by Terry Lutes

In 2002, almost 47 million individual income tax returns were filed electronically. Of these, nearly 33 million, more than 70 percent, were filed through an electronic return originator, a tax professional approved by the Internal Revenue Service to e-file taxes.

These figures, which don’t include returns that were filed on behalf of businesses, give definite proof of IRS e-file’s mounting momentum.

Current and potential customers are more informed of their tax-filing options than ever before. And, due to e-file’s many benefits, more customers will want to e-file their taxes. Tax professionals who cannot offer this service may find themselves losing customers to those who offer IRS e-file.

Customer base retention and growth are critical reasons to offer IRS e-file; however, there are additional immediate and significant benefits that extend to both tax pros and their customers. IRS e-file can:

  • Decrease costs by virtue of a nearly paperless system;
  • Reduce the chances of lost returns or late filings;
  • Offer faster refunds - electronically deposited in customer bank accounts in as little as 10 days;
  • Increase payment options - taxes can be paid by credit card, or file early and schedule an electronic funds withdrawal (direct debit) from a customer bank account as late as April 15;
  • Boast a 99 percent accuracy rate for individual returns because the IRS electronically checks for errors and other missing information; and,
  • Offer quick electronic confirmation and proof of filing within 48 hours of sending your client’s return to the IRS.

The ERO imperativeLast filing season, 36 percent of individual returns were e-filed. Given the IRS’s significant e-file public education push, this number stands to increase dramatically in filing season 2003. This makes it imperative for tax professionals to become EROs and to gain a deeper understanding of the e-filing process to prepare for the influx of people requesting IRS e-file services.

The IRS’s e-services program, which is due to roll out over the next six months, offers another imperative to e-filing. The IRS will offer this suite of Internet-based services to EROs who e-file 100 or more returns during the 2003 filing season.

Becoming an ERO is a two-step process that’s fairly simple from the preparer’s standpoint. Tax professionals must file Form 8633, submitting basic information about their firm and its principals and choosing a "responsible official" to serve as a contact point for the IRS. This person has the authority to be a signatory on revised applications and is responsible for ensuring the firm’s adherence to all requirements of the IRS e-file program.

In addition to providing basic information, completing Form 8633 involves choosing which e-filing options the firm will offer. These options include e-filing automatic extensions; participating in the federal/state program, which allows individual e-filers to submit federal and state returns simultaneously; and a number of others. Each business location from which electronic tax returns will originate must submit a separate copy of Form 8633. Additionally, if all principals and responsible officials of the firm do not hold professional certification as a CPA, attorney or enrolled agent, fingerprint cards must accompany the applications.

After the IRS receives a correctly completed Form 8633, it conducts suitability background checks on the principals of that firm. All firm principals and officials must pass these checks. Suitability is determined by:

  • FBI criminal files;
  • Credit history;
  • IRS records; and,
  • Prior history of noncompliance in e-filing programs.

Once confirmed as an ERO, the IRS checks annually for evidence of conduct adversely affecting the IRS e-file program.The application period runs from Aug. 1 to May 31. Processing an application and performing suitability testing may take up to 45 days. Firms should submit their applications by Dec. 1 to ensure participation in the next e-filing season.
In practice

Norman Lorch, president and owner of Norman J. Lorch Chartered, an accounting firm in Owings Mills, Md., applied to become an ERO in 2000 when customers started requesting the e-file service. Since his first season of e-filing, Lorch has been an e-file advocate. Twenty-five percent of his customers are currently e-filing.

Lorch cites how IRS e-file’s features have allowed him to service a national client-base more easily, with the use of self-select PINs to electronically sign a return negating much of the need to mail documents across the country in short order, cutting costs in yet another area.

There are many preparers, like Lorch, who have bowed to customer demand or tested IRS e-file for other reasons and found that the simplicity, efficiency and convenience that the service offers them and their customers are unmatched.

Taxpayers are becoming more savvy, and the lure of receiving refunds that typically take four to six weeks in little more than a week is enough to get them to search for a firm that offers IRS e-file. The IRS anticipates that more customers will request the service in filing season 2003. To profit from the benefits of IRS e-file and offer the convenience to customers, tax preparers must prepare now.

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