If the sales pitch from the Internal Revenue Service is to be believed, there's no reason why anyone who can file taxes electronically should fiddle with an old-fashioned paper return.
According to the IRS, taxpayers who e-file their returns typically get faster refunds, spend less time filling out forms, and are less likely to make errors.
Moreover, the majority of taxpayers don't even have to pay to e-file, under a program the IRS introduced last week with a consortium of software providers. To solidify its pitch, the agency sent out some 23 million postcards to taxpayers this tax season, urging them to make the switch to electronic filing.
But so far, the IRS has made little progress instilling the merits of e-filing in one of the groups most responsible for the deluge of documents dumped on the agency each tax season. Accountants who handle tax returns for well-off clients, by and large, are sticking with paper.
"Basically, for most of the returns that CPAs do that are complex, electronic filing is not at this point in time user-friendly," said Steven Kessler, a Seattle CPA. "The process is too cumbersome."
For certain deductions -- such as declaring a loss on a rental agreement -- e-filing simply won't work. And rather than e-file part of a return, Kessler said he finds it easier to mail the whole thing.
Besides saving some additional hassles, many accountants who handle detailed tax filings are concerned about the security of submitting client data over the Internet.
"It would be nice if the system and security were totally in place right now, but I don't think it is," said Keith Stoneking, a CPA in Sausalito, California.
Stoneking said he hopes to offer electronic filing as an option for the 2004 tax season, but only after he has thoroughly researched the security issues surrounding online submission of tax records.
Kessler, for his part, is confident that eventually the IRS will devise a system for e-filing that is simple and secure enough for all taxpayers. At present, however, he's also worried about the security risks.
"Any time you send a return over the Internet, you're opening that client's data up to interception," he said.
Such concerns aren't shared by the IRS. If anything, the agency believes that e-filing is safer than mailing a paper return.
Bruce Friedland, an IRS spokesman, said the agency has received 260 million returns electronically since 1986 and "hasn't had any instances of the security of those returns being compromised."
Nonetheless, the cautious approach many CPAs take toward going electronic may be one reason the IRS is focusing its e-filing pitch most aggressively on people who do their taxes themselves.
This tax season, the IRS mailed postcards laying out the benefits of e-filing to 8 million taxpayers who filled out their tax forms last year using a computer, but printed and mailed the finished return, according to the General Accounting Office. The mailing is part of an effort by the IRS to make 80 percent of all tax returns e-filed by 2007.
Last year, the IRS was quite effective in winning converts. According to the GAO, the number of e-filed returns grew from approximately 40.2 million in 2001 to 46.9 million in 2002, an increase of about 16.5 percent. The rise exceeded the IRS's own goal of a 15 percent increase.
Still, an e-filing advisory group has doubts that high rates of conversion can continue without new incentives. According to a report by the Electronic Tax Adminstration Advisory Committee, cited by the GAO, the IRS must overcome existing barriers to e-filing to meet its 2007 goal.
Although the free e-filing initiative will help motivate more taxpayers to file by computer, the IRS will have difficulty reaching many people, particularly low-income filers who are not computer literate or do not have easy access to a computer.
The free service is also not available to about 40 percent of taxpayers, according to IRS estimates. In order to qualify for the free filing, taxpayers must meet certain guidelines, based on factors like age, income, state of residency and type of tax form.
In many ways, e-filing makes sense for people with simple tax returns who are not planning to take many deductions, says Kessler.
But while many some taxpayers may save time and a few dollars through the free e-filing program, tax experts say the biggest beneficiary of the push for electronic submission is clearly the IRS.
"In a paper return, they have their data entry people who sit there 24 hours a day keying in the information," said Jerry O'Connor, marketing manager for CCH Tax Compliance, one of the companies working with the IRS in the free e-fling program.
With an e-filed return, information gets filed in the IRS's database immediately.
Theoretically, a higher rate of e-filing might also allow the IRS to eliminate data entry costs and put more resources in other areas, such as answering taxpayer questions. Last year, the IRS had a lackluster rate of success with tax questions submitted by e-mail. According to the GAO, fewer than 78 percent were answered correctly.
But Dan Pilla, a tax litigation consultant and author of self-help books for people defending themselves against IRS prosecution, doesn't believe that e-filing is the best way for the IRS to reduce its workload.
"There's no question that the IRS is deluged with paperwork," Pilla said. "But the solution to the problem has got to involve radical restructuring of the tax law rather than a push for an electronic system."
In the meantime, Pilla says he still prefers paper returns, which he perceives as a safer bet for taxpayers who want to make sure the IRS receives their tax forms.
"I'm an old-fashioned guy," he said. "I'd recommend mailing the thing certified mail with a return receipt requested."
