interviews, state tax administrators voiced concerns that, if the project were to move
forward, the IRS may design Direct File without understanding how it might impact state
tax administration. For example, one interviewee shared a specific instance where the
IRS made a decision to extend the federal tax filing deadline for its state’s residents with
minimal discussion with their office.
Assessment
Because the IRS has not made a decision on whether to move forward with Direct File
yet, the level of collaboration that the Direct File Task Force has had with internal and
external stakeholders thus far has been understandably limited. The Task Force has
several staff members who are tasked with coordination within the IRS, but it is not clear
how it would plan to collaborate with stakeholders outside of the IRS, such as state tax
Should this initiative move forward, crafting a collaborative approach with internal and
external stakeholders would be important. It would encourage examining problems from
multiple perspectives, reduce the risk of system incompatibilities and friction between
organizations, and ultimately lead to a better taxpayer experience.
Challenge
Effective communication to taxpayers, outreach to intermediaries and
advocates, and external messaging would be important for taxpayers to
understand and trust any future Direct File product.
Current state
Historically, the IRS does very little marketing for products and services available to
taxpayers, according to interviews with IRS communications staff. For example, the
marketing budget for Free File has been decreasing year-over-year and is currently at
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zero. In interviews, both external tax assistance organizations and IRS communications
leadership noted this as one reason for the relatively low uptake of the Free File
88
program.
87
“NTA Blog: Free File: The Free File Program Is Failing to Achieve Its Objectives and Should Be Substantially Improved or
Eliminated,” Taxpayer Advocate Service, March 15, 2019,
https://www.taxpayeradvocate.irs.gov/news/ntablog-free-file-the-free-file-program-is-failing-to-achieve-its-objectives-and-sh
ould-be-substantially-improved-or-eliminated/.
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A bipartisan Senate investigation came to the same conclusion. Justin Elliott, “Senate Investigation Criticizes the IRS for
Failing to Oversee Free Filing Program,” ProPublica, June 9, 2020,
https://www.propublica.org/article/senate-investigation-criticizes-the-irs-for-failing-to-oversee-free-filing-program.
Assessment
Outreach and messaging about a potential Direct File system would need to focus on
informing Americans about the range of options for filing their taxes, not on selling or
advocating a single option. According to interviews with external organizations that
specialize in working with non-filers, marketing, guidance to taxpayers, and other types
of support would be necessary to make taxpayers aware of a potential Direct File tool.
See Capacity: Customer support for more on supporting taxpayers using a potential
Direct File tool.
A potential Direct File system would benefit from digital marketing and advertising to
support the IRS’s program goals, which would require dedicated funding, according to
interviews with IRS officials.
If any Direct File product is developed, the IRS must ensure that it has a high capacity for
marketing, communications, and outreach in order to provide clear, correct, and
wide-reaching information about Direct File.
Challenge
In order to deliver a potential Direct File tool, the IRS would need to assemble
a product development team that includes application software engineering,
human-centered design, and product management expertise.
Current state
The IRS’s cost estimates for delivering a potential Direct File system assume that the IRS
would leverage iterative product development practices.
The IRS has not yet determined the scope of a potential Direct File program. That being
said, if this project were to move forward, they would leverage iterative product
development practices, starting with a limited initial tax scope and adding additional tax
situations over time. To support continuous iteration of a potential Direct File system, the
IRS may need to increase technical design and development staffing through
procurement of modern engineering and human-centered design expertise, as well as
the creation and hiring of full-time federal staff to fill leadership and supervisory roles
for the cross-functional team.
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See Approach: The IRS software development lifecycle for more detail about iterative cross-functional development teams
versus siloed teams.
In this section:
» The IRS would need to significantly expand customer support capacity and
expertise to support any potential Direct File tool.
» Cloud hosting environments could provide the IRS with capacity to manage
rapid system updates and seasonal peaks in demand.
The IRS does not address the scope of any future work related to a potential Direct File
program, and as such the Third Party has limited information upon which to conduct an
analysis of IRS capacity.
