The IRS Expands Efiling

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	E-filing Made Easy Personal Finance Advisor by Deloitte & Touche OnLine February 28, 2000

The IRS expands e-filing, which has many benefits for taxpayers.

The Internal Revenue Service is expanding the options for electronically filing and paying taxes due with 1999 individual income tax returns (or extensions) and 2000 individual estimated tax payments. Individuals in 35 states and the District of Columbia can file both their federal and state income tax returns with one electronic transmission to the IRS.

Electronic Submissions: The IRS received over 30 million electronically filed 1998 individual income tax returns, a 19 percent increase over 1997 levels. Although these taxpayers filed electronically, they still had to complete, sign, and mail the one page Form 8453-OL, U.S. Individual Income Tax Declaration for an e-file On-Line Return, along with other required schedules and statements.

An IRS pilot program for 1999 returns eliminates the need to file any forms if the taxpayer uses an electronic filer customer number (ECN) as an electronic signature on the return. In order to participate in the ECN program, the taxpayer must (1) prepare his/her own return, (2) have no required paper attachments other than Form W-2, Wage and Tax Statement, Form W-2G, Certain Gambling Winnings, and/or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., (the requirement to attach has been waived for the pilot program), and (3) enter an ECN into his/her computer.

The IRS has mailed approximately 11 million postcards containing ECNs to taxpayers who used a computer to prepare their 1998 return (only taxpayers who received an ECN will be permitted to participate in the 1999 pilot program). The assigned ECN will be used for the 1999 return only -- each taxpayer on a joint return must have a separate ECN. The IRS will issue new ECNs next year (as the program moves out of the pilot phase).

Benefits of filing electronically include:

Quick Refunds: Electronic filers can expect refunds in about half the time as refunds from traditional paper returns.
Few Errors: Returns prepared electronically reduce the chance of mathematical and other common errors.
Fast Confirmation: The IRS confirms acceptance of an electronically filed return within 48 hours of receipt.
No Increased Chance of Audit: Returns filed electronically will receive the same treatment by the IRS as returns filed on paper.

The IRS can accept most individual returns electronically provided the return is not

An amended tax return.
A fiscal year tax return.
A prior year tax return.
A tax return with a foreign address (military APO and FPO addresses are not considered foreign addresses).
A tax return for a decedent.
A married-filing-separate tax return in community property states, or
A return which includes forms not yet processed electronically by the IRS.

In an effort to reach a congressional goal of 80 percent electronic filing by 2007, President Clinton has proposed a $10 refundable tax credit for electronic filings and a $5 refundable tax credit for submissions on Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, via the telephone with TeleFile. If enacted, these credits will be effective for future returns.

Filing Software: At least 15 software programs support the ECN pilot program, including TurboTax, MacInTax, and Kiplinger TaxCut. Also, several brokerage and investment web sites offer free or nominal-fee electronic filing to encourage taxpayers to use their products/services.

Payment Options: Individual taxpayers have two electronic options for paying an income tax balance: (1) direct debit from a checking or savings account, or (2) charge on an American Express, Discover Card, or MasterCard account. The direct debit method may be used if the taxpayer files electronically or via TeleFile. The credit card option is available to taxpayers filing electronically (including TeleFile) or via paper. The IRS does not assess a fee for using either option. However, the credit card company may charge a user fee and could treat the charge as a cash advance subject to immediate interest charges. For example, a taxpayer making a $100,000 payment may incur a non-deductible convenience fee of two percent (that is, $2,000).

Taxpayers using the electronic options can file a return early and authorize the direct debit on April 17, 2000 (the due date for 1999 individual income tax returns). Alternatively, taxpayers may call in a charge on or before April 17, 2000 -- the phone system, operated by Official Payments Corp. (formerly U.S. Audiotex) of San Ramon, Calif., started accepting charges on Jan. 14, 2000. An electronic estimated payment option will become available on March 1, 2000. Taxpayers can reach Official Payments Corporation at 1-888-2PAY-TAX (1-888-272-9829).

IRS Publications: The IRS published an information release (IR-1999-87) and fact sheet (FS-2000-03) detailing the expanded options for filing and paying taxes electronically. Visit the IRS’s web site.

Your Deloitte & Touche financial advisor also can provide information and should be consulted before any action is taken.