E-filing trails 80 percent goal

More people are filing their tax returns electronically, but e-filing will fall far short of reaching Congress’ goal of having 80 percent of returns filed electronically by 2008. But the sooner the Internal Revenue Service can reach that goal, the sooner it can achieve significant savings in tax administration, said James White, director of strategic issues at the Government Accountability Office. The IRS’ use of electronic systems to receive and process tax returns increases accuracy, speeds handling and reduces costs. But the agency’s efforts to expand e-filing and create a relational database of taxpayer accounts — the Customer Account Data Engine — are taking longer than anticipated, White said. The IRS received about 128 million returns for the 2006 tax year. About 77 million, or 60 percent, were filed electronically, which is an 8.9 percent increase from last year. “We expect in the high 58 [percent] to 59 percent e-filing when the final count is [tallied] in October, but that depends on total returns,” said Bert DuMars, director of electronic tax administration at the IRS. He spoke at a recent meeting of the Council for Electronic Revenue Communication Advancement. Fifty-five percent of the returns the IRS received last year were filed electronically, DuMars added. Requiring professional tax-return preparers to file their clients’ returns electronically could dramatically increase e-filing numbers, policy experts say. GAO and the Electronic Tax Administration Advisory Committee (ETAAC), which is composed of tax industry representatives, favor such a policy. The committee will report to Congress next month on efforts to reach the 80 percent goal.“The report will recommend mandates where there is the opportunity to get a large increase in e-filing,” said Tim Hubbs, chief executive officer of Drake Enterprises and a member of ETAAC. “We are looking for a threshold on which to base a mandate.”Tax professionals use software to prepare 92 percent of the 80 million returns they prepare, but they file only 60 percent of returns electronically, according to ETAAC’s 2006 report. That means preparers mailed 32 million paper returns, even though they were prepared electronically. The Senate Finance Committee approved legislation last year that included a provision for reducing from 250 to five the number of returns needed to trigger a requirement that a paid preparer file electronically. The newly reorganized committee, led by Sen. Max Baucus (D-Mont.), expects to consider a similar proposal this year.States that require paid preparers who file a certain number of tax returns to file state returns electronically reported increased federal e-filing, GAO said. New York, Connecticut and Utah had mandates in place in 2006, and e-filing of federal returns increased 27 percent in those states. Thirteen states now have such mandates, White said.The IRS expects to fall short of reaching other tax processing milestones. Officials said they had hoped to process 33 million tax returns through the agency’s modernized CADE database, but problems emerged during testing that forced the IRS to delay the system’s deployment until March, White said. CADE has processed only 9.1 million returns so far this year, and many taxpayers did not receive their refunds as quickly as they should have because the IRS had to revert to its Kennedy-era Master File database.“Our concern is that [the delay] will impact future releases and slow down service through CADE,” White said. CADE processed 7.4 million returns last year.