Fast Facts

IRS offers a range of online services, including services that allow taxpayers to track refunds or view their accounts. Although IRS recognizes that taxpayers want more online options, it hasn’t considered taxpayer input in developing new services. Also, its efforts to determine whether current online services meet taxpayer needs haven’t yet been sufficient to make decisions about how to move forward.

IRS has long relied on private companies to help taxpayers file electronically, but it hasn’t given adequate consideration to the benefits and costs of this agreement with industry.

We made 7 recommendations to address these and other challenges.

A person looking at the IRS website

A person looking at the IRS website

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Highlights

What GAO Found

The Internal Revenue Service's (IRS) online services for individual taxpayers primarily provide taxpayers one-way communication of key information derived from their tax return, such as when an anticipated refund should arrive, or allow taxpayers to pay money owed or make payment arrangements. IRS has done little research or reporting on the extent to which its online services are satisfying taxpayers' needs. Also, IRS has not set a target for using online services to help reduce taxpayer burden. Selected foreign and state revenue agencies' online services have developed online filing and communication capabilities, such as filing a tax return on the agency's website and offering electronic chats between revenue agency employees and taxpayers (see figure).

The U.S. Internal Revenue Service's and Three Foreign Revenue Agencies' Online Services The U.S. Internal Revenue Service's and Three Foreign Revenue Agencies' Online Services

IRS has long-term planning documents which detail online services it intends to develop, which include services to communicate digitally with taxpayers, to achieve its goal of modernizing the taxpayer experience. However, GAO found that IRS has not sufficiently considered taxpayer input in the prioritization process for these new services and instead prioritizes services primarily based on the potential benefit to IRS operations or how quickly a service might be developed. Without considering taxpayer input on user needs and preferences, IRS risks developing services that taxpayers do not use.

A group of private sector tax preparation companies known as Free File, Inc., has a long-standing agreement with IRS in which the companies provide free electronic tax preparation and filing services to eligible taxpayers in exchange for IRS not offering its own filing capability. However, few taxpayers use these services and GAO found that IRS has given inadequate consideration to the full benefits and costs of the Free File agreement to all parties. Not considering these costs and benefits has implications for the future evolution of IRS's online services, including helping taxpayers electronically file amended returns.

Why GAO Did This Study

IRS recognizes that taxpayers want more choices in how they interact with IRS, including through online services. GAO was asked to review IRS's online services—those which allow IRS and individual taxpayers to exchange personalized information electronically. This report (1) examines what is known about how IRS's current online services are meeting taxpayers' needs, and provides information about selected foreign and state revenue agencies' online services; (2) evaluates the extent to which IRS's strategy for identifying and prioritizing the development of new online services is consistent with relevant requirements and leading practices; and (3) examines how IRS is addressing key challenges in providing online services.

GAO assessed IRS's online services against relevant requirements, agency goals, and leading practices; interviewed IRS officials; and identified additional services and practices from six foreign and state revenue agencies selected for offering multiple online services for exchanging personalized information with taxpayers.

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Recommendations

GAO is making seven recommendations to IRS, including measuring and reporting on the effect of online services on satisfaction and taxpayer burden and setting a target for reducing burden, considering taxpayer input when prioritizing new online services, and ensuring that any renewal of the Free File agreement reflects benefits and costs. IRS agreed with six recommendations, but disagreed on setting a target to reduce burden. GAO continues to believe IRS should set such a target.

Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service 1. The Commissioner of the IRS should ensure that information is collected on taxpayers' experiences with all online services and the extent to which the services are meeting taxpayers' needs. (Recommendation 1)
Open
IRS agreed with this recommendation. In June 2020, IRS reported that it intends to "implement new surveys to better capture customer experience data" with its online services. To this end, IRS in March 2020 published a notice in the Federal Register stating that it intends to seek approval from the Office of Management and Budget (OMB) on collecting information in a manner consistent with section 280 of OMB's Circular A-11 intended to improve the customer experience with federal services. Among other requirements, section 280 of Circular A-11 directs agencies to collect feedback from customers. IRS states that it intends to complete this process and fully address the recommendation by the end of calendar year 2021. We will continue to monitor IRS's efforts to address this recommendation.
Internal Revenue Service 2. The Commissioner of the IRS should ensure that information collected on taxpayers' experiences with online services is summarized in the document serving as IRS's performance plan and report. (Recommendation 2)
Open
IRS agreed with this recommendation. In June 2020, IRS reported that it is working to "implement new surveys to better capture customer experience data" and intends to publish this information on Performance.gov. Further, IRS states that it "will evaluate and identify the most appropriate medium each year for publication of data based on statutory and other requirements" and expects to fully address this recommendation by November 15, 2022. Section 280 of the Office of Management and Budget's Circular A-11 states that in addition to publishing this information on Performance.gov, agencies should also summarize this information in performance plans and reports. We will continue to monitor IRS's efforts to address this recommendation.
Internal Revenue Service 3. The Commissioner of the IRS should direct the Director of OLS and the Chief Research and Analytics Officer to work together to analyze the potential effects of online services on taxpayer burden. (Recommendation 3)
Closed - Implemented
IRS agreed with our recommendation and in October 2020 officials provided documentation showing the recommended research had been completed in May 2020. Specifically, officials with IRS's Research, Applied Analytics, and Statistics office evaluated the most recently completed Individual Taxpayer Burden Survey (for tax year 2017) and the Taxpayer Compliance Burden Survey (for calendar year 2014) and divided respondents to these surveys into different segments depending on whether or not they had used irs.gov or an IRS app for the 2017 survey. IRS' analysis of the 2017 survey determined that taxpayers who had used irs.gov reported a higher time burden, more money spent on tax preparation and filing software, and less money spent on fees for paid preparers than those who had not used irs.gov. Further, IRS's analysis identified possible explanations for these findings and identified additional online services survey respondents would like, such as immediate error checks when filing and ability to electronically communicate with IRS.
Internal Revenue Service 4. The Commissioner of the IRS should ensure that taxpayer input is included as an element of IRS's identification and prioritization process for new online services. (Recommendation 4)
Open
IRS agreed with the recommendation. In June 2020, IRS reported that it plans to introduce new survey methods to obtain taxpayer input regarding potential new online services. One specific example IRS provided was testing a new version of the irs.gov satisfaction survey. This new version, which was launched in January 2020, asks respondents what additional online services taxpayers would like and solicits suggestions from taxpayers for improving IRS's online services. IRS stated that it is currently evaluating this new survey method. IRS expects to fully address the recommendation by the end of calendar year 2021. We will continue to monitor IRS's efforts to address this recommendation.
Internal Revenue Service 5. The Commissioner of the IRS should work with relevant officials to set a target to reduce taxpayer burden through the development of new online services. (Recommendation 5)
Open
IRS did not agree with this recommendation. In June 2020, IRS stated that it will analyze the effect of online services on taxpayer burden in response to recommendation number 3 of this report. However in regards to setting a target, IRS reiterated its view that its "taxpayer burden measurement methodology is not designed to evaluate the effect of specific online services or web site enhancements." Further, IRS states that changes in tax policy (e.g., the Tax Cuts and Jobs Act of 2017) can affect taxpayer burden and it believes other factors, such as ease of use of online services, are more important to the taxpayer experience. Our report recognized that it may take time for the relevant IRS offices to review how online services may be affecting taxpayer burden. However, we continue to believe that this recommendation has merit because IRS has previously stated that it expects online services to reduce taxpayer burden, thereby contributing to one of IRS's strategic goals. Since IRS has already stated it plans to analyze the effect of online services on taxpayer burden in response to recommendation number 3, we believe it would be relatively easy for IRS to use the results of that analysis to set a more specific goal. For example, IRS in its June 2020 update refers to the time taxpayers spend using online services. A potential research question could be the extent to which taxpayers are more efficiently completing tasks using IRS's online services as IRS makes improvements to these services. In April 2021, IRS officials said they are coordinating internally and will provide updated information. We will continue to monitor IRS's efforts to address this recommendation.
Internal Revenue Service 6. The Commissioner of the IRS should direct the Chief Information Officer and the Director of OLS to ensure that planned future capabilities of digital communication platforms are tested or piloted before deployment with a particular focus on mitigating the risks that were identified in prior pilots of digital communication services, such as challenges in establishing common objectives and enrolling taxpayers. (Recommendation 6)
Open
IRS agreed with this recommendation. In June 2020, IRS reported that it will apply multiple user preference and usability testing methods to the design of Taxpayer Digital Communications. For example, IRS said it surveyed visitors to IRS.gov about their views towards digital communications in the winter of 2019-2020 and in March 2020 conducted remote testing sessions with taxpayers to obtain feedback on two possible design options. IRS says additional testing may be done and expects to fully address this recommendation by November 30, 2020. In December 2020, we requested updated information from IRS officials and as of April 2021 officials are working to provide updated information. We will continue to monitor IRS's efforts to address this recommendation.
Internal Revenue Service 7. The Commissioner of the IRS should direct the Commissioner of W&I to work with the Director of OLS to ensure that future decisions regarding whether to renew the Free File agreement incorporate findings from a comprehensive examination of the benefits and costs of the agreement as it relates to long term plans for IRS's online services, including plans to file amended returns electronically. (Recommendation 7)
Open
Our report identified IRS's pledge to "not enter the tax preparation software and e-filing services marketplace" as a potential cost of IRS's agreement with Free File, Inc. to provide services to eligible taxpayers. Shortly after our report was issued, the Commissioner of the Wage and Investment Division signed on December 23, 2019 an addendum to the most recent agreement between IRS and Free File, Inc. which among other provisions struck the language prohibiting IRS from offering its own online filing services. Under the terms of the addendum, companies participating in Free File, Inc. will continue to provide services to eligible taxpayers subject to some new requirements, such as a prohibition on companies excluding their services from internet search engines and surveying a sample of taxpayers about their experiences. The agreement between IRS and Free File, Inc. remains scheduled to expire in October 2021. While the deletion of the language prohibiting IRS from offering its own online filing services removes a cost for IRS, our recommendation was for any future renewal of the agreement to be based on a comprehensive examination of the benefits and costs of the agreement as it relates to IRS's plans to expand online services. IRS agreed with our recommendation. In June 2020, IRS said that it "would continue to coordinate with appropriate stakeholders to assess the costs and benefits derived from the Free File agreement and incorporate findings in future agreements". In addition, several new developments have occurred related to Free File: 1) IRS used Free File, Inc. in the spring of 2020 to develop a website to identify Americans who were not required to file a 2019 tax return and may be eligible for economic impact payments pursuant to the Coronavirus Aid, Relief, and Economic Security Act; 2) IRS announced in May 2020 that taxpayers would be able to electronically file an amended return using tax software and IRS's announcement of this capability referred to its agreement with Free File, Inc.; and 3) one of the ten companies that had been participating in Free File, Inc. announced it planned to leave in October 2020. In April 2021, IRS officials reported that they are analyzing the costs and benefits of the program and expect to complete that analysis by June 15, 2021. We will continue to monitor IRS's efforts to address the recommendation.

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