The Benefits and Costs of I-File

Abstract

In 2007, nearly 60 percent of all Federal individual tax returns were filed electronically, about three times the proportion 10 years earlier. Because electronic filing is both more efficient and more accurate than filing by mail, it generates substantial savings for taxpayers: The Internal Revenue Service (IRS) estimates it saves $2.36 for each electronically-filed return. The clear benefits of electronic filing have led policymakers to ask what steps can be taken to accelerate its adoption. One such proposal, commonly referred to as I-File, calls for the IRS to develop and operate an online tax filing system that would allow individuals to prepare their returns online and submit their returns directly to the IRS. In this paper, we analyze the likely benefits and costs of I-File. We conclude that I-File proposals do not represent a viable approach to increasing electronic filing, improving the efficiency of the IRS, or reducing the costs to taxpayers of filing tax returns.