It's Never Too Late to Offer E-Filing
Four simple tips show you how.
March 13, 2008
by Mark Washburn, CPA/MST
As most CPAs are aware, electronic-filing, also known as e-filing, is not new a new concept. It has been around since 1986 as a pilot program, and by 1990 the IRS had rolled out e-filing as a nationwide program. However, since fewer than 10 percent of U.S. households had a personal computer at the time and since many businesses manually prepared financial reports, e-filing was not an immediate success story. Things sure are different today.
For the 2006 tax year, the IRS reports that of the nearly 135 million individual tax returns filed, approximately 60 percent of these returns were filed electronically, with close to 43 percent of those returns filed by tax professionals using e-filing computer software.
Benefits of E-Filing
So, why are you still filing paper documents to the IRS for your clients? The benefits to you and your clients are clear.
- Tax returns prepared for e-filing are effectively free of errors. Do keep in mind that free from errors does not necessarily mean free from fraud. It does mean e-filed returns undergo significant error-checking processes designed to eliminate many of the errors still found on paper-filed returns. For example, the mismatch of names to Social Security numbers remains the number one type of error found on tax returns. The IRS maintains a special database provided by the Social Security Administration that compares names to Social Security numbers. Transposing Social Security numbers creates mismatched information when the return information is compared to information on file with the Social Security Administration.
- Major errors are eliminated. Math errors on e-filed returns do not exist, but it remains a top five error on paper-filed returns.
- E-filed returns generate an acknowledgement of receipt by the IRS within 48 hours of filing. With paper-filed returns, even returns sent by certified or registered mail, the assurance of receipt by the IRS is limited to a return document indicating the IRS received the envelope, but not necessarily the contents of the envelope. With e-filing, concerns about whether the IRS received the tax return or not are eliminated.
- Can determine the status of refunds online. By logging into the IRS Web site, taxpayers can obtain the status of their refunds by inputting some key information from the tax return. Not the least of all benefits of offering e-filing is the speed in getting the refund. Couple direct deposit with e-filing and your clients could get their refunds in just seven to 10 working days depending on when the return is actually filed during "tax season."
Need More Convincing?
E-filing is not limited to 1040 tax returns. Many requirements of filing for businesses can be handled through electronic filing. Quarterly reports, such as Form 941, can be e-filed. Payroll tax deposits as well as quarterly estimated tax deposits can also be made using e-filing. Also, should the individual or business owe federal income taxes, payments can be made electronically using safe, secure Internet connections.
How You Can Participate
Now that you are finally convinced you need to be offering e-services to your clients. What is your next step?
- Application submission. First, submit an application to the IRS to participate in e-services using the new electronic e-file application. This is the tough part. Even though the application may be made using an electronic application, approval may take up to 45 days. Clearly, the quicker this decision is made, the sooner you will be able to participate in the program.
- Process and screening. After the IRS processes your application and you pass the suitability screening process, you will receive an Electronic Filing Identification Number from the IRS. If you also decide to be a direct transmitter of tax returns, whether individual or business returns, to the IRS, another number known as an Electronic Transmitter Identification Number is assigned to you.
- Acceptance into program. Once you have received notice from the IRS Andover Submission Processing Center of your acceptance into the e-filing program, it's time to buy commercial tax preparation software that supports e-filing.
- Program familiarization. Last but not least, you should totally familiarize yourself with the e-filing process by reading the publications prepared by the IRS. A good starting point should be the Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns.
You will want to make your clients, both actual and potential, know you participate in the e-filing program. The IRS has a marketing toolkit that includes the IRS e-file logo as well as the current year's refund cycle chart, which shows the time frame refunds can be expected based on the time of their acceptance. This toolkit, as well as other marketing materials, is available free of charge from the IRS.
The benefits of participating in the IRS e-file program provide ample reason finally to get involved. Even if you are coming to the program late, you have to start somewhere and sometime. These services, which can be provided free of charge to your clients, enhance the professional image of you and your firm. Before you know it, you will wonder why you ever waited to participate in this valuable program.
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Mark Washburn, CPA/MST, is a Senior Lecturer in Accounting at The University of Texas at Tyler. He teaches both Individual and Corporation tax courses at the undergraduate level. He is a certified public accountant licensed in Texas and holds a Master of Science in Taxation from the University of Texas at Arlington.