It's tax day — and the IRS is experiencing technical difficulties.
The service that taxpayers use to file online is partly down, according to Acting IRS Commissioner David Kautter.
"A number of IRS systems are unavailable at the moment," Kautter said at a Congressional hearing Tuesday morning. "We are working to resolve this issue and taxpayers should continue to file their returns as they normally would."
In a statement, the IRS confirmed that the problems are ongoing.
The agency did not provide details on the nature or extent of the technical issues.
Kautter told members of Congress that the problems appear to be related to the "transmission" of tax returns from software providers like H&R Block and Intuit, which runs TurboTax.
H&R Block (HRB) said that despite the outage, it's still processing tax returns for its customers.
"While the IRS system is down, we are completing the returns, which will be sent as soon as the IRS system re-opens and will be considered filed on time," the company said in a statement. "We are encouraging tax payers to continue to use our retail services or our do-it-yourself products as they normally would."
Intuit (INTU) had similar advice for those using TurboTax.
"Taxpayers should go ahead and continue to prepare and file their taxes as normal with TurboTax," a company spokeswoman said. "TurboTax has uninterrupted service and is available and accepting e-filed returns. We will hold returns until the IRS is ready to begin accepting them again."
Tuesday is the last day for taxpayers to file their tax returns, unless they've filed for an automatic six-month extension. But an extension to file is not an extension to pay. Filers must pay any additional money they owe to Uncle Sam for 2017 today.
Related: It's tax day, and you're scrambling. What's the penalty for filing taxes late?
Lawmakers are calling on the IRS to avoid penalizing those affected by the glitches.
"Tax Day is already a stressful time for millions of Americans, even when everything goes right," Richard Neal, the ranking Democrat on the House Ways and Means Committee, said in a statement. "Given this news, I hope that the IRS will make accommodations so that every taxpayer attempting to file today has a fair shot to do so without penalty."
— CNN's Gregory Wallace and Jeanne Sahadi contributed reporting.
The tax agency's embrace of IBM in the 1950s helped drive down audit rates. It's still depending on the same code.
The tax agency's embrace of IBM in the 1950s helped drive down audit rates. It's still depending on the same code.
Taxpayers who rushed to complete Form 1040 by Tuesday’s deadline can take some comfort from the fact that they’re exceedingly unlikely to get a follow-up visit from the Internal Revenue Service. Over the past 50 years, audit rates have fallen pretty steadily. Today, the average taxpayer has one chance in 200 of getting audited.
The downward trend has led to concerns that the IRS needs more funding to do its job correctly and competently. That’s true, but before Congress throws money at hiring more auditors, it should take aim at the agency’s antiquated computer system. It has helped drive audit rates to all-time lows, but it desperately needs an upgrade.
After the creation of the first permanent income tax in 1913, IRS agents would scrutinize returns by hand, laboriously poring over the numbers, checking the math, and flagging returns that looked suspect. This was insanely time-consuming. It also led to a very high audit rate. One taxpayer in 10 was subjected to a “field examination” from IRS personnel, according to one estimate from 1926.
This was possible because so few taxpayers actually filed Form 1040; most didn’t because their income fell well below the threshold. As government spending increased from the late 1930s onward, more and more Americans found themselves paying income tax. That trend only intensified in the postwar years.
And therein lay a problem: How could IRS agents possibly check so many tax returns, much less run audits on this scale? As audit rates plummeted in the late 1940s, concerns over lost revenue fueled a search for solutions. Conveniently, a means of fixing the problem appeared at that precise moment in history: the computer.
The first mainframe computers may look like dinosaurs now, but they offered a way of reviewing tax returns on a mass scale. In the late 1950s, the IRS began using computers to correlate and compare the information submitted by taxpayers on their 1040 forms with the income figures supplied by employers. In 1959, the Washington Post, capturing the mood of the moment, warned of “brain machines” that would soon audit taxpayer returns; the Wall Street Journal called them “robot revenuers.”
By the early 1960s, the IRS had amassed a staggering amount of computing power in the service of compiling, collating, and auditing returns. The stars of this brave new world consisted of a number of IBM mainframe machines, many of which resided in a nondescript brick building in Martinsburg, West Virginia. This was the heart -- or brain -- of the new order. And it triggered serious warnings that the jig was up.
“The Martinsburg Monster is going to get us all,” Charles Seib wrote in Harper’s Weekly. “The imaginative taxpayer, who in the past has had at least as good a chance as a devotee of Russian roulette, now must fact the certainty that all the chambers are loaded and the trigger set.”
