Electronic Filing of Tax Returns

Gregory J. Cook, EA, CPA+ Accredited Tax Advisor Past President Alabama Society of Enrolled Agents Past President Alabama Association of Accountants

The Evolution of Electronic Tax Administration


IRS e-file for Individuals: The IRS' involvement in Electronic Tax Administration began in 1986 with the first pilot of electronic filing which consisted of the electronic transmission of 25,000 individual refund returns from a handful of professional tax preparers through third party transmitters. Sixteen years later, IRS e-file programs have evolved so that approximately one out of every five individual taxpayers are now filing electronically. To facilitate this growth, numerous enhancements and features have been added to the program over the years.

After testing and piloting electronic filing, the IRS built its first fully operational system in 1989, receiving over a million returns the first year. A major enhancement was added to the program the following year when the IRS, in conjunction with the State of South Carolina, kicked off joint Federal/State filing which allows taxpayers to satisfy both their Federal and state obligations with a single transmission. Upon receipt of the electronic data, the IRS strips off the state data and makes it available for downloading by the states.




Allow more frequent deferral elections. Allowing participants to change their deferral percentages frequently gives them the ability to adjust their take-home pay to meet expected -- and unexpected -- expenses. When you provide the flexibility to stop and restart contributions more often, employees can feel more comfortable keeping contributions high during normal times, knowing they can cut back if they need the money for other purposes. In most cases, this means higher contributions overall.

In 2006, 73 million tax returns were filed electronically. Tax professionals filed 53 million and approximately 20 million were filed by individuals from personal home computers.

Why do taxpayers file electronically? For years, the success of IRS e-file has been attributed to the demonstrated benefits that it provides to taxpayers:

It's the quickest way to get refunds. Refunds are received in half the time, within 21 days - even faster with Direct Deposit.

Its accuracy rate of 99 percent reduces the chance of being contacted by the IRS. It provides an acknowledgment that the return has been accepted. It allows taxpayers in 33 states and the District of Columbia to file their Federal and state tax returns simultaneously. Nearly 70 Percent of Taxpayers Used IRS e-file in 2010. Nearly 99 million individuals filed their federal income tax returns electronically during 2010, a 3 percent increase in the IRS e-file rate. Of the 141.5 million returns filed so far this year, almost 70 percent were filed electronically.

Each year, more taxpayers chose to e-file their tax returns. Last year, nearly 95 million taxpayers or 67 percent used e-file. In the past decade, the number of individual tax returns e-filed has increased by 145 percent. The overall number of individual tax returns increased only by 8 percent. IRS e-file is no longer is the exception; now it is the norm.

Home Computer e-Filers Taxpayers who prepare their own tax returns using home computers continued to set the pace for e-file. This year, more than 35 percent of e-filers prepared and filed their returns themselves. Almost 35 million returns were e-filed from home computers, up 8 percent from last year. Direct Deposit Refunds More than 74 million refunds were electronically deposited into taxpayer accounts, saving taxpayers a trip to the bank. More importantly, these taxpayers received their refunds at least a week faster than those receiving paper checks.

Year Filed Total Returns e-Filed Returns Percent e-filed 2001 130,965,000 40,244,000 30.73% 2002 131,728,000 46,892,000 35.60% 2003 131,557,000 52,944,000 40.24% 2004 132,200,000 61,507,000 46.53% 2005 133,933,000 68,476,000 51.13% 2006 136,071,000 73,255,000 53.84% 2007 140,188,000 79,979,000 57.05% 2008 153,650,000 89,853,000 58.48% 2009 141,376,000 94,980,000 67.18% 2010 141,536,000 98,740,000 69.76%

These direct deposit refunds accounted for almost 69 percent of all refunds, up from 66 percent of refunds last year. Overall, the IRS issued 109 million refunds, averaging $2,994 per refund; direct deposit refunds averaged $3,189 per refund.