The Government Accountability Office said that the Internal Revenue Service doesn’t appear to be in a position to develop its own software for tax preparation anytime soon.As part of its partnership with the Free File Alliance, in exchange for a number of tax prep providers agreeing to provider their software free of charge to certain taxpayers, the IRS has agreed not to develop its own software. But because increased electronic filing would reduce the agency’s processing costs, reduce transcription errors and speed up refund turnaround, the GAO was looked to examine the benefits and costs of the agency creating its own online tax prep offering.

Specifically, the GAO looked at a number of systems already offered by states and in other countries that allow taxpayers to prepare and file tax returns on Web sites at no charge, an option not available to federal taxpayers.

The GAO said that for the systems profiled, the reported benefits and costs were relatively modest and it was unclear whether benefits were greater than costs, which wre kept as low as possible by restricting eligibility and features of the software. California and Pennsylvania estimated savings of $1.00 and $3.47 per return, respectively, for each return converted from paper. However, the benefits were limited by usage rates of less than 6 percent.

The GAO also noted that the IRS’s costs could be higher than the states’, both because the federal tax system is more complex and because, unlike states which already had Web sites with Internet transaction capabilities, the IRS would have to significantly upgrade its Web site and incur new security costs.

The full report is available at www.gao.gov/new.items/d07570.pdf.

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