Lawmakers urged to consider expanded mandate for e-filing

GAO points to states’ success with mandatory e-filing

Government Accountability Office report on e-filing

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The Internal Revenue Service could sharply reduce its tax processing costs if paid tax preparers had to file returns electronically. But not all of them would welcome such a mandate, tax industry observers say.

The Government Accountability Office has recommended that lawmakers require paid tax preparers to file their clients’ tax returns electronically. If they electronically filed 90 percent of those returns, the government would save about $68 million a year on tax processing, according to a report GAO released in November. The “IRS is missing an opportunity to generate additional savings,” wrote GAO.

Cindy Hockenberry, a tax information analyst at the National Association of Tax Professionals, said she recognizes the benefits of mandatory e-filing, which include more accurate tax returns and faster tax refunds.

But she added that commercial tax preparers worry that the cost of upgrading their computer systems and business processes for e-filing would lower their profits and be too time-consuming.

To become authorized providers, tax preparers would need to submit formal applications and undergo fingerprint and background checks. “That’s a lot of hoops to jump through,” Hockenberry said.

Jack Green, a certified public accountant in Toccoa, Ga., said e-filing is good for his clients, but it could create an extra burden for him. But some small-business preparers say they wouldn’t object to mandatory e-filing. Richard Behm, president of American Tax Services and a tax practitioner, said most of his clients appreciate how quickly their refunds arrive when the company files tax forms electronically.

To support its recommendation for mandatory e-filing, GAO cited
successful state mandates and a federal e-file requirement for large corporations and nonprofit organizations.

State mandates increased e-filing by paid tax preparers in eight of the nine states with the requirement. Wisconsin’s mandatory e-file law in 2002 produced more than a 29 percent increase in e-filing compared with the previous year, GAO said.

Mandatory e-filing for corporations and nonprofit organizations has also worked, IRS Commissioner Mark Everson said in a speech last month.
The decision on whether to expand mandatory e-filing to commercial tax preparers rests with lawmakers. GAO said the IRS lacks authority to issue such a mandate.

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