In lieu of specific capacity analysis of any potential Direct File-related efforts, this section
discusses some general observations with respect to the capacity of IRS to develop a
potential Direct File program.
Customer support
Challenge
Outdated call center infrastructure and the limited ability of customer service
representatives to address new types of support needs present capacity
challenges for a potential Direct File tool.
Customer Account Services (CAS) manages the largest customer service operation within
the IRS. Staffed by approximately 18,000 customer service representatives, CAS handles
customer requests for tax-related assistance throughout the year, with the highest
demand coming in the weeks before annual tax deadlines. Customer support agents
receive training in tax law and IRS accounts, but do not have experience providing other
types of support that may require a very different set of skills. For example, providing
customer support for tech-related questions lies outside the area of expertise of CAS.
CAS call center technology is also in need of modernization. An external expert familiar
with IRS customer support operations estimated that the infrastructure significantly lags
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industry technology, and some of interviewees—especially taxpayer representatives
and community organizations—expressed skepticism about whether the IRS is ready to
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provide industry-level customer support to more tech-savvy customers.
Assessment
The IRS would need to expand customer support capacity, in terms of both skills and
resources, in order to support new, taxpayer-facing initiatives. To effectively meet this
need, the IRS would have to design a cohesive customer experience for a variety of new
customer situations, taking into account data privacy issues, different customer service
skill sets required, and level of customer demand for different types of support.
Customer service agents who could handle all types of questions would allow for a more
personalized and efficient customer experience. For example, speaking with a single
customer service representative who can address tax- and tech-related questions is a
90
“TAXPAYER SERVICE: Taxpayer Service Has Reached Unacceptably Low Levels and Is Getting Worse, Creating Compliance
Barriers and Significant Inconvenience for Millions of Taxpayers,” National Taxpayer Advocate, 2014 Annual Report to
Congress, 3, https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/08/2014-ARC_VOL-1_S1_MSP-1-508.pdf; “2022
Tax Filing: Backlogs and Ongoing Hiring Challenges Led to Poor Customer Service and Refund Delays,” U.S. Government
Accountability Office, published December 15, 2022, https://www.gao.gov/products/gao-23-105880.
91
“Taxpayers Face Significant Difficulty Reaching IRS Representatives Due to Outdated Information Technology and
Insufficient Staffing,” National Taxpayer Advocate, 2020 Annual Report to Congress,
https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2021/01/ARC20_MSP_02_Telephone.pdf.
92
Al Cook, “Call Center vs. Contact Center: What's the Difference?” Twilio, accessed May 5, 2023,
https://www.twilio.com/en-us/learn/contact-center/call-center-vs-contact-center.
If this type of customer support expansion is underfunded or poorly executed, the IRS
runs the risk of increasing pressure on other, already-overloaded customer support
operations. Stakeholders who regularly need access to IRS support, including staff at
community organizations and professional tax preparers, expressed this concern in
interviews. To maximize chances of success, customer support expansion would need to
94 95
be undertaken using a human-centered, iterative approach.
Allowing a potential Direct File system to grow slowly and methodically would increase
the chance of successfully providing high-quality customer support. As one industry
interviewee put it, “[We have been] successful at recruiting, training and retaining an
excellent workforce to meet customer support needs. We do this by managing growth,
not overcommitting and continuously improving internal processes and technology to
maintain high levels of efficiency and customer support capabilities.”
Expansion of customer support capacity would be a significant cost driver; see the Cost
section for further discussion of this topic.
93
Philippe Chevalier, Robert A. Shumsky, and Nathalie Tabordon, “Routing and Staffing in Large Call Centers with Specialized
and Fully Flexible Servers,“ March 2004, http://mba.tuck.dartmouth.edu/pages/faculty/robert.shumsky/xtrain_large_cc.pdf.
94
John O'Leary, Marc Mancher, William D. Eggers, and Shelly Metschan, “The Future of Government Contact Centers: Seven
Strategies for Quantum Leap Improvement,” Deloitte, January 12, 2002,
https://www2.deloitte.com/us/en/insights/industry/public-sector/future-of-government-digital-contact-centers.html.
