The IRS plans to pilot a free, online tax filing platform that would allow taxpayers to submit electronically filed tax returns directly to the agency for the 2024 filing season, the agency announced on Tuesday.
The agency has developed the direct file system prototype, but it has only been used for limited user research and usability testing. Taxpayers currently interact with the system in controlled usability testing sessions, and no real tax information has been used during these sessions.
The IRS plans to conduct further tests of the direct-file system and plans to invite some taxpayers to use the system to file their taxes during the 2024 filing season.
“If the IRS moves forward with [the] direct file project, it would be critical to plan around tax-filing seasons and be ready to launch, support, and gather feedback about a specific scope of Direct File system in time for filing season each year,” the agency said in Tuesday report to Congress, outlining the feasibility of the IRS running its e-file system.
In addition, the report explains that if the e-file system is to succeed in the longer term, the IRS must retain a commitment to a modern software development lifecycle, rather than incorporating this project into its legacy software development approach.
“If the IRS were to engage development support external to the IRS … it should ensure that it engages an entity committed to a modern, flexible approach to software development,” the report states.
The IRS has yet to propose any specific schedule or timeline for the development or launch of a potential e-file tool.
The appropriate and feasible schedule for software development projects can vary significantly depending on the intended scope, expected user base, and development team – none of which has been identified, the agency told Congress.
In addition, one critical consideration in planning the initial launch of a potential direct file tool is the time required to obtain a signed Authority to Operate (ATO). Obtaining an ATO can take months and requires development effort as well as documentation – and the IRS’s roadmap and schedule would need to account for this as well.
If the direct e-file program comes to fruition, it would significantly expand what the IRS has been doing under its Free File program for more than 20 years.
Under the Free File program, the IRS has partnered with private companies to provide free electronic tax preparation and filing for taxpayers who have incomes below a certain threshold. During the 2022 filing season, the IRS required Free File to offer free tax filing services to taxpayers with an adjusted gross income limit of $73,000 or lower – about 70 percent of Americans are eligible.
However, according to an April 2022 Government Accountability Office report, only four percent of all eligible taxpayers used the program to file their Federal tax returns.
Over the next few months, the IRS plans to work through several operational questions, including how to integrate the direct-file pilot with state tax administrations, the complexity of tax returns it would be able to process, and how to provide the best customer support to pilot participants.