The Internal Revenue Service marked the opening of the electronic filing season this week with an appeal to taxpayers and tax professionals to save a few trees and hit the "Send" button instead.

The agency has said that it expects e-filing to mark a major milestone this year by seeing half of the nation's 133 million taxpayers file their tax returns electronically.

The IRS makes a good case for taxpayers to e-file -- they can receive their refunds in half the time, and they can file electronically on their own or via an e-file-approved tax professional. The IRS is also sweetening the e-file pot this year for taxpayers by expanding its Free File program. While each company that participates sets its own criteria for free filing of federal tax returns (often based on income, state residency or age), the agency said that some have no restrictions for participation, according to an e-mail sent this week to taxpayers.

In a world where nearly everything seems to have an "e-" prefix, and we can grocery shop and pay for postage online for convenience, or avoid paying postage at all in most cases by paying bills online and corresponding via e-mail, it's curious that e-filing hasn't caught fire quite the way the IRS -- or Congress -- had hoped. With the trend among accounting firms toward going paperless, it would seem to make good business sense for preparers to ditch paper returns in favor of e-filing.

Don't misunderstand -- I'm not knocking the IRS. A look at the numbers makes it clear that e-file has come a long way. When the e-file program began as a pilot project in three cities in 1986, 25,000 returns were filed electronically. When the program opened nationwide in 1990, 4.1 million returns were e-filed. Last year, nearly 62 million tax returns were filed electronically. While that is certainly nothing to sneeze at, it is, as the IRS has itself noted, well behind where the agency needs to be to reach the congressionally mandated goal of having 80 percent of tax returns e-filed by 2007.

What I'm wondering is, who are the holdouts? And, more important, why do they prefer to snail mail their returns?

According to the IRS, the vast majority of electronically prepared returns are filed by tax professionals. But it says that the fastest growth rate is among taxpayers using software to prepare their own returns. According to IRS figures, the number of self-prepared computer-filed returns has nearly tripled recently, to 14.5 million returns in 2004 from 5 million returns in 2000. But, the fact remains that more than 35 million tax returns are prepared on a computer, but are printed out and mailed in, rather than e-filed.

Does your firm e-file all of its individual returns? Why or why not? Let us hear from you at melissa.aguilar@thomsonmedia.com.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access