WASHINGTON (AP) — Even though an estimated 33.6 million taxpayers will file returns electronically this year, old-fashioned paper still leads e-filing _ and that’s something the Internal Revenue Service is trying to change. “Come on. Step out of the past. E-file’s the way to go,” a singer urges in a flashy, hip television ad airing in the 23 largest markets. It is part of an IRS campaign to underscore the convenience and time savings for harried taxpayers.
The IRS marketing budget to push electronic filing rose from $8 million to $13 million this year as the agency attempts meet a mandate from Congress for 80 percent e-filing by 2007. Right now, only about one in four income tax returns reach the IRS that way.
“We’re going to have a good solid increase,” IRS Commissioner Charles Rossotti said.
Last year, 29.3 million taxpayers filed returns electronically, most of them through paid tax preparers, an increase of about 19 percent over last year. About 76,000 allowed the IRS to debit their taxes owed directly from a bank account.
Many taxpayers remain suspicious that electronic filing makes them more vulnerable to an audit, even though the IRS insists people are 40 times more likely to be contacted if they file on paper.
Paper must still often be mailed — such as W-2s and the signature form — and there is frequently a fee for e-filing from practitioners and tax preparation software packages.
The latest IRS projections indicate about half of all 1040 income tax forms will be filed electronically by 2007, well below the goal set by Congress.
“There’s still a lot of work to do,” Rossotti said.
The IRS and tax software companies such as Intuit, Microsoft and CCH Inc. are trying to lure America’s millions of home personal computer users. They stress faster refunds _ an average of 20 days, instead of 40 _ greater accuracy and a specific confirmation that the return was received by the IRS.
“That’s what most people want: get it in, get it right and if there’s a refund, get their money back quickly,” Rossotti said.
About 11 million taxpayers who prepared their returns on home computers last year were mailed postcard-sized notices from the IRS this time around that provides them an e-file customer number similar to a bank PIN code allowing an electronic “signature” to reduce use of paper.
Other electronic tax changes for this year:
People can use American Express, MasterCard and Discover cards again this year to pay taxes over the telephone. For the first time, credit cards can be used to pay estimated taxes and when filing extensions are requested. Visa is not participating.
About 18,000 professional tax preparers will offer clients personal identification numbers for e-filing, more than double the number last year. They also were sent marketing packets from the IRS explaining the benefits of e-filing and encourging people to take advantage.
More forms will be accepted electronically, such as those for the low-income housing credit (Form 8586), farm income averaging (Schedule J) and passive activity gains (Form 8582-CR).
The IRS is also testing two programs with broad implications for the electronic future.
One involves use of a secure e-mail system involving 100 members of the National Association of Enrolled Agents, who prepare tax returns and represent taxpayers before the IRS.
Using state-of-the-art encryption technology, the pilot will enable IRS agents and tax preparers to communicate back and forth with utmost security about a taxpayer’s account. Down the road, the IRS wants to develop such a system for all taxpayers.
“This is an important step toward our goal of providing electronic access to account information for taxpayers as well as tax professionals,” said Bob Barr, IRS assistant commissioner for electronic filing.
The other pilot program involves IRS agreements with e-file preparers to test improved methods of detecting fraudulent returns.
Preparers who sign up will also be able to offer clients a “debt indicator” showing whether any of their anticipated refund might be reduced by back taxes or other government debt, such as unpaid student loans.
This is important for people who want to use an anticipated refund as collateral for a loan. The IRS plans to post the names of these preparers on its Internet site as the agreements are signed.
