Here comes e-filing: ready or not, mandatory e-filing will soon begin.

• Author: Allen, Bruce C.
• Position: Government relations

In his 2003-04 budget Gov. Gray Davis once again is proposing the implementation of a mandatory e-file requirement for tax practitioners who prepare more than 100 individual state tax returns and use tax preparation software. The proposal is predicted to reduce the state's tax filing costs by $50 million annually.

Tire Franchise Tax Board is anticipating that the legislation will pass and become effective Jan. 1, 2004.

At press time, the proposal was included in two budget trailer bills--SB 7X and AB 1756.

The mandate applies to individual income tax returns, but does not include prior year, fiduciary or amended returns. The requirement applies to all tax practitioners who file with California regardless of the state in which they themselves are located.

To e-file, tax practitioners must use an FTB-approved tax software program. A list of approved programs is located at www.ftb.ca.gov/individuals/eServices/ efile/allsoftware.html.

Currently, a tax practitioner must be an approved IRS e-filer to e-file with the state. There is an Oct. 1 deadline for applying to e-file with the IRS.

Practitioners who are denied participation in the IRS e-file program will be advised to file paper returns and encouraged to resolve their issues with the IRS.

The proposals allow clients to refuse to allow their tax forms to be e-filed. However, the initial proposals would require that client refusals be documented in writing and signed by the client.

Reasonable cause for not e-filing with the FTB also would be allowed for forms that are not supported by tax preparation software, or that are not able to be filed with the IRS since state filing is dependent upon films with the IRS.

However, the FTB is encouraging tax practitioners to lobby tax preparation software providers to change their programs to allow for e-filing of all documents or to change software vendors.

The FTB is planning informational seminars on e-filing to explain tire process to tax professionals, and they are encouraging professionals to become familiar with the process by visiting their website at www.ftb.ca.gov/professionals/eServices/efile.

The FTB has identified those tax professionals to whom the requirement applies and will communicate with them directly after the legislation is passed.

Transitioning to e-filing is reported to be a frustrating and time consuming event with a steep learning curve.

If this legislation is enacted, practitioners would be well advised to begin taking steps in...