There is good news and bad news regarding the Internal Revenue Service’s Modernized e-File system, known as MeF.

The IRS processed more tax returns using the new system during the 2012 filing season, according to a report from the Treasury Inspector General for Tax Administration (TIGTA); however, unresolved performance problems and upgrades of hardware and software have kept the IRS from retiring its older Legacy electronic filing system.

The MeF system provides faster processing of tax returns and extensions which leads to improved error detection, standardized business rules and expedited acknowledgments. Once it is fully implemented, the MeF system will provide a single method of filing all business and individual tax returns, forms and schedules via the Internet. All of this relates to cost savings for the IRS.

The IRS originally planned to replace the legacy e-File system with the MeF system after this year’s tax filing season, but then announced that it would be unable to do so because of the performance problems. This announcement prompted the TIGTA to conduct its extensive review.

The TIGTA found that the MeF system has not shown that it can consistently process large volumes of tax returns for an extended period of time. On a positive note, the IRS significantly increased the volume of tax returns processed through the MeF system during the 2012 filing season. The IRS processed 72.4 million individual income tax returns through MeF, up from 8.7 million returns in the prior-year period, according to Peggy Bogadi, commissioner of the IRS’s Wage and Investment Division.

The volume was less than anticipated because of the performance issues and programming errors. Bogadi explained, “Any deployment of technology at this scale will involve issues. When those issues have arisen, we (IRS) have moved quickly to resolve them. Further, we have incorporated the lessons learned into our planning for the 2013 filing season.”

The TIGTA review also found that the IRS has increased the number of vendors’ software packages available to transmit electronic tax returns. However, the TIGTA also warned that unresolved performance issues with MeF and planned upgrades may affect the MeF system’s reliability.

For now, the IRS plans to use the Legacy e-File system should the Modernized MeF system experience production issues.