IRS Says Record Number Will E-File Taxes

The Internet is helping to change the face of tax season, with as many as half of all U.S. taxpayers expected to use a free Web service to file their tax returns this year.

The Internal Revenue Service (IRS) said that its free E-File program is on pace to grow some 44 percent over last year's record levels. E-File enables professional tax filers or individuals to use certain tax-preparation software to automatically file their returns over the Internet.

Program Extension Expected

The process speeds the payment of tax returns and also has altered the way the April 15 deadline comes and goes around the country. While many last-minute filers will still be scrambling to postmark returns by midnight tonight, many post offices that used to stay open late are abandoning that practice, saying it is no longer necessary.

The IRS said that through the end of last week, 55.8 million tax returns had been submitted using E-File, an 8 percent increase over last year. The IRS said more than half of all returns will likely be filed electronically this year, the first time that's happened. In fact, the percentage currently stands at around 63 percent.

The agency also said it would likely extend the free service for another three years.

IRS Commissioner Mark W. Everson said the service is especially suited for last-minute filers. Since the method of filing does not require copying numbers onto paper, it reduces the likelihood of errors during crunch time. "E-file reduces the chances of making a last-minute mistake, and it gets refunds back in half the time of a paper return," he said.

Model Citizen

E-File is widely considered one of the most successful government-run Internet programs. While e-government pushes have been promised at numerous levels in order to streamline operations, reduce costs and improve services to taxpayers, many of those efforts have fallen well short of their stated goals. Behind the scenes, federal agencies must spend billions to align computer networks that were often built without regard to other agencies or the private sector.

E-File, however, relies on private software providers such as Quicken and TurboTax working in partnership with the IRS. Some analysts, in fact, consider it a model for other government Internet programs.

In fact, the IRS said that when it renews its free electronic filing contracts with vendors, it will focus on further beefing up security and enhancing the service in other ways.

Government IT research firm Input said spending on Web-facing initiatives at federal agencies is expected to grow 40 percent over the next four years to US$6 billion annually, thanks in part to a Bush administration streamlining push and older rules ordering the reduction of paperwork.

Input senior analyst Chris Campbell said better ways for businesses to interact with the government online will be the subject of much of the early investment, with consumer-focused initiatives taking longer to roll out.

Expanding Horizons

The IRS noted that it's had some form of electronic filing available since 1986, when it launched a pilot program. However, only in recent years have the programs become widely available to consumers.

The fact that the IRS trusts the Web to collect such highly sensitive information might be a way of boosting confidence in the Internet in consumers, Forrester Research analyst Charlene Li told the E-Commerce Times.

At the same time, users might be brought into contact with e-commerce-style transactions for the first time by e-filing their returns. Positive results might convince them that it's safe and efficient to use the Web for other transactions.

"If someone conducts this transaction successfully, there's likely to be at least a subtle affirmation of the security of the Internet," Li added.