The IRS's next generation electronic tax return filing system was underutilized by tax filers in 2010, finds the Government Accountability Office.

The tax agency began processing individual tax returns with its Modernized e-File system for the first time in February, but in the end only less than 1 percent of all individual returns received through Sept. 26 came to the IRS via the system. The system had the capacity to accept nearly 11 million individual returns--but through Sept. 26, it had accepted only 764,000, says the GAO. The report is dated Dec. 16 but wasn't released publically until Jan. 16.

Stakeholders interviewed by the GAO cited issues including system instability for the low utilization rate. A May Treasury Inspector General for Tax Administration audit found that MeF had rejected 23 percent of individual tax returns during its first three weeks of operation.

During the upcoming tax filing season, IRS officials told the GAO that MeF should have a capacity of 85 million individual returns--and that they're still planning to turn off the legacy electronic filing system by 2012. Overall, electronic filing accounted for 71 percent of all filed individual returns during 2010. It costs the IRS 19 cents to process an electronic return, as opposed to $3.29 for a paper return, according to fiscal 2009 IRS figures.  

"IRS officials acknowledged that until IRS overcomes the performance and stability issues experienced in 2010, transmitters are likely to continue to send Form 1040 returns to the legacy electronic filing system," the report notes.

Visits to IRS.gov, meanwhile, continued to increase in 2010 and the tax agency plan on unveiling an new website by 2013, the report adds.  

For more:
- download the report, GAO-11-111

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