95
“Contact Center Playbook,” GSA, October 2020,
https://coe.gsa.gov/docs/2020/Contact%20Center%20Playbook%20October%202020.pdf.
Challenge
Successful integration of a new system into existing technology systems would
be critical to launching a potential Direct File tool, as this type of integration
has been responsible for major issues in other government technology
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development efforts.
Current state
Any potential Direct File tool would integrate with the IRS return-processing system
through the Modernized e-File (MeF) service, which the IRS provides as a mechanism for
all e-filed returns.
Assessment
For most government technology projects, integrating a new electronic intake system
into downstream processing systems is one of the highest-risk areas; however, the IRS
has already addressed this challenge in the process of creating a robust e-filing
ecosystem.
Over the last 33 years, the IRS has implemented the back-end e-filing system that
supports all electronically filed federal tax forms, including approximately 94% of
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individual tax returns. The Modernized e-File service already serves the entire
commercial tax preparation software industry and handles the vast majority of the 150
98
million individual tax returns filed in the U.S.
The majority of potential integration issues have already been addressed by the
Modernized e-File system, and a well-tested interface exists to integrate with Modernized
e-File. With the Modernized e-File system, the IRS has also demonstrated the capacity to
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One system that struggled with these issues was the Electronic Immigration System (ELIS), which initially struggled to
integrate both with other technology systems within DHS and with DHS’s existing case management process.
97
“Returns Filed, Taxes Collected & Refunds Issued,” IRS, accessed May 5, 2023,
https://www.irs.gov/statistics/returns-filed-taxes-collected-and-refunds-issued.
98
“Returns Filed, Taxes Collected & Refunds Issued,” IRS.
Challenge
In addition to Modernized e-File, a potential Direct File tool would need to
integrate with other systems, including the IRS’s identity-management
system. Integration with third-party systems such as state tax filing tools
would also need to be considered.
Current state
The IRS has an existing enterprise identity management system, the Secure Access Digital
Identity (SADI) system, which also supports two external identity providers, ID.me and
99
Login.gov. Integration with this system would be required to allow taxpayers to save
their progress and return to view their filed return.
Assessment
SADI, the enterprise identity system currently in use by the IRS’s Online Account system,
facilitates access to the CTC Update portal and Get Transcript functionality. SADI is likely
sufficient to manage identity for a potential Direct File system, though some additional
configuration might be required to ensure that taxpayers have a secure and easy-to-use
login experience at a level consistent with current IRS tax-filing standards. Configuration
of this service for use with a potential Direct File tool is within the IRS’s current technical
capacity.
99
“New identity verification process to access certain IRS online tools and services,” IRS, November 17, 2021,
https://www.irs.gov/newsroom/new-identity-verification-process-to-access-certain-irs-online-tools-and-services;
John Hewitt Jones, “Internal Revenue Service working to expand use of Login.gov,” FedScoop, March 28, 2023,
https://fedscoop.com/internal-revenue-service-to-expand-use-of-login-gov/.
Technical scalability
Challenge
One hundred sixty million taxpayers complete individual tax returns every
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year, and 94% of those are filed electronically. In order to be feasible, a
potential Direct File system would need to remain functional even under
substantial loads concentrated in several peaks during the filing season.
Current state
In interviews, current and former IRS staff and external subject matter experts familiar
with the IRS shared concerns about whether the IRS’s information systems could handle
the volume of filers expected during peak filing periods.
Currently, the IRS operates the Modernized e-File system, which receives all
electronically filed returns and distributes them to the necessary systems within the IRS
for processing.
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Additional discussion of Direct File’s potential relationship to state tax filing can be found in Additional critical
considerations.
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IRS Service Data Book 2022.
The IRS report does not indicate whether a potential Direct File system would be
implemented in a secure cloud environment; such an approach would be industry best
practice for a modern digital service and would provide opportunities to implement
automated monitoring, elastic scaling, and disaster-recovery mechanisms that could
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improve scalability and availability of the system. For further discussion of this issue,
see Capacity: Hosting and security for Direct File.
