The Internet and Tax Season

It's almost that time again, when accountants begin to prepare for the busiest time of the year-tax season. Getting ready for the rush often includes hiring new staff members to help out in the crunch and putting in long hours to complete the incredible amount of work that has to be done for clients in just a few short months.

In recent years, a new factor has come into play that is changing how accountants work during tax season-the Internet. In fact, the head of Ernst & Young's National Tax Department, Mark A. Weinberger, recently told Accounting Today that in addition to increasing recruitment efforts, they are focusing on improving their online technology to strengthen their department.

E-Filing

Since the IRS released electronic filing four years ago, response to the paperless filing system has surpassed initial expectations. Last year, the IRS received about 21 million filings through the Internet. According to the IRS, e-filing increased by 10 percent last year, and they expect a 15-20 percent increase in this year's tax season. The Internal Revenue Service Restructuring and Reform Act of 1998 set a goal that 80 million of all returns should be filed on-line by 2007, so there are still quite a few practitioners and consumers to convince in order to make the IRS' goal a reality.

Accountants Respond

So how are accountants reacting-and adapting-to filing taxes on the Internet? The IRS reports that the majority of people filing on-line are authorized Electronic Return Originators (EROs), which include CPAs. There are currently more than 80,000 EROs filing electronic returns for their clients across the United States, and they filed 14.1 million returns on-line last year alone.

For CPAs, the Internet has made some aspects of tax filing easier, and many firms and independent practices are jumping on board. There is a variation in prices being charged for the new service, though. Like many firms have done for the first time this year, Jackson Hewitt-the fastest-growing and second-largest national tax service in the United States-provides free e-filing for all its customers, and H&R Block offers the services for free in more than 70 percent of its offices. For other firms-often smaller firms-there is still an additional fee involved for e-filing.

Although a considerable number of accountants have started to offer e-filing, many accountants are still having trouble with the transition and note that there are a number of inconveniences and extra steps that filing on-line requires. To become an ERO, one must apply to the IRS as well as buy applicable software and submit test returns. And the accountant's responsibilities in e-filing still involve paperwork, so it's not yet a completely paperless process for accountants.

Where We Go From Here

The IRS has been heavily promoting e-filing, and earlier this year created an Electronic Tax Administration Advisory Committee to discuss e-filing issues and suggest how the IRS can help taxpayers and their practitioners embrace e-filing. Leaders in the finance arena were appointed to the committee, including Daniel Tarantin, the President of Jackson Hewitt. Jackson Hewitt currently files 95% of its returns on the Internet.

There's no concrete evidence that on-line filing will continue to increase at the rate is has been in the past three years. But we do know that things sure seem to be catching on. In an interview with the Practical Accountant last year, Robert Barr, the Assistant Commissioner for Electronic Tax Administration of the IRS at the time, noted the numbers that far surpassed the government's expectations.

"It was only a short while ago that we announced trying to collect $1 trillion since the inception of the Electronic Federal Tax Payment System (EFTPS), which was in 1996, and now we have collected that much in this past fiscal year." In that same year, about 4,000 new businesses were enrolling in the EFTPS every week.

A recent survey commissioned by CCH, Inc., reported that 96% of accountants have access to the Web, and more than half of all accountants log onto the web everyday. Those are big numbers considering the same survey in 1996 found that only 51% had access to the Internet and many considered it an experimental medium at that time.

So, where do we go from here? If the numbers are any indication, it looks like more accountants than ever will be going to the Internet this tax season.