IRS working with nonprofit New America to deliver online direct file tax system study

The Internal Revenue Service is working with technology public policy nonprofit New America to study the feasibility of establishing a digital, IRS-operated “direct file” tax return system.

The nonprofit is assisting the agency with the report along with Loyola Law School Associate Professor of Law Ariel Jurow-Kleiman, according to a New America spokesperson.

IRS’s e-file feasibility study was mandated by the Inflation Reduction Act (IRA), which stipulated that the agency engage independent third parties to study new options for a free, online direct tax-filing system.

The legislation directs IRS in the study to examine factors including cost and organizational design, as well as the agency’s capacity to operate such a system.

The IRA legislation also provided $80 billion in fresh funding for the agency, of which $4.8 billion was allocated for the modernization of business systems and cybersecurity monitoring.

In its 2023 report to Congress, the Office of the Taxpayer Advocate, which represents the interests of the U.S. taxpayer, said the agency should develop tools to allow citizens to use e-filing tools for more complex tax returns.

According to the report, which was published last month, current e-filing tools made available to taxpayers by software companies in partnership with the IRS do not allow citizens to attach documents.

Other common errors with existing e-filing technology include an inability to process returns when taxpayers override certain entries.

New America spokesperson Tara Moulson said: “To assist the IRS with this work and assessment, the agency selected New America, a strictly non-partisan, non-profit think tank dedicated to public problem solving with expertise in technological change, the tax code, and the taxpayer experience of everyday Americans.”

IRS expects to deliver the report to Congress in May.