IRS Can Transform Taxpayer Experience if It Learns Right Lessons

Here’s a sentence Americans aren’t used to: The IRS has had a very strong year. Not only did it dramatically improve customer service, it simultaneously built and piloted Direct File, a program so popular it was made permanent.

The ongoing modernization of the IRS and the implementation of Direct File can signal a broader transformation of the American taxpayer experience, but only if the agency learns the right lessons from its work so far.

The IRS designed the first year of Direct File as a methodical learning experience to determine whether the idea would make sense at scale. Extensive usability testing, scaled availability, and continuous improvement all figured prominently in the process. A full decade after the failure of Healthcare.gov, Direct File gave Americans a chance to see their government do technology differently—and it worked.

First, the IRS can’t back down just because Direct File’s launch is in the books. Managing a quality technology product is a constant and never-ending exercise in course correction. To make Direct File an ongoing success, the IRS will need to immortalize the iterative development and product management practices that produced it.

Second, the biggest hurdles in delivering public interest technology often don’t involve lines of code but rather people, team structures, and ownership tussles between government and outside partners.

The IRS was a strong product owner and facilitated collaborative efforts among public, nonprofit, and for-profit organizations. This helped apply software development best practices, develop an effective product, interfacing with state governments, and reach as many eligible taxpayers as possible. The agency will need to immortalize the talent and collaboration that enables scale and steady success.

Third, the agency needs to have a laser-like focus on the customer. Direct File contains scores of seemingly simple changes that were greenlit to reduce taxpayer burden and improve customer service.

In tandem with the technology, the IRS invested heavily in call center staffing and training, reducing the average wait time for customer support to just 45 seconds. The agency also introduced its first-ever online chat service, available for 15 hours a day instead of the typical 9-to-5 hours. Digital improvements included a plain language web interface, mobile-first design, and content available in both Spanish and English.

These changes did more than enable a great product—they improved public trust in the IRS as an agency and in Direct File as a product. Roughly 86% of surveyed users reported an increase in trust in the IRS after their experience with Direct File.

There is no shortage of opportunities to expand and enhance Direct File, either. Perhaps the most obvious next step is to expand its reach by supporting more tax scenarios and states, increasing the income and language diversity of users, and improving user experience.

But good product practice would prioritize tax scenarios that are most prevalent and not being served effectively by other filing options.

For instance, many taxpayers are unaware that they’re eligible for refundable tax credits or face other barriers to claiming those credits. The IRS estimates that in 2020, 5.4 million eligible taxpayers didn’t claim the earned income tax credit, resulting in an estimated $7.6 billion left unclaimed.

Conducting user research and usability testing to identify the areas of highest complexity for such prevalent tax scenarios, increasing recruitment for non-English filers, and providing specialized customer service to accommodate a range of profiles would help hone the program for any American who wants it.

Other prevalent tax scenarios might include low-income filers, taxpayers with shared custody of a child, self-employed individuals, and taxpayers with multiple income sources.

Finally, to improve overall user experience, the IRS should encourage more pre-population of data in state returns so that taxpayers can avoid having to enter their data twice—and perhaps even pay—to submit their state return.

The agency should use its existing infrastructure for broader reach. It also should cross reference the Direct File service with other IRS tax filing options, such as the longstanding volunteer Income Tax Assistance program, to identify filers who could benefit the most.

And of course, the IRS must collaborate more with the 38 state tax agencies that didn’t participate in the Direct File pilot while advancing the long-overdue backend integration of state and federal tax systems.

What the IRS must not do—what it can’t afford to do—is rush.

If there were a universal law of public technology, perhaps it would be the bitter lesson that a product attempting to grow too big too quickly risks collapse. In a climate of arbitrary budgets, record-setting lobbying, and an election year, Direct File would never survive that kind of misstep.

Those of us outside the agency must be careful not to measure the second year the same way we measured the first. In its pilot year, Direct File pilot year aimed to assess the ”overall feasibility, approach, schedule, cost, organizational design, and Internal Revenue Service capacity” for a direct e-file system.

Going forward, the IRS should prioritize gradually increasing the number of Direct File users, slowly covering more states and more tax scenarios, increasing income diversity among users, and continuing to invest in customer experience.

If it continues its efforts slowly and steadily, the IRS could dramatically reduce the $31 billion and 1.7 billion hours that Americans spend to file their taxes each year. It also could do something even greater—continue to shift the worn-out narrative of failure that has attached itself to our public institutions and help deliver effective services that Americans have waited for long enough.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Ayushi Roy is deputy director of New America’s New Practice Lab and author of the third-party report on Direct File to Congress.

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