by Roger Russell

Although the growth of e-filing slowed last year, practitioners sensed an uptick in e-filers at the start of this filing season.

“We’re doing a lot more e-filing than last year — probably up 17 percent,” said Claudette Huggins, owner of four Jackson Hew­itt offices in southeast Ohio. “More and more of our customers are getting used to the idea of e-filing. The IRS public service announcements as well as our own promotional material have helped.”

Marilyn Roseberry, an enrolled agent at St. Louis-based CRS Financial Services, agreed. “It looks like e-filing numbers will be up,” she said. “We’re going to use it for everyone this year, except for a handful that don’t fit.”

“It is up,” revealed Robert Carmines, a partner in Newport News, Va.-based Carmines, Robbins & Co. PLC. “We actually e- file all of our client returns for individuals — we do 100 percent e-filing unless there’s some reason they’re not eligible for it. It just makes it easier if you’re sending them all one way instead of splitting it up into paper and electronic.”

E-filing has meant a lot more than shorter lines at the post office during tax season, supporters of the initiative said. The Internal Revenue Service emphasizes faster refunds, more accurate returns, electronic confirmation, completely paperless returns and payment options for balance-due taxpayers.

Yet last year’s 52.2 million taxpayers who e-filed by June 30, 2003, fell short of the 53.8 million return goal that the IRS projected at the start of the season. While this was a 12.5 percent increase over 2002, the slowing pace of the increase prompted the IRS Oversight Board to warn that the congressional goal of 80 percent e-filers by 2007 is in danger.

“Reaching the 80 percent goal [in 2007] at this point requires a major and, most likely, unrealistic change in tax preparer and taxpayer behavior,” it said in its November 2003 report to Congress. Growth rates in e-filing over the past three years are likely to continue unless additional incentives are given, according to the board.

A report by the Electronic Tax Administration Advisory Committee noted that attracting the first 50 million e-filers was relatively easy compared to what it will take to attract the extra 60 million or more needed to meet the 2007 goal of 80 percent.

The 2004 season began with a computer glitch that caused thousands of e-filed tax returns to be rejected. The problem surfaced on Jan. 17 when the IRS began accepting e-filed returns from tax practitioners and individuals. The problem was fixed by Jan. 21, according to the IRS.

“At the start of every filing season we put new software in place to reflect the tax code changes,” said IRS spokesman Terry Lem­ons. “There are 55 million lines of computerized tax code involved, which we update before the beginning of every tax year.”

“We saw some routine problems arise, which affected a very small percentage of returns,” Lemons explained. “We’ve fixed the program language, and have alerted the tax practitioners involved.”

Because of the way e-filed returns are processed, according to Lemons, no interruptions were caused in the processing of refunds. “No IRS-issued tax refunds were delayed because of this,” he said.

Huggins noted an additional issue with e-filing. “It’s taking them a little bit longer to acknowledge returns,” she said. “I don’t know if there’s an equipment problem, or whether they’re just double checking everything that goes through, or if it’s simply an increase in  numbers they have to deal with.”

Aside from the initial glitch, e-filing is running well, other observers noted.

“The system is running very smoothly,” said John Vora, president of Randolph, N.J.-based TaxSimple. “For us, it is running at a 95-percent-plus success ratio, which means that more than 95 percent of e-filed returns are accepted on the first try.”

Mike Chakarun, director of federal and legislative affairs for the Alexandria, Va.-based National Society of Accountants, is also upbeat about e-filing.

“We’re optimistic that we’ll have a smooth e-filing season,” he said. “A lot of preparers are looking forward to filing corporate forms — Forms 1120 and 1120S — for the first time.”

The average e-filed refund is issued in 14 days or less, while taxpayers with direct deposit can get their refunds in even less time.

E-filers receive a confirmation that the IRS has received their return and that it has been accepted into the system. Even a certified mailing doesn’t result in this level of certainty, according to the IRS.

Despite the lower-than-expected number of e-filers last year, this season could see a turnaround in the trend, according to Vora.

“More and more clients are e-filing because they see the inevitable,” he said. “The IRS and preparers are both pushing it. It means additional income for everybody — the client gets the refund faster, and we have more people buying our software.”

Chakarun predicted more e-filers as the number of preparers who are electronic return originators — EROs — grows.

“The number of preparers who e-file is still growing as people are getting over the initial hurdles of changing their office procedures,” he said. “So we expect e-filing to continue to move forward.”

For the 2004 filing season, taxpayers can electronically sign their e-filed return by entering a five-digit personal identification number, which is any five numbers except all zeros. Receipt of the taxpayer’s PIN eliminates the requirement for Form 8453. The self-select PIN method requires the entry of each taxpayer’s date of birth and prior-year original adjusted gross income, which are used to authenticate the tax­payer.

For taxpayers using an electronic return preparer, the practitioner’s PIN is an additional electronic option. They sign the return electronically by completing an e-file signature worksheet, which authorizes an ERO to enter a taxpayer’s PIN as a signature.

Meanwhile, the Oversight Board recommends continued educational and marketing efforts to convince additional taxpayers and preparers of e-filing benefits. As a step in reversing the slowing growth trend in e-filing, the board and the ETAAC suggest a speakers bureau to promote and encourage e-filing. They also support the administration proposal to extend the filing date to April 30 for individual taxpayers who e-file.

Additionally, the e-Services system, part of the IRS modernization program, will provide a number of incentives to preparers who electronically file over 100 returns, including disclosure authorization and transcript delivery.

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