IRS cautioned not to give up legacy e-file system yet

With the 2012 tax filing season ending, the Internal Revenue Service is getting a mixed review on how well its Modernized e-File system performed and a warning not to give up the legacy system just yet.

Glitches in operation of the modernized system caused some significant delays early in the filing season, according to a new report from the Treasury Inspector General for Tax Administration.

“Modernized e-File programming problems resulted in tax return processing delays for 7.8 million tax returns early in the filing season,” states the March 30 report.

The modernized system is an Internet-based platform for processing individual tax returns. It is in the final stage of replacing the IRS’ legacy e-filing system, which is scheduled to be retired this year.

This was the first year the modernized system had processed a substantial volume, receiving 52 million individual tax returns as of March 7. That is nearly five times the 8.7 million the system processed last year, the report said.

The problems, which occurred mostly from Feb. 2 through 11, involved filters established to identify fraud and with programming software used by the modernized system, the report said. The system generated incomplete or duplicate files, which delayed further processing.

Those system malfunctions also made it impossible to access information for taxpayers who asked about their refunds, including those who used the “Where’s My Refund” mobile application, the report said.

While the problems were occurring, the IRS on Feb. 10 advised users to submit their returns to the legacy system. Even after those problems were resolved, taxpayers continued to e-file into the legacy system.

The shortcomings in performance led the inspector general to warn that it may be risky to give up on the legacy system as planned.

“The problems encountered this year indicate there may be significant risk if the IRS continues with its plan to retire its legacy e‑file system at the end of the year because then it would no longer be available as a backup,” the report said.

IRS officials were not immediately available to respond to the report. The inspector general made no recommendations, saying it was an interim report.

In other information from the audit, the IRS said it received more than 63 million tax returns by March 3. Of those, 90 percent were e-filed and 10 percent were filed on paper. The e-file volume increased by 6 percent, in comparison to the same period a year ago, while paper volume decreased by 10 percent.