The Government Accountability Office (GAO) said in an April 9 report that the IRS maybe underestimating the true cost of its Direct File tax system pilot, which allows taxpayers to file their tax returns electronically and for free with the agency.
The IRS estimated that the cost of the pilot would range between $64 million and $249 million depending on the number of taxpayers served and the complexity of tax situations supported by Direct File, GAO said.
“IRS’s cost estimates did not address other recommended best practices, such as ensuring all costs were included and documented,” the Federal watchdog agency said. “GAO and the Treasury Inspector General for Tax Administration (TIGTA) found that IRS had no documentation to support the underlying data, analysis, or assumptions used for Direct File cost estimates,” GAO added.
The report also says that the cost estimates offered by IRS officials “did not include start-up costs, such as technology for a novel system, which could be substantial.” GAO added, “a best practice for cost estimation is to include development costs as part of a complete cost estimate.”
“Without a comprehensive accounting for costs, estimates could understate the full amount of resources required for IRS to develop and maintain a permanent Direct File program,” GAO said.
The IRS Direct File pilot was launched this year to gauge taxpayer interest in filing their tax returns directly with the Federal government, and is being piloted in 12 states.
GAO offered three recommendations to IRS, with the agency concurring on each of them:
- The IRS commissioner should ensure that relevant officials apply best practices to effectively estimate and document the full costs of developing and operating the Direct File system;
- The IRS should focus on ensuring that agency officials properly estimate the potential benefits of the Direct File system;
- The IRS should use the cost and benefits data collected from the pilot along with other relevant information for future decisions about the system.
