Americans want IRS modernization — why doom Direct File before it has a chance to succeed? 

To paraphrase one of the Founding Fathers, only two things in life are true: death and taxes. In our current political landscape, we can add a third thing to the list — namely, animosity toward the group responsible for collecting taxes.  

Criticism of the IRS reached an inflection point last year when the agency received an $80 billion infusion of funds from the Inflation Reduction Act (IRA). Amid a decades-long call for IRS modernization, never before had there been funding to execute on that directive. And within the IRA funding, a small portion was directed toward a mandated study on the feasibility of a potential Direct File tax return system. Earning headlines and more ire, the IRS released the study results in tandem with plans to pilot an online, Direct File program beginning in January 2024. 

While some claim there is not enough demand for Direct File or that it will be too expensive to maintain, this prototype-based approach is exactly how to prove otherwise. So why are critics dooming the program before it has a chance to succeed? 

Our government historically has taken a highly linear path to technology development: Academics and elected officials study an idea, Congress passes a law directing that a piece of technology be created, public agencies lay out a plan on paper, and then an outside vendor follows the plan to a tee. The rollout of Healthcare.gov — which even its greatest champions would call an unmitigated disaster — finally put this outdated approach to bed. 

The IRS Direct File pilot, despite the criticism, illustrates just how much the government has learned about product development. The development of new technologies is complex and unpredictable, and mechanisms that seem reasonable on paper often fail to work in practice. The tech world knows this, as do the U.S. Digital Service and 18F, both launched in 2014 to provide experienced capacity to agencies developing new technology products, like the high-profile COVIDtests.gov. 

The private sector learned long ago that the best way to build something out is to create a prototype and then test it with real people. This approach got us Netflix, smartphones and the electric vehicle. Many Americans have experienced this process directly by participating in “beta testing,” or early trials of their favorite websites, apps and video games.  

In response to the directive in the IRA, the IRS could have easily released a highly academic report on Direct File; instead, the agency went beyond its congressional mandate and did what technology developers do when studying a new idea: gather data from real-world testing.  

At the time, IRS Commissioner Danny Werfel’s use of words like “customer-facing,” “incremental” and “testing” signaled a dramatic sea change for technologists who have been working to modernize the government’s approach to service delivery for more than a decade. Fast-forward several months, and the IRS is actively undergoing continuous testing with taxpayers in advance of the January 2024 pilot launch.  

Thirteen states have signed on to participate, meaning that a subset of their residents — those with relatively simpler tax returns — will be able to file their federal and/or state taxes with Direct File next year. 

Borrowing from the private sector, the self-described “limited, phased pilot” is exactly what the IRS needs to do in order to prove the viability of Direct File as a potential solution to the burden of filing taxes, as well as build demand.  

Proceeding in this iterative manner — starting small with the pilot, then scaling as appropriate — will also prove an effective means for keeping down program costs. Based on third-party estimates, the cost of product development, program staff and infrastructure all remain fairly static whether the program is rolled out to 1 million or 25 million tax filers. Beyond the base cost of infrastructure, for example, each yearly filer will only add a marginal cost of 5 to 20 cents per person. By getting things right with a smaller group of users, and continuing to improve program design and delivery, the IRS will be able to bring down costs over the long-term. 

A recent argument suggested that “market-tested commercial software,” in the form of the Free File Alliance, already fills the need that Direct File would address. Although the program made great sense on paper, it fell apart in execution. Of the 70 percent of taxpayers who qualified, only 2 percent actually used it in 2022 — which many contribute to the work of the country’s largest private tax preparers, who have spent decades and millions of dollars to fight against IRS modernization efforts.   

Tax season is no one’s favorite time of year, and Americans have expressed their wish for an easier system. The IRS has answered the call, adopting best practices for government technology and securing state partnerships for real-world implementation of Direct File. Let’s not doom it before it begins.   

Ayushi Roy is the deputy director of New Practice Lab, recently named a winner of Fast Company’s World Changing Ideas competition.