IRS RESPONSE TO RECOMMENDATION: ​IRS agrees to implement the TAS recommendation in full.

The IRS agrees to continue reviewing the feasibility of accepting imperfect e-filed tax returns and has already implemented it in one instance where the return would have previously been rejected.

We continuously review and evaluate solutions to assist taxpayers with filing complete electronic returns to alleviate delays in processing and issuing correspondence. The business rules in the e-file system reject fraudulent or duplicate returns and are agreed upon with the Security Summit; a collaboration with the IRS and members of private industries, the states, and financial institutions, to prevent fraud and protect taxpayers. Additionally, the IRS works with external partners to educate them on the top error rejection codes during various industry calls.

Additionally, as part of implementing the IRS Inflation Reduction Act Strategic Operating Plan, the IRS intends to continue exploring opportunities to leverage technology and other resources and tools to notify taxpayers of potential issues earlier, ideally at the point of filing, to better assist taxpayers at remedying issues earlier in the filing process.

CORRECTIVE ACTION: ​The IRS agrees to continue reviewing the feasibility of accepting imperfect e-filed tax returns and has already implemented it in one instance where the return would have previously been rejected.

Additionally, as part of implementing the IRS Inflation Reduction Act Strategic Operating Plan, the IRS intends to continue exploring opportunities to leverage technology and other resources and tools to notify taxpayers of potential issues earlier, ideally at the point of filing, to better assist taxpayers at remedying issues earlier in the filing process.

TAS RESPONSE: Accepting imperfect returns is a step in the right direction toward ensuring that taxpayers have a seamless experience of timely filing their tax returns, while also protecting the government’s revenue. TAS recommends that this process be extended to more types of imperfect returns in the future and that the IRS continue to look for additional ways to improve the electronic filing process.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): Ongoing

IRS RESPONSE TO RECOMMENDATION: ​IRS does not agree to implement the TAS recommendation.

Currently, Forms W-2 and 1099 information is generally available by May. Delivery of wage and income transcripts prior to May would require the reprioritization of other priority work. Efforts to deliver wage and income transcripts any earlier is not currently being considered as it would negatively affect the ability to deliver account transcripts, return transcripts, and record of account transcripts for the Forms 1040, 1065, and 1120, and their associated schedules, early in the filing season.

However, as part of the longer-term process of implementing the IRS Strategic Operating Plan, the IRS intends to broadly explore opportunities to leverage technology improvements to enable taxpayers to securely access their own account data, including transcripts, account balances, payment and account histories, notices, and service history.

CORRECTIVE ACTION: N/A

TAS RESPONSE: We urge the IRS to take the steps necessary to make information returns available to taxpayers early in the filing season. Having this information available to taxpayers in a downloadable format would not only help taxpayers but would benefit the IRS in that it would facilitate the accurate filing of tax returns at the earliest possible stage. This recommendation should be implemented as part of the Strategic Operating Plan initiatives.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: The IRS agrees to implement the TAS recommendation in part.

Expanding the e-filing process to accept more forms digitally, as well as navigating in a paperless direction through digitalization, will benefit both the taxpayer and the agency. The IRS continues to expand the e-file system to improve the taxpayer’s experience and is working to add more forms to the e-file platform, building on paperless capabilities. The agency’s progress in this space is contingent upon many factors, particularly the prioritization of competing projects and development scheduling.

To expand the e-file system, the IRS completed a solicitation of internal and external stakeholders to prioritize forms not yet available for e-filing through the Modernized Electronic Filing platform (MeF). Based on this feedback, form development discussions are in process for filing season 2024. Development is dependent on various functions completing the work. Currently, the IRS does not have a development schedule as it will be dependent on the outcome of current project prioritization decisions. Making every single IRS form and schedule compatible with e-Filing is not desirable, as the costs in some cases will far outweigh the benefits.

Our development strategy additionally includes executing multiple digitalization projects to test solutions to increase scanning and processing of returns using three independent project teams (Lockbox, Scanning-as-a-Service, and Submission Processing Modernization). Currently through the Lockbox, Scanning-as-a-Service, and Submission Processing Modernization efforts, four forms have been prioritized: 709, 940, 941, and 1040 (which will also include 25 attachments). The IRS is actively working to make these forms compatible with e-filing for downstream processing and continuing strategic collaborations with IT and other business units to prioritize the next set of forms and understand how they can be safely ingested.

CORRECTIVE ACTION: The IRS is actively working to make these forms compatible with e-filing for downstream processing and continuing strategic collaborations with IT and other business units to prioritize the next set of forms and understand how they can be safely ingested.

