Report to Congress: IRS-run Direct 

e-File Tax Return System

Overview

May 2023
As directed by Congress in §10301(1)(B) of the Inflation Reduction Act (IRA), the IRS has spent the 

last several months studying the feasibility of an IRS-run free direct e-file tax return system (Direct 

File). Specifically, the IRA appropriated $15 million for an IRS Task Force to deliver a report to 

Congress by May 16, 2023 covering three primary areas of a potential Direct File system:

Background

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Cost

Of developing and running a free 

direct e-file tax return system, 

including costs to build and 

administer each release, with a 

focus on multi-lingual and mobilefriendly features and safeguards 

for taxpayer data (including 

options for differential coverage, 

based on taxpayer adjusted gross 

income and return complexity)

Taxpayer opinions

Expectations, and level of 

trust, based on surveys, 

of a free, IRS-run Direct 

File system.

Opinions of an 

independent third-party

On the overall feasibility, 

approach, schedule, cost, 

organizational design, and IRS 

capacity to deliver such a Direct 

File system
• Given the Congressional directive within the Inflation 

Reduction Act, the IRS included the study of the feasibility 

of Direct File within its Strategic Operating Plan (SOP). 

• The SOP has five core transformational objectives, each of 

which contains several initiatives to help drive 

transformation within the IRS. 

• Objective 1 from the SOP focuses on improving service to 

taxpayers, and Initiative 1.5 states:

“The IRS will explore providing taxpayers the option to 

file certain tax returns directly with the IRS online.”

• This congressionally mandated report for Direct File also 

serves as the first milestone for this initiative, and one of 

the first major deliverables under IRS’s SOP. 

Context: IRS - Inflation Reduction Act - Strategic 

Operating Plan

Objective 1: Dramatically improve services to 

help taxpayers meet their obligations and 

receive the tax incentives for which they are 

eligible.

Objective 2: Quickly resolve taxpayer issues 

when they arise.

Objective 3: Focus expanded enforcement on 

taxpayers with complex tax filings and highdollar noncompliance to address the tax gap. 

Objective 4: Deliver cutting-edge technology, 

data, and analytics to operate more 

effectively.

Objective 5: Attract, retain, and empower a 

highly skilled, diverse workforce and develop 

a culture that is better equipped to deliver 

results for taxpayers. 3
Table of Contents:

Executive Summary

Introduction

Section 1. Taxpayer Opinions

Section 2. Costs, Potential Benefits, and Operational Challenges

Conclusion

Appendix A: Research Methodology and Questions

Appendix B: Opinions of an Independent Third Party

Structure of the Direct File Report

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For this section of the report, the IRS relied on three primary data sources to gauge taxpayers’ 

“opinions, expectations, and level of trust” with an IRS-run Direct File system:

Section 1. Taxpayer Opinions: Methodology

2022 IRS Taxpayer 

Experience Survey (TES)

MITRE Corporation 

Independently conducted 

Survey

Direct File Taskforce-led 

Qualitative User Research

Selection criteria Random selection Opt-in Recruitment based on demographic 

and income criteria

Sampling Weighted, representative 

sample

Unweighted, non-representative 

sample

Unweighted, non-representative 

sample

Number of 

participants N = 4,219 N = 2,000 

(across two surveys) N = 14

Timespan August 22, 2022 –

October 10, 2022 December 7 – 12, 2022 December 16, 2022 –

ongoing

Language English + Spanish English only English only

Modality Online + phone Online only Videoconference

Question and 

response options

One survey, multiple-choice responses 

for each question

Two surveys, choice-based conjoint 

analysis of four scenarios + reasons 

for each choice in each scenario

Unstructured, one-on-one interviews 

and usability tests with a functioning 

internal prototype

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Section 1. Taxpayer Opinions: Key Findings

The taxpayer surveys and qualitative user research yielded a number of findings, including:

• A majority of taxpayers across both surveys and user research report interest in using an IRS-provided 

tool to prepare and file their taxes;

• Taxpayers are sensitive to cost, privacy, and security in their tax filing choices;

• Some taxpayers would be interested in using Direct File specifically because it would be built by the IRS; 

• Some taxpayers report concern about the motives of the IRS in providing a Direct File tool and potential 

implications for tax enforcement;

• Taxpayers who currently self-prepare their taxes, are younger, or have limited English proficiency are 

more likely to be interested in a Direct File tool;

• Taxpayers are least likely to adopt a Direct File option when they are comfortable with their current filing 

option; and

• Taxpayer preferences regarding Direct File tend to be based on the assumption that a Direct File option 

would be about the same as or easier to use than other tax preparation software. Taxpayers shown a 

functioning internal prototype of Direct File reported that the software exceeded their expectations in terms 

of ease of use and simplicity.
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Of Taxpayer Experience 

Survey (TES) respondents 

indicated that they would be 

either “very interested” or 

“somewhat interested” in using 

a free IRS-provided online tool 

to prepare and file their taxes.

72%

Of TES respondents who currently 

self-prepare their taxes using 

commercial software indicated that 

they would be either “very likely” or 

“somewhat likely” to switch to a 

free IRS-provided online tool.

