The absence of accurate cost accounting may result in the IRS underestimating the resources needed to sustain Direct File.
The U.S. Government Accountability Office (GAO) recently reported that the Internal Revenue Service (IRS) lacks documentation to support its cost estimates for Direct File, a free online tax filing tool. The estimated annual cost of Direct File was between $64 million and $249 million, but the IRS did not include key costs in this estimate. The agency acknowledged that the cost estimates did not cover start-up expenses for new technology, which could be significant.
Without a comprehensive cost analysis, the IRS’s estimates may not reflect the actual resources required to develop and maintain Direct File in the long term. The GAO found that there was insufficient documentation to ensure that the pilot program would gather the necessary data for accurate cost estimates.
The IRS intends to update cost estimates after the Direct File pilot is completed. However, there is uncertainty about whether the service will continue beyond this tax season. The agency will need to analyze cost and benefit information quickly to make decisions about the program’s future for the 2025 tax filing season.
The GAO recommended that the IRS use best practices to estimate and document the benefits of Direct File accurately. Additionally, the agency should use data collected during the pilot phase to make informed decisions about the service’s future.
A previous report by the Treasury Inspector General for Tax Administration indicated that the IRS may have underestimated the costs of implementing the Direct File program. The IRS allocated $15 million to establish a task force for the program but did not include employee salaries and benefits in its calculations.
Despite the potential benefits of Direct File, concerns have been raised about the IRS’s role as a tax preparer, filer, and auditor. Republican attorneys general criticized Direct File, citing potential conflicts of interest and the IRS’s poor customer service record. They emphasized the importance of taxpayer advocacy and professional representation in dealings with the IRS.
Direct File is currently available in 11 states and will be open until mid-April. The IRS has designated specific customer service hours for Direct File users, offering technical support and assistance with tax-related inquiries. After the filing deadline, limited customer support will be available for those needing help with resubmissions or technical issues. Please rewrite the following sentence to improve clarity:
Original: “The report was not completed by the team due to a lack of resources.”
Rewritten: “The team did not complete the report because they lacked the necessary resources.”
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