Brave new e-filing world: ready or not, it's here to stay.

• Author: Ascierto, Jerry
• Position: Taxation

In 2002, Noelle Allen and her client plunged into the e-file world. The Cameron Park-based CPA reflects that going from "zero to a hundred" in a single filing season was an administrative challenge that resulted in changes to her office procedures. But, she adds, the biggest change wasn't tangible. "The No. 1 thing e-filing involved was a change in my attitude," she says. "Once you make up your mind to do it, you realize the change isn't that drastic--and you find that you've ended up with a much cleaner setup."

That attitude will go a long way now that California's recently passed budget made e-filing mandatory for all practitioners who file 100 or more individual state tax returns per year and use tax preparation software. Prior year, fiduciary and amended returns are not required to be e-filed, and California doesn't offer the option of e-filing business returns.

The Franchise Tax Board predicts that the move will reduce the state's annual tax filing costs by $50 million, and anticipates more than two million additional e-file returns next year.

The requirement takes effect Jan. 1, 2004---and the FTB will go after those not following the rules. There will be a $50 penalty for every return filed on paper that could've been done electronically.

THE FIRST DAYS ARE THE HARDEST

Allen concedes that the transition to e-filing comes with some growing pains, especially during the first year as office procedures must adapt to the new processes and procedures.

"The first year of doing this is more labor intensive than successive years, because you have to input a lot more data than you had to before," Allen says.

For example, a practitioner must input W2 and 1099 information, including federal and state employee identification numbers, which takes extra time.

But once those details are complete, the benefits become apparent, says Tina Stiles, an e-Programs specialist with the FTB.

"Once you have that data, if you continue with the same software, it just updates the taxpayer's personal information from the year before," she says. "So from then on, it gets easier and easier."

This additional level of detail, however, doesn't thrill everybody. Ken Fowler, CPA and co-chair of the Taxation Committee for the Silicon Valley San Jose Chapter, believes that if practitioners are required to e-file, everyone should follow suit.

"What I'd rather have is the taxpayer bringing us an electronic file of their income," he says. "I don't want to be a data entry...