68%

Of MITRE survey respondents when 

asked to choose between three 

hypothetical tax preparation and filing 

options stated that they would prefer 

to use one of the two IRS-provided 

options (15% manual entry option, 

37% pre-filled option).

52%

Taxpayer motivations for tax preparation and filing preferences:

• A large share of taxpayers expressed their view that tax filing assistance is a proper role for the 

IRS.

• Cost is a major factor for most taxpayers when selecting a filing method.

• Taxpayers trust the IRS to keep their data secure and trust that it won’t be used for commercial 

benefit.

• Taxpayers who self-prepare are more likely to be interested in a self-preparation tool from the 

IRS. 

Section 1. Taxpayer Opinions: Key Findings
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Understanding why taxpayers 

may be unlikely to switch

• Over one-third of taxpayers who 

responded to the TES said they were 

unlikely to switch to an IRS-provided 

tool, noting that they already file for 

free; the top reason why taxpayers 

said they were unlikely to switch was 

“I prefer not to make changes on the 

tax filing method/software I used 

previously”

• Similarly, respondents to the MITRE 

survey indicated that one of the main 

reasons they prefer a commercial 

option is because they are 

comfortable with those filing options 

they have used in the past.

Factors that May Affect Interest in 

Direct File

Section 1. Taxpayer Opinions: Key Findings

Factor 2: Tax Information Pre-population

Taxpayer interest in Direct File is likely to be greater to the 

extent that Direct File includes capabilities to pre-populate 

returns with taxpayer information. 

Factor 1: State and Local Tax Preparation 

Support

Taxpayer interest in Direct File is likely to be greater if Direct 

File were to include support for filing state tax returns. 

Factor 3: Erroneous Expectations of Preferential 

Treatment for Direct File Users

Some taxpayers erroneously expected that returns filed via an 

IRS-provided tool would receive preferential treatment; more 

research is needed to ascertain the drivers of this expectation 

and how to communicate that this would not be the case.
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Section 2. Costs

The IRA instructed the IRS to estimate “the cost (including options for differential coverage 

based on taxpayer adjusted gross income and return complexity) of developing and running a 

free direct e-file tax return system, including costs to build and administer each release [...]”

• The report identifies key considerations and cost drivers of such a system and provides estimates 

of initial and ongoing costs of an end-to-end service; including the cost of development and 

maintenance, as well as customer support and underlying technology.

• Estimated costs vary widely and are subject to considerable uncertainty. Customer support 

accounts for a large portion of the cost in all scenarios.

• Estimates substantially depend on assumptions regarding (1) the number of taxpayers who 

would choose to use a Direct File option; and (2) the complexity of their respective tax 

situations. 

• Cost estimates assume that if a decision is made to implement Direct File, the IRS would leverage 

iterative product development practices, starting with a limited initial tax scope and adding 

additional tax situations over time. The assumptions underlying cost estimates are not intended to 

foreshadow an agency position on the scope of a potential Direct File option. 
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Assumptions and potential 

scopes of covered tax 

situations for Direct File cost 

modeling:

• Narrow Scope: Assumes Direct 

File eventually matches the scope 

of the VITA program; taxpayers of 

any income would be able to use 

tool if they did not require support 

for out-of-scope provisions.

• Broader Scope: Assumes Direct 

File would be able to eventually 

support a more expansive set of 

tax situations, including income 

types, deductions, and credits not 

supported by VITA.

Section 2. Costs

Annual Cost

(Narrow 

Scope)

Percent of 

Total Cost

Annual Cost

(Broader 

Scope)

Percent of 

Total Cost

5 million taxpayers

Technology & 

Product

$23.7m 36.9% $33.8m 43.4%

Customer Support $40.6m 63.1% $44.1m 56.6%

Total $64.3m $77.9m

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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Section 2. Potential Benefits and Operational 

Challenges

Operational Challenges

• Fostering Technical Product Development 

Expertise: Developing a Direct File tool would 

require the IRS to develop new skills and 

processes to operate, maintain, and improve 

complex technological products.

• Developing Customer Service Capabilities: 

Customer support introduces additional 

challenges in order to be viable in the longer 

term.

• Supporting State Tax Administration: State

income tax filings remain a challenge, as they 

are often filed in conjunction with federal taxes. 

Any solution would need to avoid creating 

additional burden for filers and to avoid 

disrupting the work of state and local tax 

administrators. 

Potential Benefits:

• Improved Taxpayer Experience: A Direct 

File tool could directly benefit taxpayers by 

making tax filing a simpler and less expensive 

process, making it easier to file an accurate 

return.

• Cost Savings: The IRS could see a burden 

reduction if taxpayers switch from filing paper 

returns to an e-filed product.

• Reducing Complexity: A Direct File option 

could also reduce barriers for taxpayers to 

access the tax credits and deductions they 

may be eligible for, improving the customer 

experience.

The IRS also covered potential benefits and operational risks in its Direct File Report to Congress. 
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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 

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.