The government could save more than $1.2 billion a year if all taxpayers could file their returns electronically at no cost.
Congress’ Joint Economic Committee reached that conclusion based on a state-by-state analysis. Most taxpayers must pay a fee to tax preparation companies to file their tax returns electronically.
The panel based its analysis on two assumptions: an e-file fee of $14.95 per return for regular returns and no fee for the 7 percent of e-filed returns that are filed under the Internal Revenue Service’s Free File Alliance program, which allows low-income taxpayers to file online without charge.
For the IRS, there are enormous cost savings from e-filing. Processing each paper return costs $2.50, but e-filed returns cost 30 cents each, according to the IRS.
Because of the e-filing fees, 40 million people who prepared their taxes on computers in 2006 printed and mailed them as paper returns. If those taxpayers had e-filed, the IRS would have saved $94 million, said Sen. Charles Schumer (D-N.Y.).
Schumer introduced a bill April 15 that would provide free direct e-filing with the IRS, eliminate the fees that millions pay to e-file and impose a $50 penalty per offense on any company that charges a tax-filing fee to individual taxpayers.
Free e-filing would encourage more taxpayers to file their returns electronically, Schumer said. “The bottom line is that the IRS is imposing an additional tax on people paying their taxes.”
— Mary Mosquera
The Internal Revenue Service’s modernization efforts have solved some taxpayer problems and created new ones, said the IRS Oversight Board in its annual review of IRS performance.
“The IRS should not settle for good performance — it must set its sights on great performance,” Paul Cherecwich, chairman of the IRS Oversight Board, said in the board’s annual report released April 14. The agency has improved taxpayer service by setting goals, re-engineering processes and measuring performance, but that is not enough, Cherecwich said. The IRS must deliver more self-service applications to assist taxpayers and perform research to gain a better understanding of taxpayers’ needs and expectations, he added.
The report highlighted steps the IRS has taken to protect taxpayer data, promote electronic filing of returns and transition taxpayer accounts to a modern database.
The IRS has adopted an agencywide approach to dealing with growing data security and data privacy concerns. Last summer, it created an Office of Privacy, Information Protection and Data Security. The agency updated its procedures to ensure that it responds consistently to people who are victims of identity theft.
The IRS now uses an identity theft indicator to tag the accounts of taxpayers whose identities have been stolen. The tag alerts IRS employees that those accounts might require special attention. Before the IRS adopted tagging as a policy, employees had no means of systematically identifying taxpayers who were victims of identity theft.
“Once the new process is fully deployed, taxpayers should only have to provide identity theft documentation once,” IRS Commissioner Douglas Shulman said.
The IRS also made progress on modernizing taxpayer accounts. The oversight board noted that the IRS’ new Customer Account Data Engine, a modern taxpayer account database, will allow the agency to update taxpayer accounts daily rather than weekly. That capability will speed problem resolution.
Through March, the IRS had processed 15.1 million tax returns, or 25 percent, using its Customer Account Data Engine compared with 11.2 million returns during all of last year’s tax season, said Richard Spires, IRS deputy commissioner of operations support. The agency anticipates that all individual taxpayer accounts will be migrated to CADE by 2012.
On another performance benchmark — e-filing — the oversight board disagreed with the IRS’ National Taxpayer Advocate and some members of Congress who want the agency to provide direct e-filing free to all taxpayers. Increasing the rate of e-filing to 80 percent of tax returns by 2012 is a critical agency goal, Cherecwich said.
