IRS to miss e-filing target?

The Internal Revenue Service most likely will miss its goal of having 80 percent of all federal tax returns filed electronically by 2007.

That prediction, coming from Larry Levitan, a member of the IRS Oversight Board, stood undisputed by tax lawyers, tax accountants and taxpayer advocates at the board's annual public meeting this week in Washington, D.C.

While expressing his view that electronic filing has benefits for everyone, Levitan said the IRS is unlikely to achieve the 80 percent filing goal set by Congress. Last year, about 40 percent of federal returns were filed electronically.

The five-member oversight board, an independent advisory group, makes suggestions to the IRS on long-term strategies.

Misplaced marketing efforts, mistrust among taxpayers and dwindling financial resources were among the concerns expressed by the tax industry officials. Other industry officials said technical glitches could discourage e-filers.

E-filing got off to a bumpy start at the opening of this year's tax-filing season, according to Michael Cavanagh, who spoke on behalf of the council for Electronic Revenue Communication Advancement, a tax industry trade association.

Cavanagh told the oversight board that several glitches, resulting from the IRS moving ahead with its systems modernization project, disrupted the e-filing experience for some early taxpayers. The greatest incentive for e-filing is a smooth user experience, Cavanagh added. He praised the e-file program while he urged the IRS to perfect its "blocking and tackling" moves, a reference to the technical difficulties.

Some reports indicate that e-filers at all IRS Service Centers were affected by software problems that caused a high number of returns to be falsely rejected.

Other tax industry officials disagreed on whether programs in eight states that make e-filing mandatory will hurt or help the federal government's own e-filing efforts. Cavanagh called the state efforts counterproductive, adding that tax preparation software companies cannot afford to build 50 different versions of their products as would be required to meet various state filing requirements.

But other taxpayer representatives said that state-mandated e-filing may offer the best indirect means for the IRS to achieve its 80 percent e-filing goal. Jeffrey Adelstone, chairman of the Information Reporting Program Advisory Committee, which advises the IRS, said mandatory e-filing will quickly spread to other states once state tax commissioners realize the administrative savings they can achieve from it. Taxpayers would be more likely to file their federal returns electronically if they were required to go online to file their state returns.

Adelstone also suggested that legislation providing a tax credit for e-filing would spur more citizens to file their returns electronically. He said that additional legislation may be necessary to assure taxpayers that their credit card and banking information will not be used for any purpose other than e-filing.

The IRS Oversight Board heard from several tax organizations that said the IRS could persuade more taxpayers to file their returns electronically if the agency shifted its marketing focus. "The IRS has failed to market e-filing compellingly," said Rick Oelerich, a member of the Electronic Tax Administration Advisory Committee, which also advises the IRS. Instead of promising faster returns, the marketing message should be that e-filing reduces errors, he said.

Levitan, who is chairman of the oversight board's committee on business transformation, warned that the IRS must face the prospect of getting less money from Congress for modernizing its computer systems. And having less money for modernization, he said, will not be helpful to the IRS as it pushes to offer more e-filing services.


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