*HomeU.S. Government Accountability Office*
Menu

      close


          
          
                          	
				
				
	
	
					Reports & Testimonies
									
																				
				
				
	
	
								Reports & Testimonies
													
																												
																						
							
																Recommendations Database
							
																												
																						
							
																Month in Review
							
																												
																						
							
																Order Copies
							
																												
																						
							
																Restricted Reports
							
																												
																						
							
																View Topics
							
																												
																						
							
																View Agencies
							
																												
																						
							
																Bid Protests & Appropriations Law
									
																				
				
				
	
	
								Bid Protests & Appropriations Law
													
																												
																						
							
																Bid Protests
							
																												
																						
							
																Appropriations Law
							
																												
																						
							
																Federal Vacancies Reform Act
							
																												
																						
							
																Other Legal
							
																												
																						
							
																About
									
																				
				
				
	
	
								About
													
																												
																						
							
																What GAO Does
							
																												
																						
							
																U.S. Comptroller General
							
																												
																						
							
																Careers
							
																												
																						
							
																Contact UsFor Congress
                                
                          
        
                Press Center
                                
                          
        
                Careers
                                
                          
        
                BlogSearch Breadcrumb
        Home
                            Reports & Testimonies
                            IRS Direct File: Actions Needed During Pilot To Improve Information On Costs and Benefits
    IRS Direct File:
                          Actions Needed during Pilot to Improve Information on Costs and Benefits **GAO-24-107236**
        Published: Apr 09, 2024. Publicly Released: Apr 09, 2024.Jump To:
    Jump ToElder Abuse
          Services for Older Adults
          State and Local-Level Drivers and Trends
          State and Local Fiscal Projections
          Federal Borrowing
          Managing the Debt
          Summary of Funding Provisions
          Auditing the Government's Books
          Unpacking the Financial Report
          Highlights
          Recommendations
          Background
          About This Work
          About This Work
          Trends
          About the Center
          Why It's High Risk
          What Remains To Be Done
          Key Reports
          Newest COVID-Related Reports
          AI Use Cases
          Flood Insurance
          Past Pandemic-Related Reports
          CARES Act Oversight Reports
          All COVID-19 Reports
          Report Suspected Fraud
          Subjects
          How to Get Notified
          Past Reports
          Public Health Threats
          Explore the FY 2022 and 2023 Funds
          Lessons Learned
          Agency Reports
          Recent Reports
          Recommendations
          Supplemental Material
          Full Report
          Additional Data
          View Decision
          Downloads
          Previously Identified Actions
          Related Pages
          Associated Agencies
          Tough Choices and Opportunities Ahead
          Americas Fiscal Future Key Areas
          Retirement Security Key Areas
          Current List
          About The High Risk List
          Area Ratings
          Previous High Risk Products
          Search Federal Vacancies
          Past Federal Vacancies
          Violation Letters
          About the Yellow Book
          Advisory Council
          Related Resources
          Comment Letters
          Related Publications
          Contacts and Resources
          Major Issues Facing the Nation
          Meeting Strategic Challenges
          Additional Resources
          Resources
          GAO Contacts
          Mission Teams
          Operations and Staff Offices
          Organization Chart
          Why a Career at GAO?
          Am I Qualified?
          Company Culture
          Reasonable Accommodations
          Video Gallery
          Paid Internships
          Student Volunteers
          Professional Development Program
          Advancement
          Executive Candidate Program
          Summer Associates
          Externships
          Benefits
          Contacts
                    Fast Facts
              IRS is piloting Direct File during the 2024 tax filing season. It is a system that will guide certain taxpayers through preparing and filing their tax returns on IRS's website for free.

IRS estimated that Direct File could cost $64-$249 million annually—depending on assumptions such as the number of taxpayers served. IRS estimated that participating taxpayers may save $21 million in tax preparation costs. However, IRS's cost estimates did not include start-up costs, such as technology required for a new system.

Werecommended, among other things, that IRS estimate the full costs of developing and operating a Direct File system.

IRS Direct File Interface as of January 2024

Screenshots of IRS's Direct File website.
Skip to Highlights
Highlights
  What GAO Found

The Internal Revenue Service (IRS) reported to Congress in May 2023 that it estimated the annual costs of a Direct File tax system could range from $64 million to $249 million depending on the number of taxpayers served and the complexity of tax situations supported. IRS also described assumptions used to estimate costs—a best practice for cost estimation. For example, IRS noted that it assumed a Direct File system would start with a limited tax scope. IRS also included elements of a sensitivity analysis, another best practice for cost estimation, to examine how changes in assumptions may affect cost estimates. IRS described how costs were expected to change depending on the number of taxpayers served and the complexity of tax situations supported.

