IRS Commissioner Danny Werfel being sworn in by at agency headquarters on April 4, 2023.

IRS Commissioner Danny Werfel being sworn in by at agency headquarters on April 4, 2023. Bonnie Cash/Getty Images

GAO: IRS must enhance cyber oversight of third-party vendors, modernize online services

The IRS continues to ignore GAO’s recommendation to streamline oversight of third-party tax vendors’ cyber practices, despite concerns about mitigating digital threats.

The IRS needs to address two dozen critical issues to improve its operations, including taking steps to enhance its cybersecurity practices and modernize its online services, according to a recent report from the Government Accountability Office.

In a July 31-dated letter to IRS Commissioner Danny Werfel that was publicly released on Aug. 7, the watchdog outlined 24 open priority recommendations that “should be given high priority” by the agency.

This included a 2019 recommendation from GAO that called for the IRS “to centralize leadership in its efforts to oversee cybersecurity practices of third-party providers, such as paid tax return preparers and tax software providers.”

The watchdog said the IRS “agreed with the intent of this recommendation but did not agree to implement it,” adding that officials expressed concerns that a centralized leadership structure “would require statutory authority” for the agency to “effectively establish data safeguarding policies.”

GAO reiterated that IRS “could implement this recommendation without additional statutory authority” and added that “without this structure, it is unclear how IRS can respond to changing security threats and ensure threats are mitigated.”

The need for the IRS to enhance its taxpayer-facing digital services also received significant attention from the watchdog, with GAO calling, in part, for the agency to focus on “finalizing a modernization plan for its ‘Where’s My Refund’ tool and developing additional options for taxpayers to file their returns online for free.”

According to the report, IRS officials said the agency finished conducting research in February to determine taxpayers’ needs and expectations for a digital tool to track their refunds. The study found that “users expected a more modern interface, were frustrated with the authentication process and inability to use the tool many times per day and desired more information on their refund.”

Despite this feedback, GAO said the IRS still needs “to address technical limitations with the current application or develop a new application to better serve taxpayers in the future” and warned that the agency will face workload challenges if taxpayers cannot easily access information on the status of their returns. 

The IRS has also continued to push back on GAO’s 2019 recommendation “to set a target to reduce taxpayer burden through the development of new online services,” maintaining that its methodology for measuring taxpayer burdens “is not designed to evaluate the effect of specific online services.” 

The IRS is already in the process of rolling out several new public-facing online services, including a pilot of its own free, direct filing system for the 2024 tax season. 

GAO said that “without targets for reducing taxpayer burden, IRS cannot determine the success of new online services in helping drive progress toward this goal.”

The report noted that the IRS addressed four of the 25 priority recommendations that GAO flagged in a June 2022 report, including working to implement an online taxpayer authentication platform “consistent with National Institute of Standards and Technology guidance on secure digital authentication.” The agency has since migrated roughly 30 online apps onto the platform, according to GAO. 

The public release of GAO’s report comes one week after an audit by the Treasury Inspector General for Tax Administration faulted the agency for not ensuring that its digital platforms provided taxpayers with accurate and easily accessible information about in-person taxpayer assistance centers.