Economic Analysis On Promoting Electronic Filing

File Under: News, Privacy

Apr 14, 2008

Washington, DC -- A new independent study examining the costs and benefits of a proposed government-run electronic tax preparation system concludes the IRS should not invest in the so-called ‘I-File’ system, which would be costly to implement and create little or no benefit for consumers compared with the existing system.
 
“Competition in the industry obligates software companies to keep their products user-friendly and reasonably priced, and the IRS ‘Free File’ program already makes tax preparation software available to 7 out of 10 taxpayers for free,” study co-author Robert Litan said. “By comparison, an IRS I-File program would cost more than its benefits, and come with a significant risk of failure.”
 
“Even using very generous assumptions, our analysis shows that I-File fails a benefit-cost test; it would cost at least $132 million more than it would save over the next ten years, and probably a lot more,” said study co-author Jeffrey Eisenach. “The IRS’ experience with large IT systems suggests the costs of trying to implement I-File would be large, and the results uncertain. On the other hand, the results of I-File programs at the state level and in other countries suggest the benefits would be limited or non-existent. Taxpayers are far better off using what is currently available.”
 
An I-File system is one of several proposals frequently advocated to have the potential to increase the percentage of Americans who file their taxes electronically, which saves the IRS time and money. The study released today finds that this assumption is unfounded. The authors examine the types of tax preparation methods currently used by taxpayers, the steps and costs required to implement an I-File system, the realities of previous difficulties the IRS has had implementing large IT projects, and the relative failures of state and foreign governments that have implemented similar systems, including California, South Carolina, and the United Kingdom.
 
The study’s report concludes that the goals of I-File – specifically, an increase in e-filing of tax returns – would be better achieved through other approaches, including improvements to the IRS’ existing Free File program and the creation of meaningful incentives for electronic filing.
 
“We can all appreciate that the concept of I-File seems to make sense, on the surface,” said CCIA President and CEO Ed Black. “But this study exposes the idea as simply that: a nice idea. As long as the private sector continues to offer outstanding online tax preparation software – at a competitive price to those who buy it – and for free for the majority of Americans through Free File – there truly doesn’t seem to be any sense or benefit in implementing an I-File system.”
 
The full report, The Benefits and Costs of I-File, can be found at: www.ccianet.org/docs/ifilestudy.pdf 
Click here for the study