1998 filing 1999 filing season season Practitioner e-filing 17.57 million 21.07 million On-line filing 930 thousand 2.43 million Telefiling 5.95 million 5.66 million Totals 24.45 million 29.16 million(*)
(*) Note: Additional e-filed returns for late filers are projected to bring the total e-filed returns to 29.3 million for the 1999 filing season.
The decline in telefiling is presumed to be due to a shift to computer fling, additional complexity in the law for education credits and deduction of interest on student loans. Federal/state levels of e-filed returns also increased from 6.09 million to 8.33 million in the 1999 filing season for 1998 returns.
One pilot project in the 1999 filing season involved mailing a postcard with an electronic customer number (ECN) to any taxpayer who prepared an individual income tax return on a computer in 1998. These taxpayers could use the ECNs to e-file completely paperless returns without having to submit Forms 8453, U.S. Individual Tax Declaration for Electronic Filing, with written signatures and W-2s attached after e-filing. Approximately eight million households (representing approximately 12 million taxpayers) were mailed these postcards; 652,345 returns were filed utilizing this completely paperless system. Some taxpayers objected to the cost (generally, at least $9.95 for Federal and $4.95 for state e-filing with the use of tax preparation software) and the need to use a third-party intermediary to transmit the e-filed return. Six states provided direct free Internet filing during the 1999 filing season; several more are considering providing this option in the 2000 filing season. The IRS will face increasing pressure to provide direct, free Internet filing to achieve its e-filing goals.
One of the benefits for individuals e-filing is the electronic acknowledgment that the return was received and processed by the IRS-ETA. Taxpayers expecting refunds can also expect quicker processing, in no less than 14 days but often within 7-10 days. The IRS-ETA is working to cut e-filing refund processing even further. Several practitioners also participated in a personal identification number (PIN) pilot to transmit individual returns; 494,844 individual returns were filed utilizing this system. Additional small pilot projects utilizing public key infrastructure (PKI) digital signatures in the 2000 filing season will be conducted to move forward on authentication issues. In 2000, the IRS-ETA will permit a pilot group of selected electronic return originators (EROs) to accept faxed Forms 8453 from taxpayers. This recognizes the fact that many preparers do not meet directly with their clients and that it is an undue burden and barrier to require taxpayers to come to the preparers' offices to sign Form 8453 to e-file returns.
In the 1999 filing season, alternative payment methods were available to taxpayers. Approximately 30 million individual returns are balance-due returns; alternative payment methods are important to attract these taxpayers to e-filing. Direct automated clearinghouse (ACH) debits to bank accounts were used by 74,300 taxpayers, and 53,100 taxpayers paid by credit card. There was an additional fee charged by Audiotex to pay by American Express, Discover or Mastercard and a few taxpayers paid very large amounts. These programs will continue in the 2000 filing season. In addition, telefiling taxpayers will be able to authorize ACH debit payments, estimated tax payments will be permitted by credit card and payments by credit card for the final balance due will eliminate the need to file Form 4868, Extension of Time to File U.S. Individual Income Tax Return. Over 23 million returns are filed after April 15, but few are e-filed. The IRS-ETA hopes to attract more of these filers to the e-file system.
Over 30,000 additional preparers enrolled to be newly registered as EROs for the 1999 filing season. Despite this growth in ERO registration (over 90,000 total), over 28,000 EROs filed no e-file returns in 1999. The IRS-ETA recognizes the need to analyze ERO filing patterns to determine how to attract registered EROs to e-file returns. The IRS will implement significant improvements in the suspensions procedures for EROs, which will provide for an informal notice, a proposed suspension and timetable to complete appeals by October of each year. This will ensure that ERO suspensions do not disrupt the filing season and also provide for adequate due process and opportunity for the ERO to resolve the issue favorably in a timely manner.
Modernization of IRS systems will provide electronic account resolution and electronic power-of-attorney capabilities. The modernization of systems plan currently projects shifting groups of taxpayers over to the new systems, with e-filing and simple Form 1040 returns targeted (as they are "cleaner," error-free returns). This could provide a powerful incentive for preparers to shift to e-filing of returns; e-filed returns will be first to be able to take advantage of these new enhancements. The current projection is that the entire tape-based IRS master file will be replaced and shifted to a new modernized system within five years. The prime contractor has been selected and Congress has approved the first draw of funds on the Information Technology Account ($500 million total appropriated).
