Good returns for e-filing taxes

President Bush's 2003 budget includes two new bonuses to encourage taxpayers to file their yearly returns online — making it free and extending the deadline for electronic returns past the dreaded April 15 cutoff.

A 10-day filing extension would take effect in 2003. In the meantime, the White House is trying to work with the tax software industry, which is fretting over the idea of potentially losing millions of dollars in business if taxpayers were to file online with the Internal Revenue Service for free.

"We need to reduce the burden on taxpayers in the short term by rapidly expanding opportunities such as e-filing, and making it free to those who choose it," Treasury Secretary Paul O'Neill said in a statement Jan. 30 announcing the two projects.

O'Neill said he had no intention of getting the IRS into the software business, but instead seeks "to open a constructive dialogue with those who already have established expertise in this field."

Charles Rossotti, IRS commissioner, said the agency would hold a forum to listen to industry leaders, including such companies as Intuit Inc., maker of TurboTax software, and H&R Block, which markets TaxCut software.

Industry officials remain wary of any plan promoted by the government, however. "An approach that is apparently under active consideration by some within the administration has less to do with electronic 'filing' than with electronic 'preparation' of tax returns," said Ed Black, president and chief executive officer of the Computer and Communications Industry Association.

The IRS expects about 46 million tax returns to be filed electronically this year, up from 40 million in 2001. The agency is working to increase the number of e-filers, according to Terry Lutes, director of the IRS' Electronic Tax Administration. The service has a goal of getting 80 percent of all tax returns online by 2007 and is embarking on a major advertising campaign to make people aware of e-filing.

Electronic filing not only helps taxpayers calculate the figures, but also turns around tax returns faster and matches names to Social Security numbers, among other features, Lutes said.

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What's new in e-filing

* Faster refunds. Direct deposit can provide refunds to e-filers in as few as 10 days.

* Electronic confirmation. E-filers receive a notice that the IRS has gotten their return.

* Electronic signatures. Taxpayers can pick their own personal identification number and file a completely paperless return.

* Payment date. E-filers owing money to the IRS can designate when the money should be withdrawn electronically from their bank accounts.

* Federal/state e-filing. Taxpayers in 37 states and the District of Columbia can e-file federal and state returns in one transmission.