Electronic Tax Return Filing: Improvements Can Be Made before Mandate Becomes Fully Implemented
Highlights
The Internal Revenue Service's (IRS) goal is to receive 80 percent of all major types of tax returns electronically by 2012. Legislation passed in November 2009 supports the 80 percent goal for individual income tax returns by requiring tax return preparers who file more than 10 individual returns per year to file them electronically, or e-file. In 2009, IRS electronically processed nearly 95.5 million individual tax returns, or roughly two-thirds of all individual tax returns filed. IRS estimated that it saved $3.10 for each e-filed return that it did not have to process on paper. If the remaining paper returns had been e-filed, IRS could have saved about $148 million in processing costs for 2009 alone. In addition to reducing costs, e-filing provides higher accuracy rates, improved convenience, and faster processing and refunds for taxpayers. Furthermore, IRS officials said that having increased information available electronically could improve the effectiveness of IRS's compliance programs and bring in additional enforcement revenue. Congress asked us to review IRS's implementation of the e-file mandate. In response to this request, this report assesses IRS's initial implementation of the mandate. It also provides our assessment of (1) the expected effect of the mandate on electronic filing rates and (2) early mandate implementation issues that could affect IRS's administrative costs, preparer burden, or rates of electronic filing. We plan to issue a related report this summer that provides additional information on IRS's implementation efforts and its use of electronic data.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| If Congress wants to expand the applicability of the e-file mandate beyond those preparers who file tax returns, then Congress may wish to amend paragraph 6011(e)(3)(B) of the Internal Revenue Code by replacing the word "file" with broader language, such as "prepare or file." | Legislation was introduced on June 28, 2011 which provided clarification on the electronic filing requirements for paid preparers. This included language that changed the language in the original bill (Section 6011 (e)(3) (B)) from "filed to prepared." However, this legislation had not progressed as of April 2014. In 2014, the Tax Refund Theft Prevention Action (S.2736) was introduced and would have amended IRC 6011(e)(3)(B) as suggested in GAO-11-344. This bill would have also phased down the number of returns triggering the e-file requirement from 250 returns to 20 returns over three filing seasons. In addition, this bill would have removed the threshold of 10 returns, thus triggering the e-file requirement for paid preparers(subject to some exceptions). This bill expired with the end of the 113th Congress. As of May 2016, there are no bills before Congress that would amend IRS 6011. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To improve implementation of the e-file mandate, the Commissioner of Internal Revenue should direct IRS officials to determine whether it would be practical and cost effective to use preparers' PTINs as the authorizing numbers to e-file their taxpayers' returns. If IRS determines it is advantageous, it should create a timetable and plan to modify e-file systems accordingly; |
In response to our recommendation, IRS conducted a study to determine if it was practical and cost effective to use preparers Preparer Tax Identification Number (PTIN) as the authorizing number to e-file taxpayers' returns. In March 2012, IRS issued an internal report on the study results. IRS interviewed a number of internal and external stakeholders during this process, and during this time, changed a major process of the PTIN application--no longer requiring preparers to obtain a fingerprint/background check. Largely based on this change, IRS determined that it would be neither practical nor cost effective to establish the PTIN as the authorizing number for e-file. The processes for determining suitability for the two programs are no longer as duplicative as they were during the course of the audit.
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| Internal Revenue Service | To improve implementation of the e-file mandate, the Commissioner of Internal Revenue should direct IRS officials to update the taxpayer choice statement discussed in Notice 2010-85 as well as Form 8948, "Preparer Explanation for Not Filing Electronically," to include information about the benefits of e-filing. |
In March 2011, we reported on the Internal Revenue Service's (IRS) implementation of the e-file mandate for paid preparers. We found that some states, such as New Jersey, provide information about the benefits of e-filing on their taxpayer "opt out" forms. IRS requires preparers fill out and submit Form 8948, "Preparer Explanation for Not Filing Electronically," if they are not electronically filing a taxpayer's return. We recommended that the Commissioner of Internal Revenue direct officials update the Form 8948, "Preparer Explanation for Not Filing Electronically," to include information about the benefits of e-filing. IRS agreed with our recommendation. On March 28, 2011, IRS issued Revenue Procedure 2011-25 which outlined the steps a preparer should take if taxpayers choose to file on paper, which included the taxpayer choice statement. IRS included the benefits of e-filing in this statement based on our recommendation. In December 2011, IRS updated Form 8948, "Preparer Explanation for Not Filing Electronically," to include the benefits of e-filing on the form. This form is included with the taxpayer's tax package and as a result, taxpayers now have an additional opportunity to learn about the benefits of e-filing, at a low cost to IRS and without imposing an extra burden on paid preparers. If the information influences some taxpayers to choose to e-file, IRS administrative costs would be reduced.
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