GAO reports problems with IRS' new e-filing system

Taxpayers continue to experience problems with the Internal Revenue Service's website and new electronic-filing system, according to a report from the Government Accountability Office. The IRS began modernizing its legacy e-filing system in 2004.

In the 2005 Taxpayer Assistance Blueprint, the IRS laid out a five-year strategic plan to improve service, which included streamlining its website. While the agency has worked to tackle shortcomings identified in the plan, "other gaps, including those related to content management and usability reviews, have not been fully addressed," GAO said in the December 2010 report, which was released Jan. 18.

While the number of people visiting IRS' website rose to 239 million in 2009, up 5 million from 2008 and up 99 million from 2005, surveys showed that in 2009 and 2010, a smaller percentage of those people actually found what they were looking. In both 2009 and 2010, 73 percent of visitors reported finding the information they sought -- 5 percent lower than in 2007.

To help the 27 percent of taxpayers unable to find answers to their questions on its website, the IRS is investing $320 million to introduce a new site by the 2013 filing season, as well as a help desk and interactive applications.

GAO found that taxpayers continue to file returns electronically and overall, e-filing increased to about 97 million tax returns, or 71 percent of all returns in 2010. For fiscal year 2009, e-filing saved the IRS about $3.10 per tax return. In 2010, the IRS allowed individual returns to be filed for the first time using the modernized system.

While the new electronic filing system reduced processing time by up to eight days, and provided more detailed information regarding rejected tax returns, GAO found many users are sticking with the legacy system, which will be retired in October 2012.

IRS officials told GAO that tax preparation services might have stopped using the modernized filing system because it generated more technical errors and return rejections than the legacy system.

The agency expects the modernized system could accept up to 85 million tax returns in the 2011 tax season, but IRS officials said until the service overcomes the performance and stability problems of 2010, taxpayers are likely to stick to the legacy system.