E-filing state tax returns.

• Author: Rosenberg, Susan J.

Most states participate in the Federal/state electronic filing (e-file) program, which allows individual taxpayers to file their Federal and state income tax returns at the same time. Even if a state does not participate, return preparation software makes it relatively easy to integrate e-filing of state returns with the Federal process. All states that impose a personal income tax now accept e-filed individual income tax returns, although not all of them accept nonresident or part-year resident returns. Individual returns with balances due may be e-filed in all states; all refunds may be directly deposited into a taxpayer's bank account.

A firm must. apply to the IRS to be an electronic return originator (ERO), using Form 8633, Application to Participate in the IRS e-file Program. The application process may be completed at the IRS website, www.irs.gov/efile. Once a firm is accepted as an ERO by the IRS, most states will automatically accept it as a state ERO. If a firm is located outside of a state, this may not apply. The exhibit on p. 767 shows which states follow the Federal process, which have their own rules, which accept nonresident and part-year resident returns and how they complete the signature process. Detailed information can be found at each state's website.

State Mandates

While most states do not require e-filing of income tax returns, some do. Many states require e-filing for and/or payment of sales and use, payroll and excise taxes; this column focuses only on income tax returns. The following states have e-filing mandates with their own rules.

Alabama: Practitioners who prepare 250 or more individual income tax returns during 2004 must e-file all acceptable current-year individual returns. The requirement decreases to 100 returns filed in 2005. Taxpayers may elect not to e-file their returns; see the Department of Revenue (DOR) website, at www.ador.state.al.us/incometax/elfmandtate.html, for more information.

California: Tax practitioners who prepare more than 100 individual state income tax returns per year must e-file those returns. Failure to comply may result in a $50 penalty per noncompliant return. The penalty may be waived for reasonable cause, which includes the taxpayer's decision not to e-file the return. More information is available at the Franchise Tax Board website, at www.ftb.ca.gov.

Connecticut: A pending regulation will require preparers who prepare 200 or more 2004 individual income tax returns to e-file...