GAO Report Finds Lack of Documentation to Support IRS Cost Estimates for Direct File Service

GAO Report Exposes Lack of Documentation in IRS Cost Estimates for Direct File Service

In a recent report by the U.S. Government Accountability Office (GAO), it was discovered that the Internal Revenue Service (IRS) lacks proper documentation to support its cost estimates for the Direct File service, an online tax filing tool. This lack of documentation could lead to the IRS understating the amount of resources needed to maintain the service.

The IRS had initially estimated that the Direct File service could cost between $64 million and $249 million annually. However, both the GAO and the IRS watchdog Treasury Inspector General for Tax Administration (TIGTA) found that the agency had no documentation to back up these estimates. In addition, the estimates did not include start-up costs, such as technology for a novel system.

Without proper documentation and accounting of costs, the IRS’s estimates for Direct File may fall short of the actual resources required to develop and maintain the program. This revelation raises concerns about the accuracy of the IRS’s cost estimates and its ability to effectively manage the Direct File service.

The Direct File pilot service was recently made available to eligible taxpayers from 12 states. However, the GAO found that there was insufficient documentation to ensure that the pilot would capture the necessary data to inform more complete cost estimates. The IRS intends to update the cost estimates once the pilot is completed, but without proper documentation, these estimates may still be inaccurate.

Despite the lack of documentation for cost estimates, the IRS claims that the Direct File service offers multiple benefits, including reducing errors, minimizing paper returns, and making it easier for taxpayers to claim credits and deductions. However, the GAO pointed out that the IRS’s evaluation documents did not consistently identify relevant metrics for measuring these potential benefits.

The IRS has not yet decided whether the Direct File service will continue beyond this tax season. Factors such as the size of the team working on the program and the time required to hire new employees may influence the decision. The GAO recommended that the IRS use best industry practices to accurately estimate and document the potential benefits of Direct File and use the data collected during the pilot phase to make informed decisions about the service’s future.

This is not the first time concerns have been raised about the Direct File program. A report by TIGTA last year alleged that the IRS may have underestimated the cost of implementing the service. The IRS set aside $15 million to establish a task force for studying and designing the tax preparation service, but it did not include expenses like salaries and benefits in its calculations. This lack of supporting documentation made it difficult for TIGTA to assess the reasonableness of the IRS’s cost estimates.

In addition to concerns about cost estimates, a group of 13 Republican attorneys general criticized Direct File in a letter to the treasury secretary, citing an “obvious conflict of interest” when the IRS acts as a tax preparer, filer, and auditor. They argued that this could harm low-income and vulnerable Americans the most. The letter also highlighted the IRS’s poor customer service record and expressed doubts about the agency’s ability to handle Direct File effectively.

As for taxpayers, the Direct File service is available until April 15 in 11 states and until April 17 in Massachusetts. The IRS has provided customer service representatives to assist filers during this period, but their availability will be limited after the filing deadline. These representatives can offer technical support and answer basic tax law queries but cannot access taxpayer data.

In conclusion, the GAO report sheds light on the lack of documentation supporting the IRS’s cost estimates for the Direct File service. This raises concerns about the accuracy of these estimates and the IRS’s ability to effectively manage the program. It is essential for the IRS to address these concerns, use best practices for estimating costs and documenting benefits, and make informed decisions based on the data collected during the pilot phase. Only then can taxpayers have confidence in the Direct File service and its potential benefits.