Taking advantage of cloud capabilities requires a team that can implement best practices
effectively. This has been a challenge for the IRS in the past, as illustrated by an outage of
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the Child Tax Credit Portal that occurred due to a human-error misconfiguration. If the
IRS moves forward with building a potential Direct File system, it would need to procure
an application development team that is familiar with the methods needed to build
robust applications capable of managing high volumes of traffic and load, and that could
work closely with IRS IT’s infrastructure experts to ensure best-in-class monitoring.
102
“Digital Transformation for Government: How a Hybrid Multicloud Platform Delivers Outcomes for Government,” IBM,
accessed May 4, 2023, https://www.ibm.com/industries/government/resources/digital-transformation-government/.
103
“The Child Tax Credit Update Portal Was Successfully Deployed, but Security and Process Improvements Are Needed,”
Treasury Inspector General for Tax Administration, 2022, 1-33,
https://www.oversight.gov/sites/default/files/oig-reports/TIGTA/202227028fr.pdf.
Challenge
A potential Direct File tool built on IRS IT infrastructure would need to
maintain compliance with federal IT security policies and procedures,
especially given its need to store sensitive taxpayer information. It would also
have to handle large spikes in usage during peak tax-filing season.
Current state
The IRS report does not indicate whether a potential Direct File system would be
implemented in a secure cloud environment. However, IRS IT currently maintains
several FedRAMPed cloud environments, which would be available for use by a potential
Direct File system and contain a number of standard security controls that could be
inherited by a potential Direct File system hosted in those environments. For application
development capacity, the IRS is in a good position to leverage collaboration with USDS to
ensure that a technical vendor is procured with a high level of expertise in building
applications securely in a cloud environment.
A potential Direct File tool would require a new Authority to Operate (ATO), which
involves a security evaluation process that traditionally takes several months across
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government—up to nine months or more by some estimates. However, IRS IT
estimated that for a hypothetical Direct File system based in an existing environment and
able to inherit controls, an ATO process might take 60-90 days. It was noted that this is
dependent on IRS IT getting the necessary information from the application team in a
timely manner.
Assessment
Any potential Direct File system would need to be updated regularly, sometimes very
quickly, which is often easier to achieve in a cloud environment due to access to a
greater level of automation. Secondly, the elasticity of computing resources available in a
104
“FedRAMP ATO: Time to Compliance and Authorization,” stackArmor, accessed May 2, 2023,
https://stackarmor.com/fedramp-time-to-authorization/; “Background,” CMS Security & Compliance Planning, Centers for
Medicare & Medicaid Services, accessed May 2, 2023, https://ato.cms.gov/overview.html#system.
Similarly, the ability of a potential Direct File system to inherit security controls would
make the process of securing the application and obtaining an ATO more streamlined,
allowing a reasonable development timeline driven primarily by product needs and
stakeholder input, rather than infrastructure constraints. The infrastructure would
largely be provided and operated by IRS IT.
In a recent report, the GAO noted that the “IRS addressed most of OMB’s cloud computing
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requirements.” While a wide variety of security controls and measures would need to
be implemented across enterprise cloud systems, it appears from a recent TIGTA audit
that security control implementation is actively continuing, indicating that IRS IT has
106
demonstrated capacity to deliver on their plans. This same audit also noted areas
where the IRS does need improvements, notably in the speed of remediating
vulnerabilities after they are identified. This is consistent with evidence that long
development cycle times would be a general risk for any potential Direct File system.
105
“IRS Needs to Complete Modernization Plans and Fully Address Cloud Computing Requirements,” U.S. Government
Accountability Office, January 2023, at 24, https://www.gao.gov/assets/gao-23-104719.pdf.
106
The audit report stated that “the deployment of the Privileged User Management Access System is complete and the
system is operational”; see “The IRS Implemented the Business Entitlement Access Request System; However, Improvements
Are Needed,” Treasury Inspector General For Tax Administration, March 22, 2023,
https://www.tigta.gov/sites/default/files/reports/2023-03/202320013fr.pdf.
Challenge
Tax preparation and filing systems must carefully protect taxpayer
information, which contains substantial sensitive personal identifying and
financial information.
