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Byline: Lesley Meall need for speed The July P11D deadline will soon be upon us -- Fortunately, specialist software can help to simplify and speed up the preparation process, Lesley [...]

Issues related to proposals by the IRS to provide free tax filing over the Internet are examined, focusing on concerns raised by corporations that provide tax preparation software and discusions led by Rep Jim Kolbe in a congressional hearing. Topics include the resignation of IRS assistant commisioner for electronic tax administration and taxpayer privacy rights regarding the use of data used in electronic tax preparation.

Issues related to the ways in which the IRS and other government agencies may compete with the private sector are examined, focusing on the IRS offering electronic tax preparation services that may compete with those offered by Intuit and Microsoft. Topics include congressional requests for a report on the matter from the IRS; a suit filed by Intuit, H&R Block, and others against the state of California; and a plans by a private service to offer free online tax filing.

The author discusses tax-related software which is available for individuals and various legal entities and discusses related information technology issues. A detailed directory of software companies, software applications and prices is included.

The IRS has not met its goals in increasing the amount of taxpayers who file returns electronically. The agency hoped 80 mil taxpayers would file electronically in 1999 and only 29.2 mil did. Future goals are more ambitious, and the newly formed Electronic Tax Administration Advisory Committee is advising the IRS on strategies. However, financial incentives and mandates must be included if goals are to be reached.

Byline: Fraser Simpson Around nine in ten tax payers use HMRC's online self-assessment service to calculate and pay the tax they owe HMRC has revealed that 10.4 million tax returns [...]

The electronic filing (e-filing) of income tax returns is gaining mainstream acceptance. About 17.7 million returns were electronically filed in 1998, up by 26% from 14.1 million in 1997. The move towards e-filing is being spurred by the IRS through its aggressive promotion of e-filing to tax practitioners and the private sector. The Internal Revenue Service Restructuring and Reform Act of 1998 has also made paperless filing the preferred method of filing federal tax and information returns.

As the rest of the financial world has moved toward electronic transactions, the IRS has been doing likewise. During the past several years, there has been significant progress, a great [...]

The IRS chief financial officer's cost-benefit report on the use of electronic income tax return filing is inconclusive. The report's methodology is faulty because it analyzes only 1996 costs and benefits with no carryover to other years benefiting from 1996 electronic filing capital expenditures. Commentators nonetheless believe that electronic filing is cost-effective. Questions remain as to whether taxpayers should bear the burden of IRS savings and what the IRS will do with the savings.

The IRS introduced Revenue Procedure 97-22 a year after recommending rules allowing the electric filing of taxpayer books and records. The new Procedure provides relief from the administrative task and costs of keeping paper records by authorizing the use of the latest technological innovations in information retention and retrieval. However, the Procedure also has a downside. It has generated concern about governmental intrusion, which becomes quite easy with the use of an electronic storage system. Moreover, taxpayers would have to take note of other considerations, such as the recordkeeping requirements of state and local laws. Taxpayers should be prepared to deal with these concerns once they resort to electronic storage.

Technological advances will lead to the full computerization of filing tax returns. Federal tax forms are currently available 24 hrs. a day through IRS' home page on the Internet. Filing tax returns can also be done through the computer via Internet services firms such as CompuServe.

IRS officials, speaking at a Nov 1996 IRPAC meeting, discussed the forthcoming electronic filing strategy, the Electronic Federal Tax Payment System, upcoming guidance on medical savings accounts and SIMPLE retirement plans, and other tax issues. Investment trust reporting, escrow fund disbursements, closing agreements, banks' interest reporting on Canadian residents, and employee classification were also discussed. Although delayed, the electronic filing strategy will be presented to Congress in Dec 1996 and will emphasize uniformity. IRPAC is a joint IRS/business community group focused on information reporting.

