IRS targeting e-filing goals

For the Internal Revenue Service to reach its congressional mandate of having 80 percent of taxpayers file electronically by 2007, the agency will have to make it "smart business" for third-party tax organizations to adopt and promote e-filing, officials said Jan. 27.

Much of that will only be accomplished by making the e-filing process a truly electronic one, they added.

The IRS' Electronic Tax Administration has a long way to go to reach the 80 percent goal, said Kevin Belden, chairman of the Electronic Tax Administration Advisory Committee. He spoke before Congress' IRS Oversight Board.

"Having that goal has been a coalescing factor for the IRS and the industry.... That said, [on] current course and speed, we are not going to achieve those targets," Belden said. "We need to find a way to make it smart business" to e-file.

The Free File e-government initiative launched this month should help raise the profile of e-filing for individual taxpayers, Belden said. But because only 35 percent of taxpayers filed their returns electronically last year, more efforts will be needed to approach the target percentage, Belden said.

E-filing is not an entirely electronic process for many tax preparers, despite the growth of the IRS' electronic services program. Many steps still involve paper, faxing and phoning, Belden pointed out.

Plus, some laws still exist that require certain tax forms to be mailed to the IRS, effectively prohibiting e-filing, said Michael O'Neill, chairman of the IRS' Information Reporting Program Advisory Committee.

But the users who have started to move to the agency's new e-services platform, which uses forms based on Extensible Markup Language to exchange information, are finding it an easy and more effective process, said Pete Isberg, president of the National Payroll Reporting Consortium Inc.

"Electronic services really offer the most bang for the buck in terms of self-service," he said.

To make e-filing a fully electronic process, "the IRS is going to have to modernize its e-file platform," Belden said, and that is going to require funding. Modernization of back-end systems also will have to be a priority for the agency. But members of the advisory committee believe the upfront investments will be more than offset by the benefits, primarily because of the possible increase in individual and business tax returns filed online, Belden said.