An increasing number of taxpayers filed or intended to file their tax returns online this tax season, according to recent data supplied by both the Internal Revenue Service and global researcher The Conference Board.As of early March, IRS statistics showed that the 2008 e-filing level was up 5 percent over the same period last year. And in a survey undertaken just prior to tax season, The Conference Board found that 40 percent of taxpayers planned to file online, up from 34 percent three years ago. More than two thirds of consumers said that they have filed online for three years or more, up from less than 55 percent in 2005.

“Given the many online tax filing alternatives and payment options, such as IRS E-file, Free File and direct deposit options, it’s not surprising that every year an increasing number of consumers are filing electronically,” said Lynn Franco, director of The Conference Board Consumer Research Center. “And once they file online, they tend to stay online,” she said.

The Consumer Internet Barometer — produced by The Conference Board and TNS, a market insight and information group — surveyed more than 10,000 households across the country. It found that more taxpayers are comfortable filing their taxes online, compared to other financial transactions. The survey found that while half are “extremely concerned” when banking or paying bills online, only 44 percent expressed similar concerns when filing taxes online.

And although the gender gap has closed over the years, the survey finds that women still express greater concern than men about banking, paying bills, brokering trades and filing taxes online.

The percentage of Internet users who are filing their federal taxes offline has steadily decreased over the past several years, according to the poll. The most prevalent reasons for not filing online are that the consumer does not prepare their own returns, and being concerned about transmitting their personal information over the Internet.

“Online identity theft is one of the fastest growing crimes in industrialized nations,” said David Stark, vice president and North America privacy officer of TNS. “Several consumers have either been victims of cyber-crime or know people who have. Even though online tax filing is secure, the reluctance of some consumers to try it is understandable.”

STILL ROOM TO GROW

In what amounts to good news for the tax preparation industry, over 40 percent of those who intended to file their federal taxes online planned to use a professional service, with women more likely than men to seek assistance. About one third prefer to use do-it-yourself tax software, but less than one fifth will use IRS Free File.

Franco cited two main factors behind the favorable e-file trend. “It’s growing because it keeps getting easier to use, and also because the options keep increasing,” she said. “Now a taxpayers can have their direct deposit refund go to several different accounts. Both changes that the IRS is making and changes the tax software folks are making make it much easier, and that’s one of the driving forces behind the increase.”

Meanwhile, the original goal of 80 percent e-filing by 2007 has been pushed back to 2012. Although tremendous progress has been made, the IRS will need the help of the professional tax community in order to reach the new 2012 goal, according to the IRS Oversight Board.

“Since 2003, it has been evident to the IRS Oversight Board and others in the tax administration community that the IRS would not reach the IRS Restructuring and Reform Act of 1998 goal of 80 percent electronically filed tax returns by 2007,” the board stated in its annual report to Congress. “Available data for the 2007 filing year confirm that the goal will not be met. The data indicate that around 58 percent of individual income tax returns will be filed electronically by the end of 2007, far short of the congressionally mandated target.”

However, the board said, this should not be seen as a failure on the part of the IRS. It cited the fact that since the enactment of RRA 98, the percentage of individual e-filed returns has nearly tripled, from 20 percent in 1998 to the 58 percent of 2007. The volume of e-filed returns was especially encouraging, according to the IRS Oversight Board.

“The share of returns prepared by tax professionals and filed electronically continues to increase steadily every year and stands at around 70 percent in 2007,” the board reported. “This trend is particularly encouraging, since the overall number of individual returns submitted through paid preparers also continues to climb, and now stands at nearly 60 percent of all individual income tax returns filed in 2007.”

The board acknowledged that the IRS would probably not have made such progress without the congressional mandate. “Having that goal enacted into public law put real-world pressure on the IRS and its stakeholders to come together and take deliberate and focused action in pursuit of that desired end state,” it said.

“By extending that 80 percent goal to the more realistic date of 2012 as part of the IRS strategic planning efforts, the board now hopes to ensure continued commitment and discipline by the IRS and its stakeholders to achieving the 80 percent e-file objective,” the board stated.

However, it noted that those most willing to adopt e-file, such as tech-savvy taxpayers and practitioners, have already done so, and that the IRS must find innovative ways to convert the remainder. The fact that the number of tax professionals who e-file their clients’ returns increases yearly is reason for optimism, it noted.

The fact that 90 percent of all individual tax returns filed in 2007 were initially prepared on a computer, including nearly 99 percent of returns filed through tax professionals, presents an opportunity, according to the board.

Although only about two thirds of the returns prepared on a computer are currently e-filed, “The challenge is to turn a significant number of these returns into actual e-file transmissions. This would go a long way to meeting the 80 percent goal by 2012,” the IRS Oversight Board said.

Roger Harris, president of Padgett Business Systems and former chair of the IRS Advisory Council, agreed. “It’s all comes down to changing people’s behavior patterns,” he said. “Eventually it will become a matter of routine.”

By moving the 80 percent e-file goal to “the more realistic date of 2012,” the board made clear its expectation that this time the goal will be met. “In the view of the board, what was essentially a congressional ‘challenge’ to the IRS in RRA 98 now becomes a definitive expectation.”

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