The IRS Oversight Board released its Electronic Filing 2010 Annual Report to Congress and concluded that the goal that 80% of all major tax return types be electronically filed will likely not be met by 2012.
The 80% e-file goal was originally implemented by the IRS Restructuring and Reform Act of 1998, P.L. 105-206, and at that time the goal was for 80% of all individual returns to be e-filed by 2007. The goal has subsequently been expanded to include all major individual, business, and exempt organization tax returns, and the target date has been moved back to 2012.
The report notes that there has been steady progress in increasing the rate of electronic filing of various tax return types, but the overall e-file rate for major tax returns in 2010 was 59%, leaving the IRS well below its goal with two years to go.
For individual returns, the e-filing rate was approximately 70% in 2010, and the report notes that this rate was probably reduced by the fact that taxpayers claiming the first-time homebuyer credit had to file their returns on paper.
Because of the recent mandate that requires e-filing of individual returns by most return preparers, the report estimates that the e-file rate for individual income tax returns may exceed 80% by 2012; however, the board believes the overall rate for all major tax returns combined will likely be not much higher than 70% because the e-filing rates for business, tax-exempt, and employment tax returns are far lower than the e-filing rate for individual returns.
According to the report, e-filing rates for employment tax returns lag significantly behind other returns. Only 23% of Forms 941 are e-filed, and the e-filing rate for other employment tax returns is even lower. The report notes that employment tax returns are often prepared by company payroll staff and not by traditional return preparers, and the board urges the IRS to develop new strategies to reach businesses’ payroll staff and encourage greater e-filing of employment tax returns.
The board does express confidence that the 80% goal will eventually be met. “Even if attaining the 80 percent e-file goal by 2012 proves to be impossible, the Board has no doubt that tax administration will eventually cross that threshold in the not too distant future,” the report states.
The report also discusses several other areas of electronic tax administration, including the 2010 implementation of the first phase of the IRS’s modernized e-file system, the new preparer tax identification (PTIN) registration system, and the IRS’s discontinuation of providing a debt indicator on e-filed returns.