IRS weighs e-filing upgrades

Internal Revenue Service officials must decide soon whether to spend money to improve the agency's electronic-filing systems, which date back to the mid-1980s, or speed up the schedule for installing new systems to process Form 1040 returns.

If nothing is done to accelerate current plans, a better experience for filing 1040 forms electronically won't be ready until 2010, Terry Lutes, associate chief information officer for information technology services at the IRS, said today.

Speaking in Washington, D.C., at a meeting of the Electronic Tax Administration Advisory Committee, Lutes said many tax preparers and individual taxpayers have their 1040 forms rejected by the current e-filing systems for reasons that are not clear to the tax filer. Rather than spend millions on retrofitting the old e-filing systems to reduce rejection rates, it may be more practical to spend that money sooner than originally planned on new e-filing systems, Lutes said.

"It's a question of: How much money do you spend on a system that's going to be a throwaway?" he said.

Lutes said other operational problems associated with e-filing could only be resolved with modern management information systems, which the IRS does not have for its current e-filing systems. When IRS officials want to find out the efficiency of electronic submissions, for example, they have to call one of the big tax preparation companies such as H&R Block, Lutes said.

"We need to look at getting a management information system," he said, acknowledging that it would be a big-ticket item.

As the IRS offers more online services, it must pay more attention in the future to what Lutes described as operational requirements, he said. Not enough consideration has been given to technical operations in developing new online services, he said.

Despite the operational issues that IRS officials said must be dealt with, electronic filing trends so far give hope that the IRS will eventually exceed its goal of having 80 percent of returns filed electronically, said Bert DuMars, director of electronic tax administration for the IRS, who also spoke at today's meeting.

DuMars said the challenge will be to keep up the momentum for e-filing. To that end, he said, the tax agency is working on a channel-marketing program to bring more tax preparers into the electronic filing fold.

As part of another effort to expand e-filing, DuMars, said IRS managers plan to make greater use of the agency's usability lab to improve the e-services that the tax agency offers to the public and to its employees.