January 1999 Issue

IRS LOOKING AT CREATIVE INCENTIVES FOR E-FILING

The IRS has long known that the future of the U.S. tax compliance system lies in electronic filing. E-filed returns are vastly cheaper to process and have a dramatically reduced error rate. The IRS Restructuring and Reform Act of 1998 (IRSRRA) added additional impetus by setting a congressional policy to achieve an 80% e-filing rate by 2007.

The IRS has enjoyed a modest growth in e-filed returns over the years, in part due to a now abandoned IRS strategy to administratively accommodate loans from private lenders secured by anticipated refunds. These refund-anticipation loans, or RALs, proved to be a terrible consumer rip off, and the IRS decided two years ago not to electronically confirm the amount of the taxpayer's refund. This action removed a key element in making RAL mechanisms work. Despite an initial lull, e-filing is again on the rise. To date, 19 million taxpayers have used e-filing.

The IRS is becoming even more creative in promoting electronic filing. It announced a cooperative marketing deal for industry partners interested in e-filing. The partners have been offered links on the IRS website. Currently, the partners listed on the IRS website are Nelco, Universal Tax Systems, Drake, H&R Block, and Intuit (www.irs.ustreas.gov/plain/elec_svs/partners.html).

In a speech to the AICPA Tax Division, Bill Barr, the IRS assistant commissioner in charge of electronic services, mused over the possibility of providing varying levels of service to practitioners depending on the level of e-filing they do. The service differentials could include quicker IRS response time for "platinum" practitioners, those doing the highest level of e-filing, than for "bronze" practitioners.

One serious drawback to e-filing has been the signature requirement. Until now, the IRS required taxpayers to submit paper forms with their signatures when they electronically file. Also, there has been the requirement to send paper copies of W-2 forms. Congress paved the way for the use of electronic signatures in IRSRRA, and the IRS will shortly issue over 7 million PIN numbers to be used as electronic signatures in a pilot project. The project will entail permitting individual taxpayers who do their own returns to use tax software to file their returns using the PINs.

A second pilot project involving the National Association of Enrolled Agents will enable taxpayers to obtain a PIN when using a tax practitioner to e-file their returns.

For general information about e-filing, check out the IRS website at www.irs.ustreas.gov/plain/elec_svs/elf-txpyr.html. Information for practitioners about e-filing is available at www.irs.ustreas.gov/plain/elec_svs/elf-txpro.html. *

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