Current state
The IRS currently maintains a number of IT systems that handle sensitive tax
information. These systems are subject to exacting federal standards for the protection of
sensitive information.
The IRS currently collaborates closely with Electronic Return Originators to set standards
and guidelines to protect taxpayers and prevent fraud. Privacy, security, and fraud are
also discussed and refined at the IRS Security Summit, a meeting of software industry,
tax preparation firms, payroll and tax financial product processors, and state tax
administrators.
Assessment
The IRS would be required by federal law to meet the exacting standards of the Federal
Information Security Modernization Act in protecting taxpayer data in a potential Direct
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File system. In addition, a potential Direct File program would be most effective if the
development team had additional application development security expertise, above and
beyond the data security requirements required by an ATO.
107
“For 2019, there were 443,000 confirmed identity theft returns”; see IRS Security Summit: Tax Scams/Consumer Alerts (see
“Accomplishments”), accessed May 5, 2023, https://www.irs.gov/newsroom/security-summit.
108
See Hosting and security for Direct File for more about federal compliance controls.
One additional privacy and trust concern relates to when information is shared with the
IRS. Internal IRS officials as well as external stakeholders and subject matter experts
indicated that some taxpayers may have concerns about the IRS having access to
information that they enter into a tax-filing tool but subsequently edit before submitting
the return. To address this concern, the development team for a potential Direct File tool
would need to ensure that the IRS would not have access to pre-submission information.
This data usage policy would need to be clearly communicated to taxpayers.
Challenge
Taxpayers are accustomed to filing federal, state, and local returns at the
same time. To meet taxpayer expectations, a potential Direct File tool would
need to make it easy for taxpayers to file their state return using data from
their federal return.
Additionally, state governments rely on existing IRS systems for tax collection,
benefit administration, and fraud prevention. A potential Direct File system
would need to take care not to disrupt their current business processes.
Current state
109
Forty-one states, comprising 78% of the U.S. population, currently require taxpayers to
110
file an income tax return similar in scope to the federal return. Many of these state tax
111
returns use information from the federal return as part of the filing process. According
to information provided by the Federation of Tax Administrators, fourteen states offer
public direct filing systems for state income taxes.
109
“State Population Totals and Components of Change: 2020-2022,” U.S. Census Bureau, accessed May 5, 2023,
https://www.census.gov/data/tables/time-series/demo/popest/2020s-state-total.html.
110
Two additional states tax investment income only, but not earnings. Timothy Vermeer, “State Individual Income Tax Rates
and Bracket for 2023,” Tax Foundation, February 21, 2023,
https://taxfoundation.org/publications/state-individual-income-tax-rates-and-brackets/.
111
Third Party analysis of “State Tax Forms,” Federation of Tax Administrators, accessed May 5, 2023,
https://taxadmin.org/state-tax-forms/.
Assessment
Whether and how a potential Direct File system interacts with state tax filing could have
an outsized impact on the overall tax administration ecosystem, both in terms of
taxpayer experience and in how state tax administration functions. It is critical that the
IRS adopt a transparent, collaborative approach with states, vendors that support state
tax filing, and other relevant organizations to ensure that all stakeholders’ needs and
concerns are heard and addressed.
From a user experience perspective, all major existing commercial tax software products
currently offer customers the option to file federal and state taxes together, making this
functionality expected for any modern tax filing platform. In interviews, several state tax
administrators also expressed that federal and state tax filing must be a cohesive
experience for the taxpayer.
Filing state taxes through a potential Direct File system presents complexities different
from those that commercial products encounter. A major concern is how users would
transfer their information from their federal return to their state return. Once submitted
to the IRS, taxpayer information is designated Federal Tax Information (FTI), which is
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bound by restrictive rules on its usage. Taxpayers, on the other hand, have no such
restrictions and are free to provide their information to any party they choose. In order
to avoid problems associated with FTI, it is important that a potential Direct File system
be designed to give the taxpayer full control and decision-making power of the data
export and import processes. Questions remain regarding whether the user would have
to copy information manually from their federal return to their state return, or whether
that information could be programmatically imported into the state return.
