The future is here: the modernizing of IRS e-file.
* WITH THE ADDITION OF 1120 AND 1120S FORMS AND schedules in February and August 2004, virtually all corporate taxpayers will be able to file their returns electronically--even complex consolidated returns of companies with multiple subsidiaries. The new e-file alternatives also include the form 990 series nonprofit informational returns.
* ELECTRONIC FILING OF CORPORATE RETURNS BRINGS a number of benefits, including increased speed, greater accuracy, the ability to attach lengthy explanatory documents as PDF files and a comprehensive system of error codes that makes it easier for CPAs to spot mistakes quickly.
* TAX PROFESSIONALS MUST REGISTER AS ELECTRONIC return originators (EROs) at the IRS Web site to e-file corporate tax returns. Current EROs must update their applications online to use the additional corporate forms.
* THE ELECTRONIC FEDERAL TAX PAYMENT SYSTEM (EFTPS) lets participating businesses avoid concerns about lost checks, missed deadlines and last-minute trips to the post office to mail tax deposits. Another electronic enhancement lets CPAs apply online for a preparer identification number and receive it instantly.
* AS IT CONTINUES TO EXPAND ITS E-FILE OFFERINGS to include corporate and tax-exempt forms, the IRS is working closely with software developers to make sure they include the newly available options as part of their updated software programs.
A truck pulls into an Internal Revenue Service processing center with a special delivery. The cargo isn't thousands of individual tax returns; it's a single, massive form 1120 corporate tax return. Imagine if the CPA responsible for this complex business return could send it by computer with the click of a mouse instead of hiring a courier.
Imagine no more. The IRS is transforming the way it operates by developing new electronic offerings designed to make tax professionals' jobs easier. The newest program makes filing business returns simpler, more efficient and less paper-intensive--and makes the above scenario a reality.
The enhanced e-file system for corporate returns has been a long time in the making. Enhancing the outdated, proprietary IRS technology has been a massive undertaking, not without delays and challenges. The earlier electronic filing system did not allow e-filing of corporate tax returns, was not designed to accept returns from large companies (often more than 50,000 pages in length) and could not accommodate Word or PDF attachments. The good news is the IRS has overcome these obstacles. The future is here, and a diverse range of tax professionals--from staff accountants to CFOs--can take advantage of the new system for the upcoming tax season. The benefits apply to taxpayers (large and small corporations), sole practitioners and accounting firms as well as to CPAs working for corporations of all sizes. Here's how the improvements work.
A PROFUSION OF FORMS
For the first time corporations and tax-exempt organizations can file their returns electronically. In February 2004 the 1120 and 1120S returns with 53 forms and schedules and the 990 series--corporate income returns and nonprofit informational returns, respectively--joined an array of common forms already available for electronic filing, including employment taxes (forms 940 and 941), partnership returns (form 1065) and estates and trusts (form 1041). Corporations with multiple subsidiary companies even can e-file complex consolidated returns.
A second release containing the remaining 43 forms and schedules that companies can file with their 1120/1120S returns was successfully implemented on August 9, 2004. With few exceptions most corporations no can file electronically. (For a complete list of all forms and schedules that can be e-filed with the 1120/ 1120S or the 990 series, go to www.irs.gov.) Early indicators reveal demand for e-filing form 1120 with this year's numbers tracking 65% ahead of projected usage.
NPOs, too. With the addition of Form 990, Return of Organization Exempt From Income Tax, and other related forms, more than two-thirds of exempt organizations also can file electronically. An additional 244,000 of them will be able to file other types of returns in the near future. Other tax-exempt forms currently available for e-file include Form 990EZ, Short Form for Return of Organization Exempt From Income Tax; Form 1120POL, U.S. Income Tax Return for Certain Political Organizations; and Form 8868, Application for Extension of Time to File an Exempt Organization Return. E-filing will make it easier for NPOs to meet their legal obligations to disclose releasable data to the public while increasing accuracy and ensuring quicker processing of this critical information.
In 2005 the IRS will add corporate extensions Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, and Form 990-PE Return of Private Foundation or Section 4947(a)(1) Trust Treated as a Private Foundation for tax-exempt entities to the list of available forms. Many of the external stakeholders who partnered with the IRS on this project sought these enhancements.
Another future update will make it possible for companies to file federal and multiple-state returns in a single electronic transmission. The IRS is working closely with a number of states on this feature.
Change is rarely easy, and moving from a paper-based to a paperless tax-preparation system can seem daunting to some tax professionals. Purchasing e-file software, converting clients and employers to electronic filing and implementing new business practices all require an initial financial and time commitment. However, CPAs who use IRS e-file for business or individual returns say the up-front investment is quickly recouped because the program helps them work more efficiently. For some that means more time for client service or other areas of responsibility. For others it's the ability to take on new clients. E-fliers cut their expenses by reducing paper supplies and postage. They save time through faster IRS acknowledgements of received returns. And they worry less about mistakes, as e-filed returns automatically are checked for errors or missing information.
