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Many Happy Returns: Gaining Converts to e-File March 2009
In a report focused on technology, you might be surprised to find this headline: "Technology is secondary." But this recent finding explains a lot about the latest strategy of the IRS as it attempts to convince more Americans to file their taxes electronically. "It's like a Rubik's cube to get to the exact balance of enticements and motivators to convert the remaining paper filers," says Meredith McCullough, deputy of the electronic tax administration task group at MITRE's Internal Revenue Service/Department of Veterans Affairs federally funded research and development center (FFRDC). Electronic filing—or "e-file"—is widely recognized for its role in improving efficiency for both the IRS and taxpayers. The IRS, for example, estimates that processing an e-filed return is one-eighth the cost of what it takes to process a paper return. And taxpayers who use e-file receive their refund in about half the time of those who use paper. These were convincing enough arguments for the 60 percent of American taxpayers who used the IRS's e-file system for their federal income tax return in 2007. But this adoption rate still falls about 20 percent short of the 2007 goal established for the IRS by Congress. "We've gotten to the point where adoption of e-file is slowing," says David Williams, the IRS's director of electronic tax administration. "As a result, we need to expand our strategy and see what we can do to keep driving forward." The Tax Ecosystem To develop a strategy for moving as many taxpayers as possible online, the IRS has enlisted MITRE's help. MITRE can draw on its decade-long partnership that began in October 1998 when the IRS hired MITRE to manage its FFRDC. "We have had a lot of exposure to the players in the tax ecosystem—folks who have expertise in technical systems, as well as experience in the fundamentals of psychology and motivation," says Jim Cook, vice president and director of MITRE's IRS/VA FFRDC. "This puts us right in the middle of the problem in all respects—the technical, the organizational, the policy, and the cultural dimensions."
Although the pace of e-file adoption is slowing, the same report shows that e-filing still remains ahead of online banking and online bill payment. One thing is clear: the IRS remains undaunted about achieving its target for e-file. "The world is becoming an electronically administered place, and I think we must be part of that," says Williams. "Whether there's a congressionally mandated goal of 80 percent or not, I think we should be striving to increase e-file's use as high as we can get it." Even the most innovative technology will not help the IRS achieve its e-file goal, however, unless the strategy is grounded in a thorough understanding of the intricacies of filer behavior—their motivators, concerns, and relative positions on the technology adoption curve. Tax filers' motivations are varied and not easily understood. Is cost a factor? Or are taxpayers more concerned about security? And how is privacy related? "These are interesting questions, and they're made even more interesting by the psychological factors—who's choosing what options, and what some of the motivating factors behind those choices are," McCullough says. Empirical Evidence Part of the problem, according to Cook, is that anecdotes have received more attention than empirical evidence. "There's so much that's been said on this topic for the last 10 or 15 years, and some of it just isn't based on verifiable facts," he says. As a first step in gathering empirical evidence, MITRE produced the Advancing E-file Study Phase 1 Report in July 2008. It organizes the existing information and analysis of e-file together in a single document. And there's a lot of it—more than 500 primary sources are cited in the study. The report also includes numerous options for advancing e-file, and highlights areas for future research. "Having this information organized in a way that involves some structure and is geared toward helping people understand what's going on gives us a great foundation for moving forward," says Williams. Phase Two of the study, which is scheduled to be completed next summer, will include estimates of cost and adoption, analysis of business, and engineering impacts. In weighing various options to increase e-filing, the MITRE/IRS team is researching taxpayer and preparer motivators and looking at solutions that have been used in states or other countries. A key part of Phase Two involves outreach to various stakeholders in the U.S. tax system to get their views on what's doable. The goal is to give Congress verifiable evidence to form the basis for attainable goals to move e-file forward. Connecting the Dots "This initiative demonstrates a commitment to the e-file goal and to trying to do things the right way," says Ted Sienknecht, a MITRE project leader. "We're finding verifiable information, connecting the dots, and making sure the IRS and Congress can make decisions on what to do next on the basis of actual data." The IRS recognizes that it cannot meet its goal without help. In addition to winning over e-file holdouts, the agency will need support from state and local governments, tax preparers, software providers, advocacy organizations, legal support groups, and other stakeholders whose buy-in is key to any strategy for persuading more taxpayers to file online. A strategy for advancing e-file must take into consideration many complex factors, and there is no quick fix or any single option approach for the IRS to convert remaining paper filers. "I think this effort is helping raise visibility for e-file," says Sienknecht. "It's demonstrating that the IRS is, in fact, focused on increasing taxpayer satisfaction." —by Russell Woolard Related Information Articles and News
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