Civic Innovations

Invest in Capacity Where It’s Hardest to Remove

People working in civic tech should read the excellent paper Public Interest Capacity: The Case of Direct File by Donald Moynihan, Pam Herd, and Xiaoyang Xu, which was just published in Public Administration Review. It’s a comprehensive account of how the IRS built Direct File – a free, high-quality tax filing tool – in-house, and how that tool was eliminated about a year after it launched.

This is an attempt to summarize my primary takeaways from the paper and to think out loud about what I think those in civic tech and working to improve government services should do next. 

What Happened to Direct File?

Put simply, while it existed Direct File worked. In its 2024 pilot, 86% of users said it increased their trust in the IRS, and about a quarter of users hadn’t filed the previous year. It was built by a team of roughly 75 people drawn from the US Digital Service, 18F, IRS staff, and outside vendors, working in-house rather than through a traditional government contract.

The paper’s central lesson about the Direct File project is that political will was necessary for it to get started but not sufficient to get it done. The IRS also needed real internal capacity, a skilled team able to build, test, and improve a product rapidly. And it had to withstand the government’s default bias of outsourcing technology, and a tax preparation industry that viewed Direct File as a threat.

With the turnover in Administration, the political will supporting Direct File disappeared. Most of the team, many of them probationary hires with few job protections, left government service. The product itself and the capacity to build and sustain it were lost simultaneously.

Civic Tech’s Bas Toward the Front End

The paper compares Direct File with two other recent digital solution projects – online passport renewal and the rebuilt FAFSA application. All three efforts used a similar approach. Passport renewal and FAFSA survived the turnover in Administration because they don’t have private sector competitors, and because, as one official interviewed for the paper put it, the government has to have a FAFSA product. Direct File was voluntary, so it was easy to terminate.

This underscores an important, but underappreciated aspect of the civic tech movement. Civic tech has tended to favor public-facing products, and I think generally pretty easy to understand why:

• The founding story. Civic tech as we know it today largely grew out of the HealthCare.gov failure, which the public experienced as a broken website. The lessons the movement drew from that experience centered (understandably so) on user experience and product management.
• The talent model. Two- to four-year “tours of duty” traditionally used by groups like 18F and USDS fit a product launch. They are not a good fit for replacing core technology systems, which can take many years and deep knowledge of old code and agency operations.
• The methods. User research certainly can be pointed inward, at the employees who run back-end processes. In practice, however, “the user” usually means a member of the public. That has been civic tech’s focus.
• The funding. Prominent civic tech nonprofits depend on philanthropy, and donors respond to demos, stories, and hard counts of people served. Outside groups also can’t easily impact core government systems, so they tend to build where they can – at the edges.

Public-facing products matter, and they prove what government can do with the right focus and the right resources. But they are visible, sometimes voluntary, and potentially competitive with someone’s business model. Additionally, the knowledge behind them tends to live in small teams that can walk (or be pushed) out the door. 

The Case for the Back End

Modernizing core systems has almost the opposite political profile. The IRS’s core systems are non-voluntary: just like FAFSA, they have to work. They serve every taxpayer, including the large majority who file through commercial software or who use a tax preparation service. And better infrastructure can benefit these private providers too, so it can be used to potentially align private interests instead of posing a direct threat.

The rub here is that legacy system modernization has a long, well documented record of failure. The IRS still runs core taxpayer records on systems dating to the 1960s, and decades of large replacement efforts have produced limited results. Those efforts typically ran through the slow, contractor-led, all-at-once approach the paper calls out.

Working on back-end systems also tends to be invisible, which can make it hard to fund. It depends on long-term stewardship rather than short tours of duty. For most of the time that civic tech has existed in the wake of HealthCare.gov, a new public-facing product might be been the only way to show real results within a finite political window. But I think that calculation is changing.

AI Changes the Game

AI coding tools have changed software development dramatically in just the few years since Direct File started. They change the economics of legacy modernization in ways that weren’t available when Direct File was chosen as a flagship project.

