irs loves e-filing. so why the barriers?

what to do with clients who insist on paper?

by 卡塔尔世界杯常规比赛时间

e-filing may be the best thing to happen to the irs—and tax preparers—since the invention of paper and red tape.

• it beats paper on cost—just 36 cents to process, vs. $15.21.
• it beats paper on speed—a couple of hours from sending to acceptance, vs. days to mail, more days to open, more days in storage, more days to transcribe, and maybe months more to process.
• it beats paper on accuracy—no need for transcription.
• it beats paper on convenience—taxpayers can e-file in minutes from a desktop; irs can store and move e-files easily and instantly.
• it beats paper on inconvenience—e-filing allows continuous processing regardless of weather, pandemics, etc.

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so why does the irs still have barriers limiting e-filing?

the advantages of e-filing are such that 91 percent of individuals did it in 2021, as did 69 percent of businesses.

problem solved? not quite…

that 91 percent left some 16 million individual returns arriving on paper, easily more than 50 million pages that had to be moved around. and then on top of that, 17.7 million business returns.

the taxpayer advocacy service says the irs could be doing more to encourage, or at least not discourage, e-filing.

here are some of the problems and solutions:

many forms must be on paper

many irs forms require paper filing and therefore paper returns. among those paper forms:

• w-7 ( application for individual id number—1,301,750 returns in 2021)
• 5472 (for foreign-owned corporations—264,396 returns)
• 941-x (adjusted employer’s quarterly return—217,235 returns)
• 14039 (identity theft affidavit—181,578 returns)
• 1065-x (amended return—94,117 returns)
• ss-4 (application for a foreign employer id number—55,907 returns)
• not to mention over 328,000 returns using forms 1139, 4768, 8038, 8038-g, 1120-ric, 730, 843, 1120-reit, 8703, 14039b, or 8328.

the irs has made some progress here, allowing digital submission of forms 2848 and 8821.

but 1040-x, for amended individual returns, still needs to appear on paper, erasing whatever benefit the original e-filed return might have accomplished. but the irs is working on that, too.

and someday, some glorious day, the irs will succeed in allowing all—yes all—business returns to arrive by wire rather than truck.

part of the problem is that the irs doesn’t want certain forms to be sent as attachments to e-filed returns. but is that really necessary?

e-file rejections

the irs has “modernized e-file business rules” which, if broken, cause an e-filed return to be rejected. a third of them are simply a conflict between the previous year’s and current year’s personal identification number or adjust gross income. most others are because of mismatched names and social security numbers.

the problem was compounded in 2021, when so many returns from 2019 were still unprocessed, making it impossible to match data between 2021 and 2020.

one unfortunate result of the rejections is that taxpayers must file a paper return, often with the exact same bad information, leading to delays and amendments—on yet more paper.

the tas says the irs should find a way around these rejections. one way would be to work with software providers to devise methods of spotting mismatches before the return is filed.

inability to e-file attachments

taxpayers are often required or encouraged to submit supporting documentation, such as statements, disclosures, explanations, and appraisals. sometimes the irs will accept digital docs in proper pdf or binary formats, but not always. and often tax software won’t allow the attachment. sometimes the return gets filed electronically while the documents are sent by mail, resulting in delays, confusion, and error.

this is a relatively minor barrier that should be relatively easy to remove.

some taxpayers prefer paper

a significant number of taxpayers have personal preferences for paper. why?

• concern over internet security.
• confusion about how e-filing works.
• inability to deal with the digital forms.
• no need for a quick refund (maybe because they owe taxes).
• lack of technology.
• record-keeping concerns.
• unaware e-filing is more accurate.
• fear of greater risk of audit.

most of the solution here is education—determining which taxpayers just need more information or explanation. in all of these cases, a tax practitioner could come to the rescue.

better scanning technology could process paper returns

many returns are prepared electronically prepared but submitted on paper. the irs would work with software providers to print forms with 2-d bar codes and better spacing for clearer hand-written information.

the irs would like to see the day when all returns are filed electronically, and the sooner the better. unfortunately, without prioritization and proper funding, that glorious day will come not sooner but later.

posted on february 9, 2022