The Internal Revenue Service’s Modernized E-file System, which is supposed to replace the current electronic filing system by the 2013 filing season, is still unable to assure the accurate processing of individual tax returns.

A pair of new reports from the Treasury Inspector General for Tax Administration found that the MeF system still needs to improve to allow more taxpayers to electronically file their tax returns over the Internet.

The report reviewed whether the IRS corrected performance problems previously identified by TIGTA during the 2010 filing season and whether the system would be able to accurately process individual tax returns during the 2011 filing season in a timely manner.

Overall, however, TIGTA found that the processes that the IRS used to validate and monitor MeF system processing did not ensure the accurate processing of individual tax returns. TIGTA also could not validate that the previously identified performance issues had been resolved.

“Since a growing number of Americans are filing their returns electronically, there is no room for error in IRS computer systems,” said TIGTA Inspector General J. Russell George in a statement. “The IRS must be relentless in its pursuit of excellence with regard to all aspects of the Modernized e-file system. Attention to system security, capacity, and performance accuracy are paramount.”

In its first report, “The Modernized e-File Release 6.2 Included Enhancements, but Improvements Are Needed for Tracking Performance Issues and Security Weaknesses,”  TIGTA found that the IRS successfully planned for key performance enhancements and tested the system’s requirements prior to implementation during the 2011 filing season, but needed to improve its methods for tracking performance problems and security weaknesses. Specifically, the IRS could not provide documentation to demonstrate to TIGTA that performance enhancements had been implemented to address the performance-related issues identified during the 2010 filing season. The IRS agreed with three of TIGTA’s four recommendations for improvement but disagreed with TIGTA’s assertion that security weaknesses were not immediately mitigated.

While the IRS said it currently accounted for all security controls, TIGTA maintained that documentation for tracking security issues should be continuously monitored and updated as weaknesses are identified or as changes occur.

In its second report, “Low Participation and Tax Return Volumes Continue to Hinder the Transition of Individual Income Tax Returns to the Modernized e-File System,” TIGTA found that IRS processes were not effective in ensuring the accuracy of the returns processed by MeF during the 2011 filing season. TIGTA also found that reluctance by tax return transmitters and state tax agencies to e-file using MeF raises significant concerns regarding the IRS’s ability to replace fully the old e-file system for the 2013 filing season. According to the report, some return transmitters lacked confidence in the performance of the MeF system.

Further, the IRS is not encouraging taxpayers to take advantage of the ability to use the MeF system to scan and upload supplemental documentation to their e-filed tax returns.

TIGTA recommended in its second report that the IRS develop a comprehensive testing plan to ensure the accuracy of MeF system processing and correct the programming errors identified during our review of the MeF system processing during the 2010 filing season. The report also said the IRS should continue to work with tax return transmitters and states to identify and address concerns with MeF system performance. The IRS also should test system performance, stability of Web services, and processing capacity, according to the report and adequately test the MeF system’s ability to receive, process, store, and retrieve tax return attachments and promote the use of such attachments.

IRS management agreed with most of TIGTA’s recommendations, but disagreed with TIGTA’s recommendation to develop a comprehensive testing plan.

“We are concerned ... that this report contains mischaracterizations with respect to the overall quality control process, and we disagree with the characterization that the Modernized e-File systems underwent "limited testing," wrote Richard Byrd Jr., commissioner of the IRS’s Wage and Investment Division. “TIGTA principally reports on the post-deployment verification steps that the IRS took once the MeF system was processing live tax returns without any mention or analysis of the significant testing effort undertaken as part of the software development process. In our view, this omission is of particular issue when considered in light of the generally agreed best practice that quality control is most important during the design and development process. After-the-fact verification once a system is in use is a necessary element of an overall process, but is substantially less critical than the upfront testing and quality control.”

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