Year-one corporate e-filing a success, but most companies incurred additional costs: survey at TEI annual conference highlights transitional concerns.

While the majority of large and mid-sized companies successfully e-filed their federal tax returns for the first time in 2006, the transition process did require many to invest additional resources into the tax preparation process, according to a recent survey conducted by KPMG LLP and Tax Executives Institute.

The survey, which was conducted during TEI's 61st Annual Conference, found that 88 percent of companies incurred additional costs in e-filing their tax return, measured in terms of both money and staffing. This includes 40 percent of respondents who categorized the increase as "substantial" and 48 percent who described it as "modest." Of those reporting added costs, 40 percent said the costs resulted from both tax department and technology support resources, with an additional 33 percent pinpointing tax department staff resources only.

In light of the IRS e-filing mandate, the additional resources may have been well spent, since 52 percent of companies reported that their tax return was accepted on the first try, and only 3 percent experienced a rejected return more than five times. All companies with assets of $50 million or more and which file at least 250 returns annually were required to electronically file their 2005 taxes by September 15, 2006.

"The process was not without its difficulties, but all things considered, e-filing went relatively smoothly," said TEI Executive Director Timothy McCormally. "Nevertheless, our members, who are working with the IRS to make process improvements for next year, also hope that some first-year transition rules remain in place. "In fact, according to the survey, 58 percent of respondents thought that all of the first-year transition rules should be retained for 2006 tax return filing.

"There is no question that the first year of mandated corporate e-filing was a success, but as we predicted, it did require an additional investment in staff, technology, and time to transition to the new system," said...