E-file system makes life less taxing for IRS -- and citizens

When federal Chief Performance Officer Jeffrey Zients needed an example this past April of how government agencies can improve customer service, he chose the Internal Revenue Service's e-File system. Zients praised the program for its cost-effectiveness —17 cents per return, versus $3.66 per paper form — and its 77 percent approval rating from filers. And that's just the beginning.

The IRS' Modernized e-File (MeF) effort is doing a lot to boost approval and reduce costs. The new system consolidates processing of business e-returns and individual electronic filings from tax preparation services into a single system. So far it's saved the IRS an estimated $128.1 million in returns processing costs and reduced the need for storage of paper tax returns, saving an additional estimated $35.7 million.

Related coverage:

How do you test for peak tax filing performance?

Although taxpayers don't directly interact with the system — its end users are tax preparation services — it does have a significant impact on the e-file experience, said MeF Branch Chief Ramona Henby. 

"The transmitters can have a customer come in, process their return, and tell them their return is in and their check is on the way," she said. "Before, you'd drop it off and then come back a few days later to find out if your return had been accepted." If a problem comes up, the transmitter can get a quicker resolution from the IRS' help desk. "A transmitter can call in to ask what happened with return, and the help desk can pull up return right there and talk to them about the problem," Henby said. "In the past, the lag time could be weeks."

MeF has also lowered the error rate for tax return processing to 8 percent, compared to the 24 percent rate associated with paper returns. And the system collects a great deal more data associated with returns than the legacy e-File system, capturing all of the attachments associated with a return. That helps IRS customer service by giving access to all of a taxpayers' return information online.  It also provides more complete information to agents doing compliance and enforcement work, "so we can do it consistently so we treat our taxpayers fairly," Henby said. 

So long legacy systems 

In addition to cutting the cost of processing returns, the new e-filing system will allow IRS to retire several legacy systems. "The sooner that transmitters are able to migrate to our modernized system, the sooner we'll be able to retire our legacy systems," Henby said. That will help IRS reduce its overall IT portfolio and IT maintenance costs.

But getting MeF to this point hasn't been easy. The MeF project office had to overcome relentless deadlines, competing organizational goals within and outside IRS, and a mammoth technical challenge: how scale the system up to handle the onslaught of data that is tax season.

The IRS launched Phase 1 of MeF to handle business tax returns in 2008, processing 3.9 million filings. But Phase 2 of the program was designed to introduce individual filings to the system, which would put a whole new set of demands on it, handling what the IRS estimates will be more than 140 million returns in 2012 — a 350 percent increase in processing volume. And the requirements for business and individual returns are very different. 

"Business returns can have thousands of attachments, and the processing of a single return can take hours, sometimes as much as 40 to 50 hours," Henby said. "We had to take the system and convert it to handle individual returns, which are a lot smaller. To meet service-level agreements, we wanted 1040 [Form] returns to process a lot faster, and provide external organizations and the taxpayers a quicker response time. So we had to look at the infrastructure and figure out how to change it."

To get a handle on how much improvement needed to be done to adapt MeF to individual returns, the MeF program office did something in 2008 that IRS had never done before: upfront performance benchmarking. But IRS didn't have the capability internally to simulate the kind of traffic that MeF would face under peak usage. "The testing capability we had internally before this project was more focused on functional tests," said Debbie Cook, the MeF release infrastructure manager. 

Performance test standardized  

In 2008, the MeF program office put together a performance testing team to run Phase 1 of the MeF software through the wringer at a performance testing center operated by Sun Microsystems in San Jose, Calif.  The team managed to configure and deploy a full test environment there in five days and run the baseline code through a simulation of peak data loads. The testing helped the team understand where the problems were in the existing software architecture, said MeF Chief Engineer Terry Galloway.  

The benchmarking also helped the IRS team decide how to build out the new infrastructure that would support the growing workload. "Through our testing, we actually contradicted what Sun had initially recommended," Galloway said. "We had been scaling the application vertically — using bigger machines for the applications. When we did our technology refresh in our data center, we started scaling horizontally, with more smaller machines for the application, and [we] got bigger machines for the databases."

The results of the test went beyond gaining an understanding of what the challenges would be in the future — they reinforced the need for performance testing as part of the development process. "We didn't have performance testing in our release schedules before," Henby said. "Now it's something we start early." The MeF program office pushed to create an internal performance testing capability in-house and moved up acquisition of the hardware for the data center tech refresh so that it could be used for performance testing.  

As code was being developed in 2009 for MeF Release 6.1 — the first to include support for a limited number of Form 1040 returns from individuals — it was being evaluated by a Performance Enhancement Team formed by the MeF program office. Made up of representatives from each organization in IRS affected by the MeF program, the team continually ran tests on the system as it was built out, checking both the code's functionality and the system's ability to meet performance goals.

Performance Enhancement Teams formed in 2010 and this year repeated the testing as performance requirements were ratcheted up further and preparations were made to move to Phase 3, which will accept and process all types of business and individual tax returns. In each phase, the performance team was able to identify ways to adjust the architecture of the code to improve performance and to lead the process of redefining the entire infrastructure of the production environment to meet the demands of increased capacity and the higher expectations for performance.

The demands of getting MeF ready for the tax season onslaught have led to better collaboration, Henby said. "There were a lot of late evening sessions and weekends when we got to order pizza and bond," she said. "I think we were there until the week of Christmas bonding."  

But there was also a sense of achievement. "Being in the war room, locked away and testing —  seeing the progression of the processing and going from 12 submissions a second to 140 is just amazing, and satisfying,” she added.