Under the new system, the data contained in paper tax returns -- along with all the other forms issued by employers, brokerages, and banks -- would be coded onto paper punch cards by an army of clerical workers. The data would then be “read” by the computer and stored on thousands of magnetic tapes.
The Martinsburg facility’s L-shaped array of mainframe computers and tape-reel machines became something of a destination for those looking for a glimpse of the future. “So many visitors come to gawk,” explained the New York Times in 1964, “that a glass inclosure was built for them to sit in.”
Throughout the 1960s, the IRS labored to build what it called the “Individual Master File” of all taxpayers, each identified by his or her Social Security number. This database would contain all the information relevant to each taxpayer. “By 1966,” predicted Seib in Harper’s, “every tax return in the nation will be under the Monster’s cold, electronic eye.”
This proved both a blessing and a curse for the IRS. Between 1963 and 1967, the Times reported, the number of taxpayers who reported any interest income rose 45 percent; the total amount of interest and dividend income reported to the IRS rose by $2.8 billion in the same period. “The hot eyeball of the computer was the goad to virtue,” reported the paper.
At the same time, the sheer number of possible leads on underpayment of taxes threatened to overwhelm the very human staff responsible for overseeing audits. The IRS solved the problem in two ways.
First, it began using the computers to issue automated letters demanding that taxpayers correct errors. In effect, it relied on form letters to achieve what field audits had formerly accomplished. At the same time, it began using historical data to build algorithms designed to sniff out suspect returns. Such returns might not contain any errors, but because of certain red flags -- an unusual deduction, a deviation from some norm -- the computer could flag the return. The higher the “Dif,” or “discriminate function,” score, the more likely something fishy was taking place. Audit rates drifted downward, a trend that continues to this day.
Though the IRS has periodically upgraded its computing system, today’s system is still running the same code, which was written nearly 60 years ago. Most of it is in the Assembly programming language, which the IRS itself has described as “antiquated” and “inflexible.” Worse, the number of programmers who can understand and maintain the code behind the Individual Master File (IMF) dwindles with every passing year. According to the Government Accountability Office, the IMF and its business counterpart (the BMF) are the oldest computing systems used by the federal government. (The runner-up in this dubious contest is the software used to coordinate the nation’s nuclear weapons.)
Plans to replace the IMF with a twenty-first-century equivalent known as CADE (Customer Account Data Engine) have faltered. The transition is now well behind schedule. As a consequence, the likelihood of a catastrophic computer failure during tax season increases with every passing year. That may not pose quite the same danger as an errant missile, but the prospect of lost refund checks, unnecessary audits, and other errors suggests that the time has come to bring the IRS into the 21st century.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
The Internal Revenue Service’s online system for submitting tax returns experienced widespread failures on Tuesday, complicating filing for the millions of taxpayers attempting to meet the government’s midnight deadline.
“On my way over here this morning, I was told a number of systems are down at the moment,” IRS Acting Commissioner David J. Kautter told lawmakers at an oversight hearing Tuesday. “We are working to resolve the issue and taxpayers should continue to file as they normally would.”
Kautter said the agency was struggling to accept returns from the widely used tax software program TurboTax and the massive tax preparation company H&R Block. Taxpayers can use the services to complete their filings, but the filings are not being transmitted from the companies to the IRS, Kautter said.
The agency discovered the problem early Tuesday morning. An IRS spokeswoman would not comment on when the problem would be resolved.
The agency will not punish people if their returns arrive late because of the glitches, Kautter said.
“If we can’t solve it today, we’ll figure out a solution,” Kautter said. “Taxpayers would not be penalized because of a technical problem the IRS is having.”
The IRS expects approximately 5 million people to file their tax returns Tuesday.
Two senior government officials, speaking on the condition of anonymity to discuss the potential causes, said initial assessments suggested the problems stemmed from internal technology failures. One of the officials said it appeared the system crashed due to large numbers of people filing.
The full extent of the failure remains unclear, but it appears the agency’s system for direct online tax payments is also malfunctioning. “This service is currently unavailable. We apologize for any inconvenience,” the agency wrote in a notice at the top of its online payment page.
For several hours Tuesday, a separate, erroneous page in the IRS’ online payment section described a “Planned Outage: April 17, 2018 - December 31, 9999.” The IRS removed all links to that page shortly before 3 p.m.
A spokeswoman for Intuit, the company that owns the TurboTax software, said taxpayers should continue as normal.
