E-filing: truth or promises?

• Author: Schnepper, Jeff A.
• Position: Economic Observer - Internal Revenue Service benefits from electronic filing of income tax returns

THE INTERNAL REVENUE SERVICE really wants you to file tax returns electronically. Its goal is to have 80% of all returns filed electronically by 2007. The IRS promises quicker refunds than if you file by mail. Mailed returns face the bioterrorism threat of anthrax contamination. The IRS has responded by having mailed returns processed at off-site facilities. That adds to the delay in getting you a check. Combine electronic filing with direct deposit, and you could have your refund in your bank account by the next day. Or, you could be subject to an audit by the IRS Criminal Investigation Division!

All that glitters is not gold. John G. Ams, executive vice president of the National Society of Accountants (NSA), has charged that some "delays in refunds on electronically filed returns ... stretch far beyond" the dates indicated by the IRS. NSA Tax Manager Bernie Philips reported receiving dozens of complaints from tax preparers about refunds on e-filed returns that were delayed four to five weeks--some even longer. Statistics from past filing seasons showed such refunds being paid within 10 days. Most disturbing to me was Ams' revelation that some refunds exceeding $10,000 are being reviewed by Criminal Investigation. The IRS keeps more than $10,000 of your money, doesn't pay you a penny of interest, and you're the criminal!

Why is the agency targeting such e-filed returns? Theoretically, the sole difference between e-filed and mailed returns is the speed of processing. The IRS response was that it does not guarantee to pay a refund by a specific date. It recommends that taxpayers wait at least three weeks before even checking on the status of a refund.

The IRS has issued a schedule indicating that direct deposit of tax refunds from e-filed returns would be made within one to two weeks, and that paper refund checks would be mailed within another week. However, this schedule is merely a target, not a guarantee.

Who benefits?

E-filing is a great deal for the IRS. It saves millions in man-hours and decimates the cost of processing and storing paper returns. The 2002 Federal tax-filing season set records for the number of returns processed and filed electronically. Specifically, as of Apr. 19:

* Nearly 45,800,000 taxpayers had e-filed. The old record was 40,200,000 for all of 2001.

* Taxpayers filed more than 9,100,000 returns from their home computers. This is a 34% increase over the total for all of 2001.

* The IRS has processed over 77,000,000...