Whole Ball of Tax 2003

THE IRS WANTS YOU… TO FILE INCOME TAX FORMS ELECTRONICALLY

An Overview of Paid and Free Options for E-Filing, E-Refunds, E-Payments

(RIVERWOODS, ILL., January 2003) – If you were one of the millions of Americans last year who was still checking the mailbox for your tax refund check weeks after you mailed your tax return to the IRS, you may want to consider electronically filing your return this year, as well as electronically receiving your refund, according to CCH INCORPORATED (CCH), a leading provider of tax law information and software.

In fact, nearly one-third (32 percent) of all individual income tax returns were e-filed during calendar year 2000, according to government statistics. While many think the e-file option is only available to those who prepare their taxes using a home computer, this is not so. While do-it-yourself e-filing is the fastest-growing e-filing method, seven out of 10 electronic returns are still filed by tax preparers on behalf of their clients.

The government wants even more taxpayers to join the digital age, with Congress identifying a goal to have 80 percent of all tax returns filed electronically by 2007. While experts concede it’s likely actual e-filings will fall short of this goal, the IRS is still making an all-out effort to encourage taxpayers to give it a try.

Among its initiatives are the IRS’ e-file program, which recognizes software companies and tax preparation firms that provide taxpayers with electronic filing options. Additionally, select taxpayers are eligible for special no-charge e-file options, including the IRS’ TeleFile program for filing over the phone and online filing available through an agreement inked late last year between the IRS and the Free File Alliance.

Reduced cost is a key benefit for the IRS when taxpayers e-file, as a mailed return is labor-intensive and burdensome, and the IRS ultimately has to key in the data to its system.

"The more time it takes for the IRS to process a return, the longer it takes before they issue a refund. In fact, it generally takes about twice as long to receive a refund from a mailed return as it does from a return that’s e-filed," said Kevin Robert, president, CCH Tax Compliance, developer of CompleteTax (www.completetax.com), an online tax preparation and filing service for consumers, and ProSystem fx Tax, the market-leading software for tax professionals.

Those who want an even faster response can authorize the IRS to directly deposit a refund into their bank account.

Just about everyone is eligible to e-file his or her return. Those who might find they still have to use the paper method are a select group of very high net-worth taxpayers with complicated tax issues that require multiple statements be attached to their returns.

This doesn’t, however, mean that your e-filed return can’t be rejected for other reasons. Among the most common are issues related to Social Security Numbers — either failing to enter the number or having the number not match the name. An example of this is when someone begins using a different surname due to marriage or divorce, but has yet to go through the formal process of notifying the Social Security Administration. Similar problems occur when a child’s name has been changed.

If you e-file and your return is rejected because of a mismatched Social Security Number and name, you can resubmit using your old name as it appears on your Social Security card, or you can notify the Social Security Administration of the new name, wait two weeks and then resubmit the return electronically.

"One of the benefits of e-filing is that you know within 48 hours whether your form has been accepted or rejected by the IRS," said Robert. "So, if there’s a problem, you can start working on how to resolve it much sooner than you would be able to if you had mailed your return, waited for the IRS to begin processing it and then notify you of the problem by mail."

As part of the IRS’ electronic filing initiative, the agency has identified Authorized IRS e-File Providers. Under this program you can choose to have a tax preparer both prepare and e-file your return for you or you can complete your own return and then use a tax professional only for e-filing your return.

If all goes smoothly, a taxpayer’s main involvement is selecting a personal identification number (PIN), which serves as their electronic signature, or if they don’t want to use a PIN, signing a Form 8453. The tax preparer then e-files the return and receives notice from the IRS when the return is accepted. Once the return is accepted, the tax preparer will send the signature form in if the taxpayer opted not to use a PIN.

However, if all doesn’t go smoothly – the return is rejected or the IRS later questions information on the return – there’s a big difference in the support you can expect.

"Essentially, you get what you paid for. So if you only paid the firm to file your return, that’s what they’ll do," said Robert. "If your return is rejected, it’s your responsibility to fix the problem. Also, unlike a taxpayer who uses a professional to prepare the entire return, someone who just pays the firm to e-file, can’t expect the firm will be available to respond to IRS inquiries or a potential audit down the road."

The IRS provides a zip-code enabled program to locate authorized e-file providers on its site at http://www.irs.gov/efile/page/0,,id=100148,00.html.

Millions of individuals already file using a computer and as people become more comfortable with computers, and software becomes even easier to use, it’s expected that even more do-it-yourself tax preparers will move from pencil and paper to keyboard and mouse.

