The WasteWatcher: The Staff Blog of Citizens Against Government Waste

IRS Should Not Create Software That Already Exists

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


While very little gets done in Washington during an election year, deadlines must be acknowledged and addressed, such as the expiration of the Internet tax moratorium on November 1, 2014.  Two days prior to that critical date, a lesser-known but nonetheless important matter is scheduled to come to an end.  On October 30, 2014, the Free File Alliance’s partnership with the Internal Revenue Service (IRS) is up for renewal.  The Free File Alliance is a consortium of tax software companies which makes free tax preparation software and free e-file available to certain taxpayers.

The agreement permits all taxpayers with a 2013 adjusted gross income of $58,000 or less to access from the IRS’s website more than a dozen private sector software programs for step-by-step help in preparing their taxes.  This arrangement began in 2003, after the IRS abandoned its effort to spend $17 million to create its own tax preparation program called Cyberfile.  In 2014, more than 27 million Americans filed their taxes using various software programs, including Free File.  In other words, the current arrangements are working perfectly well, and there is no reason to do anything other than renew the Free File agreement before it expires. 

Unfortunately, there is a budding movement to try to get the IRS into the tax preparation business once again, despite its prior failures.  Rather than calling for a renewal of the agreement with the Free File Alliance, Bloomberg, the Huffington Post, and Slate have suggested that the IRS to develop a new tax preparation system.  With the national debt at more than $17.6 trillion, these news outlets are seriously out of touch with reality.  Not only would such a system be costly to taxpayers, it would duplicate (poorly) the existing well-functioning Free File system. 

The news outlets envision a program that would pre-populate and calculate an individual’s tax liability or refund.  Taxpayers already fear and loathe the IRS, and upon receiving such a pre-populated form from the agency, they would probably pay it as a bill from the IRS, rather than try to correct any information to reduce their tax burden.  Such a system would possibly not take into account changes in marital status, the number of dependents, or changes to income because they would presume that the pre-existing numbers are correct.  More ominously, any changes that a taxpayer would make to the forms could potentially send up red flags to the agency that an audit would be in order.

The IRS already is overburdened by the amount of work it faces in correcting security issues that have been flagged in reports by the Treasury Inspector General for Tax Administration (TIGTA) and the Government Accountability Office (GAO).  On February 27, 2013, TIGTA issued a report stating that even though the agency claims protection and privacy of taxpayer information is an important part of the agency’s mission, the IRS has not implemented an effective system to protect this data.  On April 8, 2014, GAO issued a report highlighting control weaknesses at the IRS that place financial and taxpayer information at risk. 

On May 3, 2012, TIGTA released a report about the quality of assistance the IRS provides to taxpayers who are victims of stolen identity refund fraud.  According to TIGTA, 641,052 taxpayers were affected by identity theft in 2011, and the agency does not have a means to effectively provide assistance to these victims, or provide identity theft procedures to taxpayers, resulting in increased burdens on the victims of identity theft.  

As far as the chances for the IRS to develop workable software for taxpayers to use in filing their annual returns, the federal government’s track record is less than stellar.  One needs only to consider the dismal performance record of healthcare.gov to understand the problem; and that software was deployed.  There are numerous federal computer software programs that never made it out of the gate, including the Department of Veterans Affairs’ financial system, known as the Core Financial and Logistics System, which cost taxpayers $249 million after six years of missed deadlines and milestones; the VA’s Financial and Logistics Integrated Technology Enterprise, which wasted $90 million; the interoperable health care record for Department of Defense personnel whose files need to be transferred to the VA when they transition to civilian life, which was halted by DOD and VA after spending $1 billion; and the IRS’ Cyberfile program. 

Rather than considering whether or not to spend taxpayer dollars to develop a new software program that is more than likely to fail, the IRS should renew its agreement with the Free File Alliance and focus its limited resources on addressing the privacy and security concerns raised in the GAO and TIGTA reports.  

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