However, IRS's cost estimates did not address other recommended best practices, such as ensuring all costs were included and documented. GAO and the Treasury Inspector General for Tax Administration found that IRS had no documentation to support the underlying data, analysis, or assumptions used for Direct File cost estimates. Further, IRS officials told GAO that the cost estimates did not include start-up costs, such as technology for a novel system, which could be substantial. A best practice for cost estimation is to include development costs as part of a complete cost estimate. Without a comprehensive accounting of costs, IRS's estimates could understate the full amount of resources required to develop and maintain a permanent Direct File program.

A Direct File pilot provides opportunities for IRS to improve its cost estimates. IRS officials stated that they will update the cost estimates after the pilot. However, GAO found insufficient documentation to provide reasonable assurance that the pilot will capture the necessary data to inform more complete cost estimates. IRS officials reported that their current focus is to evaluate critical operational aspects of the pilot. However, IRS officials risk missing time-sensitive opportunities to inform cost estimates in such categories as customer service costs, potential costs of integrating a federal Direct File system with additional state-level direct file systems, and incremental costs of expanding the system's capabilities to assist taxpayers with additional tax situations. Complete cost information informs decisions about program design tradeoffs such as what additional tax situations to support.

The Direct File pilot also provides opportunities for IRS to estimate potential benefits for taxpayers and for improving tax administration. IRS estimates that the Direct File pilot for the 2024 tax filing season will save taxpayers $21 million in compliance costs. In addition, IRS identified other potential benefits of Direct File, such as making it easier for eligible taxpayers to claim credits and deductions, reducing the volume of paper returns, and reducing errors. However, IRS evaluation documents did not consistently identify relevant metrics for measuring these potential benefits.

IRS officials told GAO in February 2024 that senior leadership has not decided on the future of the pilot beyond the 2024 tax filing season. IRS officials reported that the time required to continue Direct File would depend on several factors, such as the size of the team working on the program. They noted that hiring new employees to replace outgoing employees is a lengthy process. Thus, IRS officials will have a short amount of time to analyze cost and benefit information before making decisions about the pilot for the 2025 tax filing season.

Why GAO Did This Study

IRS is piloting an online tax filing system to allow certain taxpayers to prepare and file their tax returns on an IRS website for free using a question-and-answer format during the 2024 tax filing season. Once mature, a government-run tax filing system could save taxpayers time and money, make it easier to claim tax benefits, and provide several benefits to IRS. Questions have been raised about how much funding will be required to support such a system, including providing a sufficient level of customer service.

The Inflation Reduction Act of 2022 appropriated funds for IRS to study the cost of developing and running a free Direct File tax return system. IRS submitted its report to Congress in May 2023. The act also includes a provision for GAO to oversee the distribution and use of such funds. For this report, GAO evaluated IRS's estimates of the costs and benefits of Direct File and opportunities to use the pilot to collect data to improve those estimates to inform future decisions. GAO compared IRS's initial cost and benefit estimates against best practices for cost estimation and an IRS strategic goal of ensuring a Direct File system is cost effective.

Recommendations
      
            GAO is recommending that IRS (1) ensure that best practices are used to estimate and document the full costs of developing and operating a Direct File system; (2) ensure that the potential benefits of a Direct File system are estimated and documented; and (3) use the cost and benefit data collected during the pilot along with other relevant considerations, to inform future decisions about the Direct File system.
      Recommendations for Executive Action
        Agency Affected
                                                  Recommendation
                                                  StatusInternal Revenue Service
                                                                                        The Commissioner of Internal Revenue should ensure that relevant officials apply best practices to estimate and document the full costs of developing and operating a Direct File system. (Recommendation 1)
                                                                                        Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.Internal Revenue Service
                                                                                        The Commissioner of Internal Revenue should ensure that relevant officials estimate and document the potential benefits of a Direct File system. (Recommendation 2)
                                                                                        Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.Internal Revenue Service
                                                                                        The Commissioner of Internal Revenue should use the cost and benefit data collected during the pilot along with other relevant considerations to inform future decisions about the Direct File system. (Recommendation 3)
                                                                                        Open
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.Full Report
    Full Report (16 pages)
GAO Contacts
    
      James (Jay) R. McTigue, Jr
            
            Director
      
            mctiguej@gao.gov
      
            (202) 512-6806
Office of Public Affairs
    
      Chuck Young
            
            Managing Director
      
            youngc1@gao.gov
      
            (202) 512-4800
Topics
    
      Tax Policy and AdministrationAgency evaluationsBest practicesCost estimatesCustomer serviceData collectionTax administrationTax deductionsTax filingTax returnsTaxpayersDecision making
 Receive GAO Updates
  Stay informed as we add new reports & testimonies.

    GAO Logo
      U.S. Government Accountability Office


                                   Column 1
                            Press Center
                              Contact Us
                              Inspector General
                              Restricted Reports
                              Column 2
                            Copyright & Terms of Use
                              Privacy Policy
                              Accessibility
                              Sitemap
                              Column 3
                            FOIA Requests
                              Scam Alerts
                              No FEAR Act Data
                              Health Care Advisory Committees