Treasury
Inspector General for Tax Administration
Office of Audit
SYSTEM ERRORS AND LOWER THAN EXPECTED TAX RETURN VOLUMES AFFECTED
THE IMPLEMENTATION OF THE MODERNIZED E-FILE
SYSTEM FOR INDIVIDUAL TAX RETURN PROCESSING
Issued on September 8, 2010
Highlights
Highlights of Report Number: 2010-40-111 to the Internal Revenue Service Commissioner
for the Wage and Investment Division.
IMPACT ON TAXPAYERS
The Internal Revenue Service
(IRS) is in the process of replacing its existing electronic filing (e-file) platform, referred to as “the Legacy
e-File system,” with a modernized,
Internet-based system, the Modernized e-File
(MeF) system. The MeF system provides real-time
processing of tax returns and extensions that will improve error detection,
standardize business rules, and expedite acknowledgments. The MeF system also allows taxpayers to
attach documents to their tax returns.
WHY TIGTA DID THE AUDIT
This audit was
initiated because the MeF system aims to increase e-file use through a system that is
efficient and easy to access, use, and maintain. The overall objective of this review was to
determine whether e-filed individual
income tax returns transmitted through the MeF system are processed timely and
accurately in a manner consistent with tax returns processed in the Legacy e-File system.
WHAT TIGTA FOUND
Although the IRS has processed business
tax returns through the MeF system since February 2004, the processing of
individual tax returns presented a significant challenge. The migration
of individual tax returns to the MeF system is a joint venture among the IRS,
the tax return preparation industry, and the States. The IRS established a number of tools to
share information and assist its stakeholders during the development and
implementation of MeF Release 6.1.
Our
review identified that tax returns were erroneously rejected from the MeF
system. Of the 29 MeF system business
rules we reviewed, 19 (66 percent) appeared to either reject tax returns
in error or reject tax returns without providing accurate explanation as to why
the tax returns were rejected.
In addition, the IRS anticipated processing 9.3
million tax returns through its MeF system as of April 15, 2010. However, the IRS only received 752,320 tax
returns (8.1 percent). Due to the low
volume of tax returns received through the MeF system, the IRS was not able to
assess its capability to handle large volumes of tax returns.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the Commissioner, Wage and Investment Division:
·
Establish processes to timely monitor
the transmitting and processing of individual tax returns through the MeF
system.
·
Work with tax return transmitters and the
States to identify and address issues that prevented them from using the MeF system
and encourage them to use it during the 2011 Filing Season.
The IRS agreed with the recommendations. It employed several processes to validate the
accuracy of individual tax return processing for the 2010 Filing Season. It also plans to use Business Objects for the
2011 Filing Season to identify trends that may indicate errors in the rejection
or acceptance of tax returns and to ensure the explanations provided for
rejected returns are correct. The IRS
has also begun to work with tax return transmitters and the States to identify
and address issues that prevented them from using the MeF system and encourage
them to use it during the 2011 Filing Season.
It plans to continue to leverage existing external venues for the MeF system
to maximize its partnership, outreach, and customer service to external
stakeholders. Finally, the IRS plans to
identify and implement system performance enhancements.
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2010reports/201040111fr.html.
Email Address: inquiries@tigta.treas.gov
Phone
Number: 202-622-6500
Web Site: http://www.tigta.gov