What the IRS website outage cost, in dollars

Every year, the proverbial cyber gods anticipate a major data breach during tax day, and this year, they weren’t completely wrong. While we didn’t have a cyber meltdown, we did experience a major technology failure. Many U.S. taxpayers may already know what I am talking about here, but for those outside of the country, let me fill you in. The Internal Revenue Service website crashed on April 17 — the infamous tax filing day. And much like death, or rush hour traffic, no one can escape doing his or her taxes. And thanks to the good graces of the IRS, the deadline was extended a day to April 18, so that taxes could be filed by everyone as required by U.S. laws.

Now you might say, “Aw shucks, it’s just a day of downtime. How bad can it be?” In short, bad, and I’m going to crunch some numbers to show you just how bad. The points below will help you calculate the financial impact of the total downtime and how the delays affected the U.S. government — and more importantly, the money the government collects from all of us.

To calculate the cost of the one-day downtime of the IRS app, we did some digging in terms of tax filing statistics. And here’s what we found:

• On average, over 20 million taxpayers submit their taxes in the last week, according to FiveThirtyEight.
• Half of these folks — 50 percent, approximately 10 million people — submitted on the last day, and therefore were affected by the site outage. How did we arrive at this number? Well, we made a conservative assumption that the folks who waited until the last week were the classic procrastinators (you know who you are!). And these procrastinators generally wait until the last day (maybe even the last hour) to file their taxes, which was also backed up by the IRS and FiveThirtyEight data points.
• We also make a practical assumption that most last-minute tax filers are “payees,” meaning you are waiting for the last day because you are paying money to the government. After all, if you are getting money back, there’s more incentive to file early and cash in that check!

You with me so far? Now, in order to determine the amount of money the IRS collects on the last day, we need to know what the average filer pays to the IRS. This was a tricky question to answer. The IRS assumes that most folks get a refund of $2,900, but does not specify the average filer payment amount.

Since there exists no standard amount, we modeled a few payments ($3,000, $10,000 and $30,000) to calculate the amount that got delayed because of the last minute outage.

So the government delayed getting some big money, but they do eventually get it all (didn’t we say that taxes and death are inevitable?). It’s important to note here that a lot of taxes are collected via W-2 forms, so filing does not mean the payee will actually pay, and in some instances, there will be refunds granted. So with that in mind, let’s now calculate the cost of the one day delay. To do this, we use the 1.6 percent* treasury yield on the money and we calculate the actual cost of downtime.

What you see is that even one day’s cost of downtime for the U.S. government is measured in millions of dollars. And for a government that is trillions of dollars in debt (and at least in theory focused on cost/debt reduction), these numbers add up quickly.

The lesson here is that even one day of a server failure, breach or outage can be extremely costly, both in terms of money and reputation loss. The IRS is a noncompetitive government agency, so even if citizens lose faith in it, it’s still the only agency that governs our taxes. But for an accounting firm, clients always have other choices, so ensuring computer systems are up to date, well maintained, and best-of-breed is a matter of keeping the firm in business or losing it all.

Perhaps it’s best said by Abraham Lincoln: “You cannot escape the responsibility of tomorrow by evading it today.”