TAS RESPONSE: TAS is supportive of a phased approach where the digitalization and e-filing of forms is concerned but continues to recommend the prioritization of this effort before the FY 2024 filing season. The digitalization of a given form should not be solely determined by a cost-benefit analysis undertaken on a document-by-document basis. Rather, the IRS should take the long view and seek to establish an electronic environment in which all forms can be seamlessly e-filed.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): Ongoing

IRS RESPONSE TO RECOMMENDATION: IRS agrees to implement the TAS recommendation in full.

In January 2023, the IRS implemented a new modernized Information Returns Intake System (IRIS), also referred to as Information Return Modernization (IR MOD). The application and platform are both free to use. Any person or entity can now electronically file any Form 1099 for TY22, or future years, using IRIS. Filers can use IRIS to submit up to 100 records per upload, file corrected Forms 1099, manage issuer information, request automatic extensions to file, and bulk file using Application to Application capabilities. Users will be able to electronically file new Form 8300-DA by January 2024.

For the Modernized Electronic Filing platform (MeF), we included four amended employment tax types for filing season 2024 development discussions. These include, Amended Form 940, Employer’s Annual Federal Unemployment Tax Return; Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund; Form 943-X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund; and Form 945-X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund. The implementation is dependent on various functions completing the work.

CORRECTIVE ACTION: The implementation is dependent on various functions completing the work. Users will be able to electronically file new Form 8300-DA by January 1, 2024. We will have updated information about the employment tax return development by August 31, 2023.

TAS RESPONSE: Implementing necessary IT upgrades to enable business taxpayers to more easily e-file information and employment tax returns, including amended employment tax returns is beneficial to taxpayers and the IRS.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Open

DUE DATE FOR ACTION (if left open): 1/31/2024

IRS RESPONSE TO RECOMMENDATION: ​IRS does not agree to implement the TAS recommendation.

The Inflation Reduction Act provided an appropriation of $15 million for the IRS to commission a study exploring the possibility of providing taxpayers with the option to file certain tax returns directly with the IRS online. The IRS expects that this study will consider the hypothetical design of an IRS-run direct file service, taxpayer preferences, feasibility, and costs, among other things.

It would be premature to commit to the development of a direct e-file system without first understanding the results of this congressionally funded e-file study, which will include an analysis of feasibility and taxpayer filing preferences. It would also be premature to commit to developing a direct e-file system that encompasses attributes adopted in other countries, without first seeing the e-file study to understand whether those attributes will meet the needs and preferences of taxpayers filing with the IRS.

The IRS does, however, commit to carefully considering the results of the e-filing study to inform our consideration of developing a direct e-filing option.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS agrees with the IRS that without future exploration it is premature to commit to the development of a direct e-file system. Since TAS received the IRS response, the Direct File study was completed. TAS believes the study was useful in highlighting the potential benefits of Direct File as well as the challenges associated with it. TAS continues to believe that taxpayers should have alternative filing options at low or no cost.

The study highlights two practical issues that need to be worked through before a final decision is made. First, the IRS needs to find a way to integrate federal return preparation with state return preparation. Currently, taxpayers who use commercial software, including software made available through the existing Free File program, can prepare their state returns by incorporating the necessary information from the federal return without re-entering all their return data. The software makes the corresponding state adjustments and carries it over to the state returns. It appears that taxpayers would not have that option under a federal Direct File program.

The benefits of a federal Direct File program will be limited if taxpayers are required to re-enter their data in full to prepare their state returns. Relatedly, TAS understands that some states effectively piggyback on the IRS’s fraud detection filters when federal and state returns are prepared and e-filed together. Separate submissions may make fraud detection more difficult at the state level. The IRS should collaborate with state agencies to ensure their needs are addressed and taxpayers are not harmed by a federal-filing-only option.

Second, the cost estimates in the Direct File study with customer support range up to nearly $250 million a year, or $2.5 billion over ten years.. Without additional dedicated funding, that would consume nearly 80 percent of the $3.2 billion in Taxpayer Services funding provided under the Inflation Reduction Act. As part of its Strategic Operating Plan to implement the IRA, the IRS identified numerous key initiatives to improve taxpayer service. If 80 percent of the IRA’s Taxpayer Services funding is used for Direct File, the remaining funding to implement other initiatives to improve service and conduct its core mission will be extremely limited.

The Direct File report said the IRS will run a “pilot” Direct File program early in 2024. TAS believes that this is a prudent approach to determine feasibility and taxpayer interest. If the IRS moves forward, it must do more to address the state integration and funding challenges as it finalizes the scope of the pilot.

For this initiative to be successful, Congress needs to ensure the direct e-file system be appropriately funded without impacting other key IT and service priorities. The IRS must also provide effective, dependable customer support to taxpayers in a secure environment to protect the taxpayer’s data while also addressing state filing considerations.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A