Year 2000 (Y2K) system changes will be completed for the 2000 filing season; many were implemented during the 1999 filing season. However, the IRS will have contingency plans for Y2K.
Many CPAs have not switched to e-filing of returns because not all forms and schedules can be e-filed. Progress is being made on this barrier. Five forms (Schedule J; Forms 8271, Investor Reporting of Tax Shelter Registration Number; 8582-CR, Passive Activity Credit Limitation; 6781, Gains and Losses from section 1256 Contracts and Straddles; and 8586, Low-Income Housing Credit) will be added to e-filing for the 2000 filing season. The IRS plans to continue to add many more forms and schedules during the 2001 and 2002 filing seasons, so that the majority of forms and schedules can be e-filed. Several forms and schedules still need to be investigated for legal impediments.
ETA is offering partnerships with the private sector for a new Debt Indicator pilot. This will be a significant improvement over the 1999 filing season, in Which there was a three-day delay before the offset against the refund could be detected by the preparer/taxpayer.
Business returns are also beginning to be e-filed. The 1999 filing season showed increases in e-filing over 1998:
Calendar-year Calendar-year Form 1998 1997 941 e-filing 856,579 607,032 941 Telefiling 756,080 224,923 1041 1,024,425 931,252 1041K-1 1,300,871 1,240,171 1065 (enabled for CY 1999) None None 1065K-1 2,171,875 2,137,497
Mandatory e-filing of Forms 1065 and K-1s is required in the 1999 filing season for all partnerships with 100 partners or more; those who fail to comply will be subject to penalty. E-filing is voluntary for all partnerships with fewer than 100 partners. The Form 1065 system will be available for e-filing as of March 15, 2000. The Form 941 on-line project is projected to be available by April 2000 for filing the first quarter of 2000. One new incentive in 2000 to e-file information returns will be an additional 30-day extension of the due date. One benefit of the Form 1065 project is that IRS-ETA only needs to address enabling a few additional forms to e-file to achieve e-filing of the Form 1120 corporate return; that project is underway as well and is projected as coming on-line no later than 2002 (but might be possible by 2001).
There are approximately five million Forms 1120 (including 1120S), with only about 8,600 of those extremely large or complicated. The vast majority of Forms 1120 should be able to be e-filed by 2002.
The IRS-ETA is piloting a new account management program in 1999, which will result in sales, delivery and support for e-filing. This approach treats e-filing as a product that should have strong customer support for EROs through their assigned account managers in the field.
IRS procurement is changing procedures to award preference points for businesses providing free e-filing for their employees. A new marketing campaign for e-filing will be launched for the 2000 filing season and the IRS-ETA has requested substantial increases in its future marketing budget. The AICPA is currently exploring the possibility of a cooperative marketing program for e-filing to be targeted at AICPA Tax Division members.
The IRS is making significant progress to attract preparers/CPAs to e-filing. The IRS is working toward removing the barrier of all forms-all schedules not enabled for e-filing. CPAs engaged in tax preparation need to begin to consider planning when they should shift their practices to e-filing of returns (if they have not already done so). The e-filed returns will be the first to shift to a modernized system environment, with electronic account resolution and electronic power of attorney as some of the powerful enhancements expected to be available. Preparers may find significant cost savings in storage of electronic returns and efficiency in resolution of account problems to be compelling reasons to begin e-filing in 2000 and to plan to shift to e-filing most returns in the 2002 filing season, when almost all forms and schedules are likely to be able to be e-filed.
Much remains to be accomplished to achieve the IRSRRA '98 goals. But, as modernization of the IRS systems moves forward, the benefits of e-filing should attract significantly larger numbers of taxpayers and preparers.
FROM SUSAN W. MARTIN, PH.D., CPA, GRAND VALLEY STATE UNIVERSITY, GRAND RAPIDS, MI3
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|Title Annotation:||IRS Office of Electronic Tax Administration|
|Author:||Martin, Susan W.|
|Publication:||The Tax Adviser|
|Date:||Sep 1, 1999|
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