Achieving e-filing target seems far off for the IRS

The IRS likely will miss its target of receiving 80 percent of individual taxpayers’ returns electronically by 2007, a new report estimates. But e-filing will account for over 40 percent of returns this year.

“Although potential incentives [exist], reaching the 80 percent goal at this point requires a major and most likely unrealistic change in tax preparer and taxpayer behavior,” the IRS Oversight Board said in the report released last week.

The IRS’ Electronic Tax Administration Advisory Committee provided information for the board’s report.

The board urged broader e-filing educational efforts and additional incentives for e-filers to reach the 80 percent mark mandated by Congress. The board supports the Bush administration’s proposal to extend the filing due date for e-filers to April 30, a proposal that awaits congressional approval.

As a result of the gains in electronic filing, the IRS is realizing savings in tax processing costs. The agency will close its Brookhaven paper processing facility in Holtsville, N.Y., at year’s end and the Memphis, Tenn., facility in 2005.

This year, taxpayers e-filed 52 million returns, or 42 percent of the total 124 million returns. That was a 12.5 percent increase over last year. The IRS introduced free tax preparation and electronic filing to qualified taxpayers through a group of tax software companies, the Free File Alliance.

Few businesses e-file their taxes because many corporate tax forms are not available electronically. But the IRS next year will introduce the Modernized e-File system for corporate tax returns. The upgraded system will simplify e-filing generally through the use of a standardized set of error codes for all electronically filed tax forms. The IRS will use the Modernized e-File system architecture to update the 1040 tax return system at some future date.

Electronic payments to the IRS accelerated this year, too. The IRS received over 80 million electronic payments from 4.4 million enrollees using the Electronic Federal Tax Payment System.

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