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Treasury Inspector General for Tax Administration

Press Release


July 19, 2010
TIGTA - 2010-35
Contact: Karen Kraushaar
(202) 622-6500
karen.kraushaar@tigta.treas.gov
TIGTA-PAO@tigta.treas.gov

TIGTA Finds Modernized E-file System Needs Improvement

WASHINGTON - The Internal Revenue Service's Modernized E-file (MeF) system did not process electronically filed individual tax returns as effectively as it should have during the 2010 filing season, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

The estimated $574 million MeF system is replacing the IRS's current tax-return filing technology with a modernized, Internet-based electronic filing platform. The MeF system streamlines tax return filing processes and reduces the costs associated with paper tax returns. Since its initial release in 2004, the MeF system has processed U.S. corporate, exempt-organization and partnership returns. The MeF Release 6.1, which was estimated to cost $78 million, was deployed in February 2010, and includes the U.S. Individual Income Tax Return (Form 1040) and 21 forms and schedules. Future releases will include the remaining 120 IRS tax forms.

"The purpose of the Modernized e-File system is to enable more individual taxpayers to take advantage of the benefits of electronic filing, while reducing the costs associated with paper tax returns," said J. Russell George, the Treasury Inspector General for Tax Administration. "Since two out of three taxpayers now file their returns electronically, it is critical that the IRS ensure that the Modernized e-File system is delivering expected results."

The MeF project development team did not adequately manage the MeF Release 6.1 testing prior to deployment, TIGTA found. IRS's test report showed all requirements were tested and passed; however, TIGTA auditors found supporting test documents showed that many of the requirements were not tested, many more failed the tests, and no indication was provided to show the defects were corrected. Subsequently, the MeF system rejected 23 percent of the 127,105 individual tax returns that were e-filed during the system's initial three weeks of operation. TIGTA also found that the IRS has not addressed many of the security vulnerabilities with the MeF system identified in a December 2009 TIGTA report.

TIGTA recommended that the IRS: ensure that project releases are deployed only after verifying that all system requirements have been tested, consider lessons learned from prior deployment experiences in planning future releases, and ensure that the MeF team enter and track all MeF system security weaknesses in IRS control systems.

The IRS agreed with most of TIGTA's recommendations and stated corrective actions have been taken or started. To view the report, including the scope, methodology, and full IRS response, go to: http://www.treas.gov/tigta/auditreports/2010reports/201020041fr.pdf.

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