ETA update.

• Author: Martin, Susan W.
• Position: IRS Office of Electronic Tax Administration

The Internal Revenue Service Office of Electronic Tax Administration (IRS-ETA) was charged by the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA '98) with two primary goals: (1) electronically filing in the 2003 filing season all returns prepared electronically and (2) electronically filing by the 2007 filing season 80% of all tax and information returns. As of July 4, 1999, the IRS-ETA reports that many more taxpayers decided to electronically file (e-file) individual income tax returns for the 1999 filing season:

1998 filing 1999 filing season season Practitioner e-filing 17.57 million 21.07 million On-line filing 930 thousand 2.43 million Telefiling 5.95 million 5.66 million Totals 24.45 million 29.16 million(*) (*) Note: Additional e-filed returns for late filers are projected to bring the total e-filed returns to 29.3 million for the 1999 filing season.

The decline in telefiling is presumed to be due to a shift to computer fling, additional complexity in the law for education credits and deduction of interest on student loans. Federal/state levels of e-filed returns also increased from 6.09 million to 8.33 million in the 1999 filing season for 1998 returns.

One pilot project in the 1999 filing season involved mailing a postcard with an electronic customer number (ECN) to any taxpayer who prepared an individual income tax return on a computer in 1998. These taxpayers could use the ECNs to e-file completely paperless returns without having to submit Forms 8453, U.S. Individual Tax Declaration for Electronic Filing, with written signatures and W-2s attached after e-filing. Approximately eight million households (representing approximately 12 million taxpayers) were mailed these postcards; 652,345 returns were filed utilizing this completely paperless system. Some taxpayers objected to the cost (generally, at least $9.95 for Federal and $4.95 for state e-filing with the use of tax preparation software) and the need to use a third-party intermediary to transmit the e-filed return. Six states provided direct free Internet filing during the 1999 filing season; several more are considering providing this option in the 2000 filing season. The IRS will face increasing pressure to provide direct, free Internet filing to achieve its e-filing goals.

One of the benefits for individuals e-filing is the electronic acknowledgment that the return was received and processed by the IRS-ETA. Taxpayers expecting refunds can also...