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Treasury Inspector General for Tax Administration

Press Release

November 14, 2012
TIGTA - 2012-66
Contact: David Barnes
(202) 622-3062

The IRS is Making Progress in Deploying Modernized e-File System, But More Needs to Be Done Before the Legacy System Is Retired

WASHINGTON – While the Internal Revenue Service (IRS) processed more tax returns through its new Modernized e-File (MeF) System during the 2012 Filing Season, unresolved performance issues and planned upgrades to enterprise-wide hardware and software have impaired the IRS’s efforts to retire the existing Legacy e-File system, according to new reviews by the Treasury Inspector General for Tax Administration.

The MeF system provides real-time processing of tax returns and extensions that will improve error detection, standardize business rules, and expedite acknowledgments. Once fully implemented, the MeF system will provide a single method of filing all business and individual tax returns, forms, and schedules via the Internet.

TIGTA conducted its reviews because the IRS initially planned to replace the Legacy e-File system with the MeF system after the 2012 Filing Season. TIGTA reviewed: 1) whether individual income tax returns were being accurately and timely processed; 2) whether sufficient progress is being made to retire the Legacy e-File system; and 3) the IRS’s progress in making transmitters full participants in the MeF System. Transmitters are firms, companies, or individuals that transmit tax return information to the IRS on behalf of electronic return originations, reporting agents, or taxpayers.

In its first report, “While Use of the Modernized e-File System for Individual Tax Returns Has Increased, the Legacy e-File System Is Still Needed as a Backup,” TIGTA found that the MeF system has not shown that it can consistently process large volumes of tax returns for an extended period of time. Although the IRS significantly increased the volume of tax returns processed through the MeF system during the 2012 Filing Season, the volume was less than anticipated due to performance issues and programming errors.

In the second report, “Despite Steps Taken to Increase Electronic Returns, Unresolved Modernized e-File System Risks Will Delay the Retirement of the Legacy e-File System and Implementation of Business Forms,” TIGTA found that the IRS increased the number of vendors’ software packages available to transmit electronic tax returns.

However, TIGTA warned that unresolved performance issues with MeF and planned hardware and software upgrades may affect the MeF system’s reliability. Further, the IRS has not developed a retirement plan for the Legacy e-File system that includes the conditions that will need to be met before the system can be shutdown.

“The Modernized e-File system is part of an initiative by the IRS to meet the needs of taxpayers, reduce taxpayer burden, and broaden the use of electronic interactions,” said J. Russell George, Treasury Inspector General for Tax Administration. “However, due to problems we identified, it will be necessary to demonstrate the system’s ability to process all returns filed electronically for an entire season before the Legacy e-File System can be completely retired,” Mr. George added.

In the first report, TIGTA recommended that the IRS develop a comprehensive testing plan that ensures tax returns are accurately processed through the MeF system before it permanently retires the Legacy e-File system. IRS management agreed to enhance their testing procedures based on lessons learned.

Read the report.

In the second report, TIGTA recommended that the IRS defer retirement of the Legacy e-File system until the increased risk associated with retiring it can be addressed, and complete a retirement plan for the Legacy e-File system.

The IRS agreed to develop a contingency plan to use the Legacy e-File System should the MeF system experience production issues. However, IRS officials did not state that they would develop a Legacy e-File system retirement plan, along with associated implementation dates and monitoring plans.

Read the report.


Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.

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