As the Internal Revenue Service pushes taxpayers to file more returns electronically, tax preparers continue to face challenges with the e-filing system, according to a new report from the Government Accountability Office. The 1998 IRS Restructuring and Reform Act required that 80 percent of tax returns be filed electronically by 2007, but the IRS missed that target. The agency then began modernizing its legacy e-filing system in 2004 and the deadline was extended until 2012. This year, preparers who expect to file more than 100 individual, trust or estate returns must do so electronically; in 2012, the e-file mandate will apply to all paid preparers who file 11 or more returns. Electronic filing is a critical component of modernizing the IRS, GAO said. The report, released Monday, was prepared at the request of Sens. Richard Durbin, D-Ill., and Jerry Moran, R-Kan., chairman and ranking member, respectively, of the Senate Subcommittee on Financial Services and General Government. "IRS has made significant progress increasing e-filing rates," the report said. "But it still has a way to go until it reaches its 80 percent goal." In 2010, 71 percent of all tax returns were filed electronically, according to a January GAO report. Although the IRS has taken several steps to implement the e-file mandate, including communicating the details and publishing the proposed regulations, professional preparers raised concerns regarding the timing, wrote auditor James R. White, director of tax issues at GAO. Preparers were required by Jan. 1 to obtain preparer tax identification numbers, which allows the IRS to identify individuals responsible for filing returns, and ensure they are compliant with the law. Firms that employ the preparers are required to have a separate electronic filing identification number. Tracking multiple ID numbers might raise administrative costs for the IRS. GAO recommended agency officials determine if it would be practical and cost-effective to use preparer's identification numbers as the authorizing number for e-filing. Preparers can request hardship waivers for the e-file requirement by submitting Form 8944, but GAO recommended the IRS add a sentence to the form explaining the benefits of electronic filing. In response to the report, IRS Deputy Commissioner for Services and Enforcement Steven T. Miller agreed with GAO's recommendations.
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