IRS bracing for e-filing surge

The Internal Revenue Service is prepared for a surge of tax returns filed electronically in the upcoming tax season as a result of the anthrax threat in the U.S. mail system.

Although the IRS is not officially encouraging people to file electronically in the wake of the Sept. 11 attacks and subsequent anthrax scare, it is planning to handle mailed-in tax returns at offsite centers where they can be inspected for bioterrorism.

And the IRS already has the capacity to "deal with every 1040 and business form electronically," said Terry Lutes, who heads the agency's Electronic Tax Administration.

"We are as committed to protecting the paper process as the electronic system," Lutes told a conference of the Council for Electronic Revenue Communication Advancement Nov. 7.

Last year, 40 million Americans filed their tax returns electronically, 2 million short of the IRS goal for the tax season. This year, the IRS hopes that 46 million Americans will file electronically -- a target set before the Sept. 11 attacks. IRS officials said they did not want to encourage e-filing by exploiting people's fears of terrorism.

IRS Commissioner Charles Rossotti, who also spoke at the conference, said there could be an increase in e-filing because "most people want to do what they can" to support government and society.

"It does help us if we can reduce the volume of paper," Rossotti said.

But he declared, "We will process paper returns."

Tax preparers attending the conference said the terrorist attacks would only encourage people to do more work online, including their tax returns.

"There's a compelling case for e-filing. Ten packets of Sweet 'N Low could shut down a service center," said Bob Weinberger of H&R Block, the nation's largest tax preparation company.

IRS officials also are planning to ask Congress to extend the filing deadline by as much as a week for taxpayers who file electronically. This would give e-filers the same "float" on their money as taxpayers who mail a check with their return. Currently, when the IRS receives an electronic tax return from a taxpayer, an electronic transfer is made immediately from a taxpayer's bank account.