Tax Administration: Many Taxpayers Rely on Tax Software and IRS Needs to Assess Associated Risks Page: 2 of 49
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Accountability. Integrity. Reliability
Highlights of GAO-09-297, a report to the
Committee on Finance, U.S. Senate
Why GAO Did This Study
Individual taxpayers used
commercial tax software to
prepare over 39 million tax
returns in 2007, making it critical
to the tax administration system.
The majority were then filed
electronically, resulting in fewer
errors and reduced processing
costs compared to paper returns.
GAO was asked to assess what is
known about how pricing of tax
software influences electronic
filing, the extent to which the
Internal Revenue Service (IRS)
provides oversight of the
software industry, and the risks
to tax administration from using
tax software. To do so, GAO
analyzed software prices, met
with IRS and software company
officials, examined IRS policies,
and reviewed what is known
about the accuracy, security, and
reliability of tax software.
GAO's recommendations include
that IRS require a software
package identifier, ensure
taxpayer surveys ask specifically
about the effects of 2009 price
changes, implement a plan to
monitor compliance with
recommended security standards
in 2010, and determine whether
using tax software creates any
security or compliance risks.
In response, the IRS Deputy
Commissioner agreed with all of
GAO's recommendations and
outlined the actions that IRS
To view the full product, including the scope
and methodology, click on GAO-09-297.
For more information, contact James White,
(202) 512-9110, whitej @ gao.gov.
Many Taxpayers Rely on Tax Software and IRS Needs
to Assess Associated Risks
What GAO Found
IRS has little information about how the pricing of tax software affects
taxpayers' willingness to file tax returns electronically. In 2009, the two
largest tax software companies eliminated separate fees to file federal tax
returns electronically when using software purchased from retail locations or
downloaded from a Web site. As a result, IRS has an opportunity to study
whether this and other changes are effective in increasing electronic filing.
Additionally, IRS would benefit from being able to identify which software
package the taxpayer used to better target research and efforts to increase
software use and electronic filing.
IRS provides some oversight of the tax software industry but does not fully
monitor compliance with established security and privacy standards. Further,
IRS has not developed a plan to monitor compliance with new standards,
which are optional in 2009 but may be mandatory in 2010. Without
appropriate monitoring, IRS has limited assurance that the standards are
being implemented or complied with.
IRS has not conducted an assessment to determine whether taxpayers' use of
tax software poses any risks to tax administration. Risks include that IRS may
be missing opportunities to systemically identify areas to improve software
guidance and enhance information security. IRS officials said the likely
benefits of an assessment would not warrant the costs but have not
determined either the benefits or costs of such an assessment. Moreover, IRS
has also said that it is in the agency's best interest to ensure that taxpayers
can rely on commercial software to make electronic filing accurate, easy, and
efficient. Further, if even small improvements in the accuracy of tax returns
could be made by clarifying the guidance in tax software, the effect on
revenue could be substantial. Without a risk assessment, IRS does not know
whether its existing oversight of the tax software industry is sufficient or
needs to be expanded.
Preparation and Filing Methods of Individual Income Tax Returns Filed, 2007
Paid preparers using
prepared 77.7 million
returns electronically 22.5 million
Individual taxpayers using
prepared 39.5 million
returns electronically 13.2 million
I III> Paper returns
Individual taxpayers or their paid preparers 21.2 million filed by mail
manually prepared 21.2 million returns on paper 56.9 million
Source: GAO analysis of IRS data.
IUnited States Government Accountability Office
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United States. Government Accountability Office. Tax Administration: Many Taxpayers Rely on Tax Software and IRS Needs to Assess Associated Risks, report, February 25, 2009; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc302700/m1/2/: accessed December 10, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.