From a state tax administration perspective, many states currently receive federal
returns electronically through a partnership with the IRS and its Modernized e-File
system. According to interviews with state tax administrators, states rely on Modernized
112
“26 U.S. Code § 6103 - Confidentiality and Disclosure of Returns and Return Information,” Legal Information Institute,
accessed April 28, 2023, https://www.law.cornell.edu/uscode/text/26/6103.
Delivery expectations
Challenge
Stakeholders inside and outside the IRS may have different expectations for
what a potential Direct File system could do and when it would be delivered.
To be feasible, the IRS would need to ensure that stakeholder expectations are
aligned around a limited-scope initial tool that the IRS could test and improve
over multiple tax years.
Current state
The IRS has not determined scope for a potential Direct File pilot program or determined
whether Direct File will move forward as a project. However, taxpayer survey data, user
research, and prototyping work conducted by the IRS Direct File Task Force have
demonstrated that there is taxpayer interest in an IRS-run Direct File program and that
taxpayers have certain assumptions about the features that such a program would
113
include.
Assessment
The IRS would need strong leadership support and a realistic timeline to roll out a
potential Direct File tool iteratively and methodically. Although a potential Direct File
system could eventually support millions of taxpayers, products of this scale take time
and resources and require organization-wide support. Even some of the largest
technology companies in the private sector (such as Meta, Dropbox, Twitter, and Airbnb)
113
IRS draft report, Section 1.
For a potential Direct File system to be feasible, the IRS would need to test, grow, and
improve the system over multiple tax years. In an interview with a government digital
services expert, they recommended that the IRS set a clear, long-term vision for the
potential Direct File system and start by building it to support a small set of initial users
that grows in scope each year. This suggested approach aligns with industry best
practices, as described in Appendix: Agile software development and Appendix: Design
thinking and iterative prototyping.
114
Alyson Shontell, “Here's How Long It Took 15 Hot Startups to Get 1,000,000 Users,” Business Insider, January 12, 2012,
https://www.businessinsider.com/one-million-users-startups-2012-1.
115
Nachiappan Nagappan, Brendan Murphy, and Victor Basili, “The Influence of Organizational Structure on Software
Quality: An Empirical Case Study,” International Conference on Software Engineering (2008),
https://faculty.ksu.edu.sa/sites/default/files/the_influence_of_organizational_structure_on_software_quality-_an_empirical_ca
se_study.pdf.
116
See Appendix: Comparison of cost estimates for more discussion of this pattern.
Addressing these imperatives is not beyond the IRS’s capacity, as indicated by the
following Third Party research:
● In its assumptions to estimate cost, the IRS report stated that if it builds a Direct
File system, it would use iterative product development practices, starting with a
limited initial tax scope and adding additional tax situations over time. This
117
approach reflects best practices in software development, which is a positive
signal for the feasibility of a potential Direct File tool. See Approach: The IRS
software development lifecycle for more on the importance of an iterative
process.
● Based on interviews conducted from March 1st to May 1st, 2023, the IRS’s IT
Division could integrate a potential Direct File tool into the existing e-file system if
the project moves forward. See Capacity: Integration into IRS return processing
for further discussion of integration needs.
● While great variability remains based on product scope, the IRS is realistic about
the costs of such a system, based on the broad product approach they have laid
out. See Cost for more detail.
● The IRS has a track record of starting small and building a service over time. The
e-file program, launched in 1986, began with a 25,000 person pilot that within
four years was available to all taxpayers and now is an integral and efficient part
118
of return processing.
117
See Appendix: Design thinking and iterative prototyping.
118
“Modernized e-File (MeF) Overview,” IRS, accessed May 3, 2023,
https://www.irs.gov/e-file-providers/modernized-e-file-overview.
119
“What Is Agile Software Development?” Agile Alliance, accessed May 3, 2023, https://www.agilealliance.org/agile101.
