A new program gives people access to free tax preparation software through the April 15 filing deadline -- a gambit aimed at getting 80 percent of returns filed electronically by 2007.
Free Filing is a government partnership with 17 private tax-software companies that now lets 60 percent of taxpayers, or 78 million, file returns online for free. The IRS received nearly 85 million paper returns last year and 46 million electronic returns. Officials estimate 54 million will file electronically this year.
"E-file is quicker; e-file is more accurate," said Robert Wenzel, acting IRS commissioner. "E-file is the best way to confirm the IRS received your return, and it's the fastest route to a refund."
The IRS said electronic filing reduces errors, speeds processing time, is cheaper and provides better security for private information.
"We have less paper coming in these days, so we've needed fewer people processing those returns," spokesman Terry Lemons said. "It's allowed us to free up resources for other resources, particularly customer service."
Eligibility requirements are generally based on factors such as age, adjusted gross income, state residency, military status or eligibility to file the Earned Income Tax Credit. Taxpayers can complete an online questionnaire to determine if they qualify.
Refunds generally are received within 10 days if forms were filed electronically and requested direct deposit.
People wanting to file electronically can do so if they owe taxes and pay later. Taxes can be paid electronically by authorizing withdrawals from a checking or savings account or credit card, or taxpayers can mail a check to the IRS by April 15.
The agreement stipulates that the IRS will not offer its own free electronic tax services -- a relief for those in the tax filing industry.
Eligible taxpayers can link directly to a participating company's free service Web site and prepare returns using the proprietary software. Completed returns will be sent electronically from the company to the IRS through secure phone lines. Taxpayers then will receive a confirmation that the file was received or rejected.
Electronic tax filing started at the IRS in 1986 -- well before the Internet was the universally popular communications tool it is today.
Tax professionals were the guinea pigs in the first test simply because, "who else had computers" in 1986, said Terry Lutes, director of the IRS' Electronic Tax Administration.
That year, just 25,000 returns were electronically filed out of almost 102 million. The program went nationwide a few years later, but still, only tax specialists had access.
"Virtually every country in the world had the ability for taxpayers to go online and file taxes; we didn't," said Mark Forman, associate director of e-government and information technology in the White House budget office.
Electronic filing went nationwide in 1997. High volume caused some problems in transmitting returns and there were initial delays in direct bank deposits of refunds.
The IRS was criticized in 2000 for having ineffective controls to ensure the security of transmitted data. A government audit found that people could gain access to IRS systems and intrusions could not be detected. It has since fixed those problems.
Filing returns could also be confusing: Electronic returns required a separate paper signature form to be mailed. Later, personal identification numbers were introduced and identities validated by including adjusted gross income and total tax figures.
Truly paperless filing was not available until 2001. The glitches persisted: That year, as many as 15 percent of e-filed returns were initially rejected for such things as math errors or mismatched Social Security numbers.
The computer system used to introduce e-filing in 1986 is the same one being used today.
"It shows what you can do with technology if you're creative enough," Lutes said.
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