Tax Administration:

Opportunities to Increase the Use of Electronic Filing

GGD-93-40: Published: Jan 22, 1993. Publicly Released: Jan 29, 1993.

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Pursuant to a congressional request, GAO discussed steps the Internal Revenue Service (IRS) can take to increase the use of electronic filing.

GAO found that: (1) electronic filing appeals to taxpayers who are most in need of their refunds and who seem least able to afford the cost; (2) the median fee for preparing a tax return is $70, the median fee for filing it electronically is $22, and the median fee for a refund anticipation loan is $35; (3) many taxpayers are not using electronic filing because of the cost; (4) taxpayers not filing electronically appeared to be better money managers, and were in no hurry to receive tax refunds; (5) 61 percent of potential tax preparers and transmitters cited the cost of hardware and software as a barrier to their participation in the electronic filing program; (6) many potential filing markets remain untapped because IRS promotes electronic filing primarily among tax preparers who deliver electronic filing services to taxpayers; (7) only 15 percent of the individual income tax returns filed in 1992 that involved refunds were filed electronically; (8) IRS has allowed certain taxpayers to file by telephone and has made electronic filing available to taxpayers who owe additional taxes; (9) IRS recently developed an electronic filing marketing plan focused on tax preparers and transmitters; and (10) inefficiencies in the electronic filing system include the need to submit paper documentation in support of the electronic transmission, limitations on the number of forms and schedules that can be filed electronically, the need to correct electronic return errors on two different systems, the need to print and transship copies of electronic returns to various IRS locations, and inadequate detection of electronic filing fraud.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS formed an executive-led task group to develop a comprehensive electronic filing strategy. That group produced a report that spelled out 21 initiatives for broadening the use of electronic filing. Each of the initiatives included an action plan and identified the organization(s) responsible for implementing the plan.

    Recommendation: The Commissioner of Internal Revenue should take steps to broaden the electronic filing of individual income tax returns. Those steps should include: (1) identifying market segments; and (2) specifying national strategies for attracting those segments to electronic filing, including strategies to encourage employers and financial institutions to provide electronic filing services to their employees and customers.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Not Implemented

    Comments: GAO is closing this recommendation because it will be issuing another report on electronic filing in the Fall 1995. This report follows up on IRS' progress in broadening the appeal of and access to electronic filing and includes recommendations that encompass those that were included in this report.

    Recommendation: IRS should assess the feasibility of: (1) enabling taxpayers to file electronically through their personal computers; and (2) providing broader access to electronic filing at IRS field offices and other convenient locations.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: IRS said that nine more forms and schedules would be included among those that could be filed electronically in 1994 and that it planned to convert the remaining nonelectronic forms and schedules as soon as possible. According to IRS, one of the assumptions on which the electronic filing task group predicated its work was that all forms and schedules could be received electronically.

    Recommendation: IRS should determine what forms and schedules might be added to the list of documents that can be filed electronically to broaden the accessibility of electronic filing.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Not Implemented

    Comments: According to IRS, funding constraints the past several years prevented implementation of this recommendation. Because the funding situation is not expected to change and given other funding priorities, GAO is closing this recommendation as "action not intended."

    Recommendation: IRS should follow through on plans to install return retrieval capability in the nonelectronic filing service centers and, thus, eliminate the need to copy and transship tax returns to other locations.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: IRS accelerated its schedule for implementing a one-step error correction process. According to IRS, the process was in use in 1993 and resulted in increased efficiency.

    Recommendation: IRS should take steps to avoid the need for redundant correction of errors on electronic returns.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: The electronic filing task group addressed the issue of capacity as it related to two of the three electronic filing subsystems and laid out steps it felt were needed to meet capacity needs for the next 2 or 3 years. According to IRS, the third subsystem was recently upgraded and should have sufficient capacity to handle volumes through 1996.

    Recommendation: IRS should prepare a contingency plan to ensure that sufficient capacity is available to process electronic returns until its Tax Systems Modernization replacement is operational.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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