120
Ines Mergel, Sukumar Ganapati, and Andy Whitford, “Agile: A New Way of Governing,” Public Administration Review 81,
no. 1 (May 18, 2020): 161-165. Preprint accessible online:
https://inesmergel.wordpress.com/2020/04/17/agile-a-new-way-of-governing/; “Agile Assessment Guide,” Government
Accountability Office (GAO), September 2020, https://www.gao.gov/assets/gao-20-590g.pdf.
121
“Agile vs. Waterfall Project Management,” Atlassian, accessed May 3, 2023,
https://www.atlassian.com/agile/project-management/project-management-intro.
122
“Play 4: Build the service using agile and iterative practices,” U.S. Digital Services Playbook, accessed April 28, 2023,
https://playbook.cio.gov/#play4.
This design thinking and iterative prototyping approach contrasts sharply with a
“requirements up front” style of development, in which the entire product is first
designed and then built one part at a time, where each part is not functional or usable
until the entire product is finished. This approach can lead to poor user experience
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“What Is Agile Software Development,” TechFAR Hub, U.S. Digital Services, accessed May 3, 2023,
https://techfarhub.usds.gov/pre-solicitation/agile-overview/.
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“Science & Tech Spotlight: Agile Software Development,” U.S. Government Accountability Office, September 29, 2020,
https://www.gao.gov/products/gao-20-713sp.
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Henrik Kniberg, “Making sense of MVP (Minimum Viable Product) – and why I prefer Earliest Testable/Usable/Lovable,”
crisp., Jan. 25, 2016, https://blog.crisp.se/2016/01/25/henrikkniberg/making-sense-of-mvp.
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Ben Taylor, “The Biggest Misconception About Apple,” Time, March 19, 2015, https://time.com/3712678/apple-innovation/;
Maribel Lopez, “How Ford Drives Business Agility With Design Thinking, Forbes, July 26, 2020,
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Wilner, “Developing Design Thinking: GE Healthcare's Menlo Innovation Model,” in Design Thinking: New Product Development
Essentials from the PDMA, ed. Michael G. Luchs, Scott Swan, Abbie Griffin (Hoboken: John Wiley & Sons, 2015), pp.157-72.
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“The Human Centered Design Discovery Stage Field Guide” was created for the Veterans Experience Office and adapted
for use across the government through a partnership between GSA’s Office of Customer Experience and The Lab at OPM;
Government Services Association, accessed May 3, 2023,
https://www.gsa.gov/cdnstatic/HCD-Discovery-Guide-Interagency-v12-1.pdf.
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“Design Thinking,” IDEO U, accessed May 3, 2023, https://www.ideou.com/pages/design-thinking; “d.school Starter Kit,”
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The Federal Source Code Policy strongly encourages federal government agencies to
make the source code of custom-developed software available to the public via standard
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open-source mechanisms. A number of agencies across the federal government have
adopted this approach, as cataloged at Code.gov, which provides information to the
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public on where open-source repositories are available for government products.
Allowing established open-source communities to view, comment on, and reuse the
source code of government software is not only consistent with the current policy of the
133
federal government, but also improves the overall transparency of the government to
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the people.
The Department of Treasury and the IRS have agency policies that are consistent with the
Federal Source Code Policy, according to Code.gov. However, the IRS’s open-source
135
presence is as of yet very limited.
129
18F Open source policy, modified April 29, 2020, https://18f.gsa.gov/open-source-policy/.
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Ian Lee, “The case for open source software,” 18F Blog, July 12, 2018,
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M-16-21: Federal Source Code Policy: Achieving Efficiency, Transparency, and Innovation through Reusable and Open
Source Software, Office of Mgmt. & Budget, Exec. Office of the President, August 8, 2016,
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Code.gov, accessed April 28, 2023.
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“The Office of GSA IT has taken an open-first approach to data, application programming interface, and source code”; see
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Matt Rumsey and Joel Gurin, “Aligning Open Data, Open Source, and Hybrid Cloud Adoption in Government,” IBM Center
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%20Hybrid%20Cloud%20Adoption%20in%20Government.pdf.
135
IRS organization page on GitHub.com, accessed April 28, 2023, https://github.com/IRSgov.
