Eisenach, Caves, and Litan Find That 'I-File' System Would Create Little or No Benefit

April 14, 2008

In a study released today, Criterion chairman Jeffrey Eisenach, Senior Economist Kevin Caves, and Robert Litan (the Brookings Institution) examine the costs and benefits of an 'I-File' system, one of several approaches under consideration to increase the proportion of Americans who file their taxes electronically. They show that it would be costly to implement and would create little or no benefit for consumers compared with the existing system.

In the study, the authors examine the types of tax preparation methods currently used by taxpayers, the steps and costs required to implement an I-File system, the realities of previous difficulties that the IRS has had implementing large IT projects, and the relative failures of state and foreign governments that have implemented similar systems, including California, South Carolina, and the United Kingdom. They conclude that the goals of I-File – specifically, an increase in e-filing of tax returns – would be better achieved through other approaches, including improvements to the IRS' existing Free File program and the creation of meaningful incentives for electronic filing. The study was supported by the Computer and Communications Industry Association.

"Even using very generous assumptions, our analysis shows that I-File fails a benefit-cost test; it would cost at least $132 million more than it would save over the next ten years, and probably a lot more," said study co-author Jeffrey Eisenach. "The IRS' experience with large IT systems suggests the costs of trying to implement I-File would be large, and the results uncertain. On the other hand, the results of I-File programs at the state level and in other countries suggest the benefits would be limited or non-existent. Taxpayers are far better off using what is currently available."

To read the study in full, click here.