Study Criticizes Government-Run Online Tax Prep

A new study by the Computer & Communications Industry Association recommended that the Internal Revenue Service avoid investing in its own online tax preparation system, saying the proposed "I-File" system would be costly to implement and create little or no benefit for consumers.

"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 seven out of 10 taxpayers for free," said study co-author Robert Litan in a statement. "By comparison, an IRS I-File program would cost more than its benefits, and come with a significant risk of failure."

Another study co-author, Jeffrey Eisenbach, said the team's analysis found that an I-File system would cost at least $132 million more than it would save over the next 10 years, and probably much more. "The IRS's experience with large IT systems suggests the costs of trying to implement I-File would be large, and the results uncertain," he said. "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."

The 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's existing Free File program and the creation of meaningful incentives for electronic filing.