Tax software packages, including Tax Cuts and TurboTax, have significantly reduced the complexity of the Internal Revenue Code, especially since most errors are clerical or mathematical, tasks now performed by the computer. These programs are pseudo-expert systems that prompt the user about informed choices while also performing the complex calculations required, such as for capital gains taxes. The complexity of the Code is a reflection of the complexity of society but computers can help reduce confusion and prevent errors, minimizing problems using the Code.

The IRS's much-maligned Tax Systems Modernization (TSM) program has been continually criticized for mismanagement and poor planning. Faced with budget cuts by a hostile Congress, the IRS is trying to save TSM by contracting out more technical management to TRW. The IRS should consider staggered filing dates and return-free filing as alternatives to its technology-heavy TSM approach. The addition of Arthur Gross as Chief Information Officer has not yet made an impact. IRS plans to increase electronic filing or use imaging technology may be overly-optimistic as well.

After very rapid growth in its first nine years, from 25,000 returns in 1986 to over 14 million in 1994, use of electronic filing has essentially plateaued. In fact, if [...]

1995 is the year when the forces of time and space will join to make preparation of tax returns easier and faster than any time in the history of revenue [...]

The IRS will relax compliance rules for information reporting, and it will also bring in new information technology to ease paperwork. For example, the passive foreign investor taxpayer identification number project will be redrawn. Such numbers will not be required for investment type incomes such as portfolio interest. As for electronic filing, some large domestic firms may have to use it in 1996. While wage reporting has been delayed, proposed penalty notices will increase to former levels.

A survey of tax preparation software manufacturers indicates continued enthusiasm for electronic filing of tax returns, but the IRS still has much to consider before widespread electronic filing is a reality. Manufacturers and tax practitioners alike believe that the 1040PC form is not particularly useful, though 35 of 52 manufacturers surveyed included the form on their software. The forms acceptable to the IRS need to be expanded and coordinated to increase usage. The IRS is also addressing fraudulent electronic filing and regulation of electronic return originators.

The main advice we can offer a CPA is do not hide your head in the sand and hope ELF will go away. It will not. Like it or not, ELF is here to stay. The position of the IRS is becoming quite clear. They intend to make ELF an integral part of tax practice of the future, and CPAs will have to live in that future. This month's article discusses the advantages and disadvantages of electronic filing. (Reprinted by permission of the publisher.)

A survey found that 61 computer software companies sell income tax return preparation packages for in-house use by professional preparers. These packages vary in memory, federal tax forms they can process, states in which they are applicable, print method, output options and price. In choosing among these packages, preparers should look for qualities such as the ability to integrate different forms. Preparers should also be aware of the growing interest in electronic filing. More and more preparers are preferring in-house software with laser printing.

The use of in-house tax-preparation software remains the method of choice among professional tax preparers. A survey of 66 companies offering tax-preparation software is presented, along with a discussion of: the increasing sophistication of this software, the interface of these programs with electronic filing, and the enhancement of these programs with add-on features. Advice on selection of tax-preparation packages is also given.

ELECTRONIC FILING A Case Study For the 1989 tax filing season, the IRS designated the Volunteer Income Tax Assistance (VITA) site at the University of Akron's Center for Taxation Studies [...]

Advances in computer technology have enabled accounting firms to automate many of the aspects of preparing tax returns. Some firms, encouraged by innovations, are no longer using service bureaus to process taxes and are using in-house computer systems instead because the systems enable practitioners to have more control and reduce the turnaround time needed to process returns. While automation has provided benefits, some firms are worried about the increasing number of clients who are electing to process their own returns at home on computers. However, other firms believe that since they no longer have to devote time to number-crunching, they can advise clients on issues such as tax planning. Another issue receiving attention is the expansion of electronic filing services offered by the IRS. Statistics indicate that electronic filing has reduced the time it takes to receive refunds on average from eight to three weeks. Accounting firms offering this service have discovered they have a definite marketing advantage with potential clients., The New Wave Computers & Taxes The romp-romp-romping of adding machines and the scritchety-scratching of pencil on paper were the music of tax preparation in Jerry Seiberlich's first accounting office. [...]