In addition to these well-established benefits of electronic filing--speed, accuracy, cost-effectiveness and improved productivity--the modernized system offers some that are especially relevant to CPAs serving business clients or employers:
* Attachment acceptance. For complex business returns, there's no more need to copy, assemble, send and store reams of explanatory documents such as spreadsheets and organizational charts. Through IRS e-file, businesses can send highly complex returns electronically as PDF attachments instead.
* User-friendly error codes. Clear and comprehensive error codes allow tax professionals to focus time and energy on quickly correcting problems, rather than deciphering obscure reject messages or trying to backtrack months or even years after the fact.
HOW IT WORKS
New software--available through several IRS-approved vendors--enables tax professionals to both prepare and file returns electronically. Most CPAs already use tax-preparation software in lieu of handwritten returns; now they can translate the same benefits to the filing side of the equation.
While software automates a large portion of the tax-preparation process, the final review, printing and shipping of returns can open the door to human error. The person putting a paper return together has had to make sure all the documents were in the right place, that every page printed correctly and that all the documents shipped together. IRS e-file eliminates these worries.
To e-file corporate returns, tax professionals first must register as electronic return originators (EROs) by submitting an online application (see resources box above). Current EROs must update their applications online in order to e-file these new forms.
21st CENTURY SERVICE
The expansion of e-file to corporate returns is part of a broader IRS modernization effort to update the agency's information technology platform and make it easier for tax professionals to operate. The IRS also continues to evaluate other aspects of the tax system to determine what would be beneficial to CPAs and businesses if made available electronically.
Consider payments to the federal government, for example. Businesses participating in the electronic federal tax payment system (EFTPS) program no longer have concerns about lost checks, missed deadlines or last-minute trips to the post office. When converted to electronic transactions, payments become easy and convenient. The IRS also launched e-Services--a menu of Web-based services that help tax professionals do their jobs faster and more efficiently. CPAs can apply online for a preparer identification number and receive it in seconds rather than weeks. Or they can request interactive taxpayer identification matching, which prevents mismatches and possible penalties for the payer.
The bottom line? The IRS continues to develop tools and programs that permit it to work with more tax professionals and taxpayers electronically. It talks regularly with tax professionals across the country to learn what services truly matter--seeking feedback on what will help CPAs do their jobs more efficiently. For example, the IRS
* Works with tax professional associations and industry organizations such as the AICPA to get direct feedback on electronic filing and other initiatives.
* Consults the Electronic Tax Administration Advisory Council (ETAAC), composed of nominated members from various segments of the tax field.
* Visits tax professionals across the United States to talk about electronic offerings such as e-file, e-payments and other e-services.
The IRS also is working closely with software developers as it builds a more modern IT platform. Many tax professionals have said they want to e-file corporate or tax-exempt forms, but the option is not yet available in their current tax-preparation software packages. The IRS is working to overcome this limitation by enabling software developers to create more inclusive products with greater functionality. The agency wants to ensure that tax software--including packaging, pricing and offerings--makes Sense for tax professionals. CPAs should encourage their software providers to include the new 1120/1120S and 990 e-file programs in their packages for the 2005 filing season.
A NEW VISION
The launch ore-file for corporate tax returns brings the IRS one step closer to its vision of creating new expectations among its customers both within the tax-preparation community and among the public. And as for replacing that truck and delivering a completed corporate tax return with the click of a mouse? Consider it done.
IRS E-FILE RESOURCES
* www.irs.gov. Official IRS Web site offering access to Form 8633, Application to Participate in the IRS e-file Program; a list of approved software providers offering e-file for form 1120s; and information about the Electronic Federal Tax Payment System (EFTPS).
* www.erospotlight.com. Monthly e-newsletter featuring real-life success stories Of tax professionals who have leveraged IRS e-file to operate more efficiently and in some cases grow their business.
* www.aboutefile.com. An informative Web site for tax professionals and taxpayers concerning IRS e-file.
PRACTICAL TIPS TO REMEMBER
* With few exceptions CPAs now will be able to file tax and information returns for their corporate and tax-exempt employers and clients electronically. By e-filing, NPOs can meet their legal obligation to disclose information to the public more easily while increasing accuracy and ensuring quicker processing.
* To e-file corporate tax returns, CPA firms and companies must register as electronic return originators (EROs). New applicants can submit online applications at www.irs.gov. Current EROs must update their applications online to be able to e-file the newly available forms.
* CPAs should encourage their company or firm's tax software provider to offer the new corporate and NPO e-file options for 2005.
BERT DuMARS is director of electronic tax administration for the IRS. He is responsible for the continued evolution of the IRS e-file program and the growing exchange of electronic information between the IRS and taxpayers, businesses and tax professionals.
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|Publication:||Journal of Accountancy|
|Date:||Dec 1, 2004|
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