The Internal Revenue Service is keeping up with the pace of modern technology by expanding its electronic tax return filing program from a small pilot program begun in 1986, to 36 states for the 1988 year.
Taxpayers benefit by having their tax returns processed quickly and accurately. The cost for the IRS to process an electronically filed tax return is a fraction of the cost to process a paper tax return.During the 1986 filing season, about 25,000 tax returns were filed electronically from three metropolitan areas. In 1987, 77,600 returns were filed from seven metropolitan areas, and in 1988, almost 583,00 returns were filed from 16 IRS districts.
The electronic filing process takes maximum advantage of existing technology. Qualified electronic filers transmit taxpayers' tax return information directly into IRS computers located in Ogden, Utah or Cincinnai, Ohio using telephone modems.
Forms 1040EZ, 1040A and 1040 with most common schedules can be filed electronically.
Taxpayers, preparers and the IRS benefit as IRS computers take over manual processing functions, such as sorting, batching, numbering, coding and editing. If the IRS accepts a return, the electronic filer is notified electronically. Should there be an error or omission, the electronic filer is also notified, and he or she can correct the error. The IRS has experienced a significant reduction in the number of errors on returns filed electronically, reducing the need for costly and time-consuming paper correspondence.
When taxpayers take their return information to be transmitted, their electronic filer will ask them to sign Form 8453, "U.S. Individaul Income Tax Declaration for Individual Filing." This form satisfies the IRS' requirement that tax returns must be signed. The electronic files mails the form to the IRS with accompanying Forms W-2, "Wage and Tax Statement(s)," which are usually attached to a paper tax return.
The Form 8453 also allows taxpayers to choose how they will receive their refund. They can have the refund mailed to them or deposited directly into their saving or checking account by "Direct Deposit." Either way, taxpayers benefit from electronic filing by having their return processed quickly; in most cases, as much as three weeks faster then the traditional paper return process.
The advantages of electronic filing don't stop there. Once a return has been accepted, the IRS uses advanced technology to store the tax return information. Laser disks about the size of a long-playing record are used to store the tax returns. One side of a disk can store as many as 250,000 tax returns, giving the IRS substantial savings in storage costs.
At this time the IRS can only accept refund tax returns electronically; however, research is being conducted to expand electronic filing to other types of tax returns.
Return information is treated with the same privacy and security as any tax return. There is no difference between an electronically filed return and a paper return for purposes of examination.
Though electronic filing may not completely replace the traditional paper method of filing tax returns, in 1990 it will be expanded to include all 50 states, with a growing number of taxpayers and the government reaping its benefits and advantages.