“Taxpayers should go ahead and continue to prepare and file their taxes as normal with TurboTax,” said spokeswoman Ashley McMahon. “TurboTax has uninterrupted service and is available and accepting e-filed returns. We will hold returns until the IRS is ready to begin accepting them again.”
The IRS has more than 60 different IT systems for managing the cases of individual taxpayers, according to a report submitted to Congress by an internal IRS watchdog. Many of them have not been updated in decades, and two of them are nearly six decades old — the oldest anywhere in the entire federal government, the report said.
“The IRS is highly vulnerable to IT breakdowns and cyber-attacks,” said Pete Sepp of the National Taxpayers Union, a nonpartisan group that has pushed for changes to the IRS.
Lawmakers pressed the IRS to accommodate taxpayers who struggled to make payments or file returns due to the agency’s malfunctioning systems.
“Tax Day is already a stressful time for millions of Americans, even when everything goes right. Given this news, I hope that the IRS will make accommodations so that every taxpayer attempting to file today has a fair shot to do so without penalty,” Rep. Richard E. Neal, the top Democrat on the House Ways and Means Committee, said Tuesday in a statement.
Members of Congress also expressed frustration with the agency’s performance.
"Unfortunately, it's another example where they're not capable of dealing with the volume," said Sen Rob Portman (R-Ohio), who has called for reforms at the IRS partly because of the agency's technological shortcomings.
“This is game-day for the IRS, and it seems the IRS can’t get out of the locker room,” said Rep. Greg Gianforte (R-Mont.).
Sen. Ron Wyden (D-Ore.) noted the agency’s budget has been repeatedly cut in recent years, which he said he believes could have contributed to the problems.
“While we don’t yet know what has caused this systems failure, the lack of Republican funding for the IRS to serve taxpayers will only compound the issue. Americans should not be punished for being unable to file their tax returns or pay their tax bills today,” said Wyden, the top Democrat on the Senate Finance Committee, which oversees the IRS.
The IRS has faced steady budget cuts for nearly a decade, with its staff size falling by about 18,000 employees from 2010 to 2017 and a recent report showing it can answer only about 60 percent of calls from tax filers.
In his testimony before Congress Tuesday, Kautter said the IRS had prioritized the core filing system in its technology spending.
Congress approved $320 million in short-term funding to help the agency implement the new tax law as part of the massive budget deal it passed in March, but many lawmakers say more funding is needed.
The House is scheduled to vote this week on a bipartisan bill making major changes to the agency, including by beefing up free tax advisory programs for the poor and by giving taxpayers several new rights and protections.
Tuesday’s outage caught at least one White House official off guard. Larry Kudlow, President Trump’s top economic adviser, appeared not to know about the problems when asked about them shortly after noon on Tuesday.
“The IRS is crashing?” he said, repeating a reporter’s question. “It sounds horrible. It sounds really bad. Hope it gets fixed.”
Damian Paletta, Erica Werner, Ellen Nakashima and Anne Gearan contributed to this report.
At midday on the busiest day of the year for the Internal Revenue Service's electronic tax-filing infrastructure, the Modernized eFile (MeF) system has gone offline. Acting IRS commissioner David Kautter informed members of the House Committee for Oversight and Government Reform during a hearing at 10:00am ET that a number of systems associated with tax filings were down and that the IRS is working to resolve the issue. As of 2:15pm, a status message on the IRS' MeF site still read, "The MeF System is currently down. We are working this as a priority."
An IRS spokesperson told Ars via email, "Currently, certain IRS systems are experiencing technical difficulties. Taxpayers should continue filing their tax returns as they normally would."
Individual taxpayers don't interact directly with the MeF system. MeF is only accessible through approved e-filing services, including those offered by software providers such as Intuit and H&R Block. So the MeF outage won't immediately affect taxpayers' submission of returns or result in penalties for late filing. But it will delay acceptance of the returns and could cause problems for the software providers and other authorized e-file providers. There's no word on what the underlying cause of the outages are.
MeF was initially launched 10 years ago for business returns and was scaled up to handle all tax return forms in 2012 after a few years of limited support for individual filings. Originally built on Solaris and Sun SPARC hardware, MeF was one of the most ambitious development projects ever at the IRS, involving the building of a separate data center for conducting software performance testing prior to release. Software is built and load-tested in an offline data center before getting "crossed over" to active in December once support for the new version of forms is finalized.
But things got off to a late start this year; the IRS didn't begin accepting tax filings until January 29 because it had to assess the impact of new tax legislation and perform security and performance checks on a number of key systems before taking MeF live. About 155 million individual tax returns are expected to be filed this year, with a large percentage coming at the very last moment.