Just as selecting a tax preparer needs to be based on the taxpayer’s specific requirements, selection of an online tax preparation and filing solution should be driven by the taxpayer’s particular needs.

"Features of the different programs vary. Some are very costly with bells and whistles that most do-it-yourselfers would likely never use, while others can be barebones, lacking tools and information that most individuals need to guide them through the tax-return process," explained Robert.

Fortunately, most online tax preparation and filing programs will let you try their product before you purchase, allowing you to make an informed decision.

Once you’ve chosen an online tax preparation and filing solution and entered the necessary data for the program to complete your return, the software should conduct a final check and let you know of potential problems in the information you provided (e.g., math errors, exclusion of a Social Security Number, etc.) before it’s sent off to the IRS.

Once you’re satisfied the return is complete, e-filing it with the IRS is just a matter of selecting a PIN as your signature and clicking a few buttons. You will be notified electronically of IRS acceptance of your return within two working days. If it is not accepted, you’ll be provided with details from the IRS explaining why. Once corrected, you can then use the online program at no additional charge to resubmit.

In addition to e-filing your federal return, 42 states now accept e-filed returns, and the online program you select should allow you to simultaneously e-file both your federal and state tax returns. While the returns are filed electronically, it’s still important to print out and retain paper copies for your records.

The cost of preparing and filing returns via an online or software program can vary significantly, however, you should be able to find a solid solution for under $30.

The IRS provides details on software companies participating in its e-file program at (http://www.irs.gov/efile/lists/0,,id=101223,00.html). This includes not only resources for tax preparation and filing, but also companies offering support for special circumstances, such as helping individuals address Schedule D and capital gains issues.

Two free filing options exist for specific groups of taxpayers: filing via the newly formed Free File Alliance or toll-free filing via the IRS’ TeleFile program.

Under an agreement between the IRS and a group of software companies known as the Free File Alliance, the IRS plans to make free online tax preparation and electronic filing services available to at least 60 percent of all individual taxpayers — about 78 million people. While each alliance member can determine which taxpayers to serve, it’s expected they will offer free online tax prep and filing to individuals who meet specific criteria, such as below a certain income level or above a certain age.

Those who are eligible can access Free File Alliance services on the Internet via www.irs.gov or www.firstgov.gov.

Another free-filing option is the IRS’ TeleFile program, allowing taxpayers to electronically file over a touch-tone phone via a toll-free number.

To qualify, a taxpayer must have filed a return in the previous year that met the filing requirements for Form 1040EZ and did not later file an amended return. The taxpayer also must not have changed their address. The IRS automatically sends TeleFile packets to individuals who meet these criteria. However, not many individuals do and only about 3 percent of all e-filed returns are received via TeleFile.

In addition to filing electronically, you also can choose direct deposit of a refund or direct withdrawal if you owe additional taxes.

Direct deposit further speeds tax refunds. For example, it generally takes about three weeks for a taxpayer to receive a paper check after e-filing a return. With direct deposit, a taxpayer should expect a refund deposited in his or her savings or checking account within two weeks.

While those who owe taxes may see no advantage in giving the IRS access to their savings or checking account for a direct withdrawal, there actually is: You get to designate the exact date – as late as April 15 – on which you want the withdrawal to occur.

"You can do your taxes early, e-file early and have the peace of mind of knowing your return is accepted, while still waiting until the last minute to pay any taxes you owe," said Robert.

CCH Tax Compliance is an IRS e-file partner, offering individuals and sole proprietors fast, easy online tax preparation and filing via CompleteTax (www.completetax.com). CCH Tax Compliance also is a member of the Free File Alliance.  More information on its online services under this program is available at www.irs.gov or www.firstgov.gov.

CCH Gainskeeper (www.gainskeeper.com), a CCH company, also is an IRS e-file partner, offering both individuals and their advisors help in completing complex calculations related to capital gains, adjusting portfolios for wash sales and corporate actions.   

CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. The company annually produces more than 700 electronic and print products for the tax, legal, securities, human resources, health care and small business markets. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH tax and accounting web site can be accessed at http://tax.cchgroup.com.

CCH Tax Compliance, headquartered in Torrance, Calif., is a leading supplier of software for tax and accounting professionals. The ProSystem fx Office is a powerful, integrated suite that includes modules for tax compliance, tax planning, trial balance, fixed assets, practice management, paperless tax and audit engagements, outsourcing and web site development.

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