WASHINGTON - The Internal Revenue Service (IRS) has processed business tax returns through its Modernized E-file (MeF) system since February 2004. The processing of individual tax returns through this system is presenting significant challenges.

The results of an audit report released today by the Treasury Inspector General for Tax Administration (TIGTA) found that the MeF system erroneously rejected tax returns. While the IRS anticipated processing 9.3 million tax returns through its MeF system as of April 15, 2010, the IRS only received a fraction of that amount - 752,320 tax returns. Due to the low volume of tax returns received through the MeF system, the IRS was not able to assess its capability to handle large volumes of tax returns.

"The IRS is counting on the Modernized E-file system to become the dominant system for processing tax returns; however, our report found that, so far, it is not performing up to expected levels," said J. Russell George, the Treasury Inspector General for Tax Administration.

TIGTA recommended that the IRS establish processes to timely monitor the transmitting and processing of individual tax returns through the MeF system; work with the tax return preparation industry and the States to identify and address issues that prevented them from using the system; and encourage its use during the 2011 Filing Season. The IRS agreed with TIGTA's recommendations.