Finally, especially when combined with the IRS’s intent to build a configurable tax engine
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with a configuration language that is accessible to non-software experts, an
open-source approach would mean that tax lawyers, professionals, and academics would
be able to see and evaluate the way that the IRS programmatically interprets the tax
code, in a way that could further understanding and discussion of tax law.
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IRS draft report, Section 2.
Design Direct File team centers the taxpayer See Appendix: Design
thinking experience by deeply understanding thinking and iterative
methodology their needs and solving the problems prototyping for more
that are important to them. information.
Team develops prototypes and pilots
to learn from and improve upon each
iteration.
Product vision Team has a product vision that A product roadmap that
and product informs the product roadmap, which focuses on functional
roadmap in turn focuses on what Direct File requirements gives the
would enable for end users (rather team the necessary
than technical outputs). flexibility to focus on
The vision and roadmap determine delivering value to end
the strategic goals for the product. users rather than
delivering technical
functionality.
Managing Direct File team engages with key IRS Engaging with these key
dependencies stakeholder groups throughout the stakeholder groups early
development lifecycle. on and continuously would
Budget Direct File program has continuous, Any potential Direct File
dedicated funding to build and program would require an
improve service Direct File. initial pilot plus later
iterations. They would
need dedicated funding to
deliver these iterations.
137
IRS draft report, Section 2.
5 million filers
10 million filers
25 million filers
Despite the difference in methodology, the IRS estimates and Third Party estimates
largely overlap. The Third Party estimate provides a range of possible costs for each
For all estimates, customer support is the largest driver of cost. In the Third Party
estimate, this cost is driven by both the infrastructure that would be needed to stand up a
new customer service team and the cost of customer support staff. For smaller uptake
scenarios, these two costs are balanced, while for larger uptake scenarios, the customer
support staff cost dominates.
The largest source of uncertainty with respect to customer service costs would be volume
and complexity of calls. The IRS’s cost estimates assume a ratio of one customer service
representative per 10,000 taxpayers, which is in excess of current call frequency.
However, it is industry best practice to base target staffing levels on the total time spent
138
handling customer calls. Any potential Direct File pilot should gather data on customer
service demand that could be used to narrow down future cost estimates and allow for
more accurate demand and cost forecasting in the long term. Overestimating customer
service demand could lead to spending too much on customer support capacity,
especially on the baseline infrastructure, while underestimating demand may lead to the
inability of the IRS to provide a quality tax-filer experience to all filers.
The IRS estimate for “Technology & Product” under their “Broader Scope” scenario is
substantially above the high end of the Third Party estimate range. The primary driver of
Technology & Product cost is program staff, in particular, staffing the development team,
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which the IRS report indicates would include both contractors and federal employees.
The IRS’s “Broader Scope” estimate may reflect an overly ambitious team size and
138
“Why Customer Assistance Ratio is the Best KPI to Track Contact Center Utilization,” Burnie Group,
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139
IRS draft report, Section 2.
140
IRS draft report, Section 2.
In interviews with the Third Party, private-sector technology experts noted that spending
more on software engineering staff in order to deliver a complex product faster can
ultimately degrade the quality of the product. Larger organizations with more teams
141
tend to design larger systems with more parts. This can degrade software quality
because larger and more complex systems lead to more code, and the number of defects
142
in code is proportional to amount of code, regardless of test quality.
The Third Party opinion on cost is based on a maximum team size that is small enough to
develop high-quality software. The “broader scope” cost assessment from the IRS implies
a potential team size that may be large enough to degrade the quality of a potential
Direct File tool.
If the IRS developed a potential Direct File tool using an iterative process in which the
scope of the system was expanded with each release based on feedback from previous
releases, both cost strategies could yield a product with comparable functionality, just
over different time periods.
If the IRS moves forward, a future Direct File program would need to monitor team size
and adjust both the product scope and budget to ensure a high-quality user experience.
141
Nachiappan Nagappan, Brendan Murphy, and Victor Basili, “The Influence of Organizational Structure on Software
Quality: An Empirical Case Study,” International Conference on Software Engineering (2008),
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