The SpecOps Method is a good example of this. Rather than having AI translate old code directly into new code, it uses AI to turn legacy systems into plain-language specifications. Domain experts can then verify those specifications, and the verified versions become the authoritative definition of how the system should behave. Modern code is generated from them, and components are replaced gradually rather than all at once.

This approach might be a way to address the weaknesses the paper identifies:

• Knowledge outlasts the team. Direct File’s biggest loss was the people who understood it. A verified, version-controlled specification survives staff turnover in a way a team’s expertise doesn’t.
• The key people are program experts. Specifications are reviewed by policy and program staff, not programmers or engineers. That makes longer-tenured career employees rather than a rotating crew of technologists the arbiters of truth for system behavior. Additionally, the technical teams needed for this work are likely small.
• Gradual replacement instead of big bangs. Replacing components piece by piece answers the main reason past IRS modernization efforts have failed in the past.
• Outside groups can help too. Reusable AI instruction sets, such as tools for understanding COBOL, can be shared across agencies. That is work civic tech organizations can build, maintain, and show to funders without needing access to core systems.

The open source source code for Direct File could also give this work a head start. Its Fact Graph encoded tax law as machine-readable rules that IRS experts have already reviewed. In essence, that makes it a verified reference for what the system is supposed to do. AI tools could compare legacy behavior against it and surface only the discrepancies, which would more efficiently allocate the time of experts in reviewing the system. With the caveats that the Fact Graph covers filing rather than downstream processing, and that it probably needs updating for recent tax law changes, it might actually turn out to be Direct File’s most lasting contribution.

Industry Access Must be Earned, and Enforced

Earlier I said modern backend infrastructure could align private interests with the goal of easier tax filing. Given the history laid out in the Direct File paper, I don’t think this can’t be left solemnly to goodwill. Under the old Free File partnership, the government ceded its ability to build its own tool in exchange for an industry promise to reach 70% of taxpayers. Between 2015 and 2020, only 1.6% to 2.7% of tax filers used it, while companies steered people toward upsells and paid products.

Any new arrangement with industry has to reverse that outcome. Modern backend infrastructure would give the IRS something valuable to offer, particularly access to the wage and income data it already holds so tax returns could be prefilled. Access to streamlined systems and richer data could be conditioned on:

• Honest marketing, with no “free” products built to push users into paid upgrades
• A genuinely free tier for simpler tax returns
• Limits on using tax data for upselling
• Letting users take their return data to another provider or a public tool

The government must absolutely keep its leverage. There should be no limits on building public tools if it makes sense in the future. It should insist on measurable standards with real audits, and access to IRS systems that can be suspended if industry doesn’t uphold its end of the bargain. 

Interestingly, Direct File itself can be part of that leverage. This effort proved that a government team can build a filing tool people genuinely like, and the work behind it still exists. If industry doesn’t hold up its end, rebuilding a public option is a realistic fallback, not some empty threat. The devil is in the details here, and much would need to be worked out. Still, I think this could work.

Where to invest in capacity

While we’re on details that need to be worked out, there are certainly a few. Verification of system specifications depends on exactly the kind IRS staff who have been leaving recently. Specifications derived from legacy code might expose places where the system’s behavior differs from the law or regulation, and resolving those gaps is sometimes a political or legal decision. 

The discipline of keeping specifications current has to survive changes of Administration. And back-end work still produces little that is visible to the outside, so it will need to be funded as risk reduction and knowledge preservation rather than as a shiny new public-facing service.

Even so, the approach I think could make sense looks something like this:

1. Specify and modernize the core IRS systems and tax rules that everyone depends on.
2. Expose that infrastructure through modern interfaces, available to commercial software on enforceable consumer-protection terms.
3. Build public tools as thin layers on top, cheap to create and easy to rebuild at some point if they are eliminated.

The Direct File demonstrated that government can build the kind of technology solutions that people want and need. Its abrupt elimination also showed that a visible product that competes with private sector offerings is the easiest kind of capacity to remove. The lesson for those who will do this work into the future is to invest in capacity that is hard to remove.