The IRS should phase in over the next three years a requirement that tax return preparers filing more than 10 returns do so electronically—a mandate that otherwise will take effect next year, an advisory panel said Friday.
The recommendation was among nine by the Electronic Tax Administration Advisory Committee in its annual report to Congress. The committee advises the IRS on its strategic plan for electronic tax administration and related issues. It monitors the IRS’ progress toward meeting its goal of receiving at least 80% of tax and information returns electronically. It also assesses the effects of e-filing on small businesses and self-employed taxpayers. The 13-member committee is composed of practitioners, tax executives, state revenue officials and others.
Other key recommendations in this year’s report included that the IRS not impose burdens beyond the public benefit of its new proposal for greater regulation and oversight of return preparers. Also, the committee said, Congress should fund and the IRS should complete its plans for improved new e-filing computer systems.
The preparer e-filing mandate was part of the Worker, Homeownership, and Business Assistance Act of 2009 (PL 111-92). Effective for returns filed after Dec. 31, 2010, any return preparer who files or expects to file more than 10 individual income tax returns in a calendar year must e-file those returns.
The committee said the IRS should apply the requirement only to preparers filing the 1040 series of returns and phase in the requirement by setting the threshold at 100 returns for the 2011 filing season; 50 returns for the 2012 filing season; and 10 returns for the 2013 filing season. The IRS should also allow taxpayers to opt out of having their Form 1040 returns e-filed, it said. A gradual phase-in would help small tax practices handling business returns adopt e-filing as part of their business model, the committee said.
As the IRS further develops and implements tax preparer oversight and regulation, it should avoid any measures that would reduce the availability of qualified, authorized IRS e-file providers, the committee said. It could do so by making sure that all industry stakeholders are aware of the new requirements for registration, testing and education, and making sure those requirements are easily available and affordable for preparers. It should also enforce compliance both directly and indirectly, the latter by educating taxpayers about the importance of using only registered, qualified preparers, the committee said.
To improve its e-file computer platforms, the IRS should complete its Business Systems Modernization Program before starting any other new information technology programs, the committee said. The program includes the IRS’ Customer Account Data Engine and other systems designed to speed processing of returns and refunds and in other ways improve taxpayer service.
Regarding the 80% e-file goal, the committee noted that the 2010 filing season was projected to reach a 59% e-file rate for all major types of returns. To meet the 80% goal, about 40 million more returns will need to be e-filed. E-filing of individual returns in 2010 increased by three percentage points over the previous year to 72%.