E-File goal too ambitious

More than half of all taxpayers filed their taxes online in 2005, a large step toward a goal set by Congress to have 80 percent of taxpayers filing online by 2007. But can the Internal Revenue Service persuade the others to file online?

In its annual report to Congress, the IRS Oversight Board found that 52 percent of taxpayers filed online last year, 11 percent more than in 2004. But the independent board does not believe that 80 percent of taxpayers will file their taxes online in two years. Filing trends cast doubt on that deadline, too. The board’s report showed that the IRS received 66 million returns through e-File in 2005. More than 16 million taxpayers filed from a home computer, a 17 percent increase from last year and 2 million more than in 2004. The percentages are increasing, but not fast enough, according to board projections.

“E-filing has now moved into new territory; it is more the rule, rather than the exception to the rule,” the board’s report states. E-File began as a pilot program in 1986 in three metropolitan areas with 25,000 returns filed electronically — a minuscule 0.02 percent of all returns that year. More than a decade later, the IRS Restructuring and Reform Act of 1998 set a goal for the IRS to have 80 percent of returns filed electronically by 2007.

But the board recommends that Congress extend the goal to 2011. This approach seems achievable based on historic growth rates and adds four years to influence taxpayer behavior.

“Don’t cut them short,” said Gordon Thornsberry, owner of Online Tax Pros, based in Russellville, Ark. The taxpayers reluctant to use e-File are warming up to online transactions, he said.

Many people remain computer-shy, he said, but their numbers are quickly falling. “Three years ago, I would have said it was impossible,” Thornsberry said. But he is now optimistic.

Pete Sepp, vice president of communications at the National Taxpayers Union, is a critic of the 80 percent goal. “The clock seems to be ticking a little too fast on this issue,” he said. Suspicion and mistrust already linger in the public’s mind about the agency, he added.

The board’s report states that the IRS’ current marketing efforts will not persuade practitioners and taxpayers who are reluctant to use e-File. The board recommends creating a long-term marketing campaign strategy to convert reluctant taxpayers.

For example, the IRS could tout e-File as more convenient and less time-consuming than sending paperwork via the mail. Among its benefits, e-File reduces preparation time, provides faster refunds, improves the accuracy of returns and gives an acknowledgment-of-return receipt.

Srinivasan Kasturi, a Taxpayers Advocacy Panel committee chairman, said the IRS currently promotes online filing in TV ads.

The report also notes that although electronic tax administration is a primary means of transforming the IRS and its service to taxpayers, the IRS must consider taxpayers who don’t have access to computers. Kasturi said there are also programs that meet that need, such as Volunteer Income Tax Assistance and Tax Counseling for the Elderly. “The elderly are not opposed to e-File, as long as you explain it to them,” Kasturi said.

Experts agree that about 70 percent of people could be filing online in two years. But, Sepp added, getting the last of the taxpayers online will take as much work as the first 70 percent.