Says Ongoing Continuing Resolution May Set Back IRS Modernization Efforts
(Washington, DC) The Internal Revenue Service (IRS) Oversight Board released its Electronic Filing 2010 Annual Report to Congress today. It states that the IRS, its partners in the tax administration community, and taxpayers made steady progress in increasing the rate of electronic filing of various tax return types. However, the current Oversight Board-approved goal of 80 percent electronic filing of all major tax return types by 2012 will not likely be met.
The current goal for electronic filing in 2012 has an expanded scope compared to the original 2007 goal contained in the IRS Restructuring and Reform Act, and includes all major individual, business and exempt organization tax returns within the context of the 80 percent e-file goal.
The report states that “reaching a combined 80 percent e-file participation rate by 2012 for all major tax returns now seems unlikely,” even despite a mandate requiring certain tax return preparers to e-file individual returns, starting in filing season 2011. The overall e-file rate for major tax returns in 2010 is 59 percent, which leaves the IRS well below its target goal with only two more years remaining.
The Board’s analysis of the underlying historical trend in e-file growth, plus estimates of the impact of the new federal e-file mandate for return preparers, indicate that while the e-file rate for individual income tax returns may exceed 80 percent by 2012, the corresponding rate for all major tax returns combined will likely be no higher than the low 70 percent range. This situation occurs because the e-filing rates for business and tax exempt returns, and employment tax returns, are far lower than the e-filing rate for individual returns.
According to the report, another 39 million paper returns must be filed electronically for the IRS to meet the 80 percent goal. Four major types of tax returns comprise roughly 85 percent of the remaining paper tax filings: individual returns filed through paid preparers; self-prepared individual returns; Form 941 employment tax returns; and all other employment tax returns.
The return type that lags most significantly is employment tax returns. The report states that, “The Board encourages the IRS to develop a more definitive profile of those submitting the bulk of the paper employment tax returns and whether better marketing by the IRS and/or industry could help increase their e-file participation.”
Current e-filing rates are growing steadily but slowly. Nonetheless, the Board is confident that the 80 percent goal will be met eventually. “Even if attaining the 80 percent e-file goal by 2012 proves to be impossible, the Board has no doubt that tax administration will eventually cross that threshold in the not too distant future,” the report states.
The IRS Oversight Board Electronic Filing 2010 Annual Report to Congress is available at http://www.treasury.gov/IRSOB/reports/Pages/default.aspx#2011.