According to a new report by the Treasury Inspector General for Tax Administration, the tax preparation business is confronted with ongoing difficulty in dealing with IRS electronic filing requirements. The TIGTA identified deficiencies in the first two years of the Modernized e-File system for individual tax returns. MeF was initiated in 2004 but has increasingly expanded the allowable types of forms and schedules.
A long period of phasing out the legacy e-file system has unfolded over recent years. The IRS continues operating the legacy e-file method in tandem with the internet-based MeF system. Since the start of MeF for filing individual tax returns in 2010, registered tax preparers have used both filings systems.
The TIGTA points out that the number of tax returns processed with the MeF system in the past two seasons is substantially lower than the IRS projection. The legacy system was relied upon when processing disruptions were encountered with MeF. Problems arose among professional tax preparers when MeF ceased functioning for periods lasting several days. Unfortunately, taxpayer refunds were severely delayed for tax returns filed using MeF in the week prior to its temporary shutdown.
Nevertheless, the TIGTA reports that performance of MeF increased in the 2012 tax season. During the 2011 filing season, only 8.7 million individual tax returns were processed by MeF – the first year such returns were accommodated by the modernized system. The number of individual returns processed in 2012 by MeF totaled 72.4 million, which is more than the 49.8 million filed with the legacy system.
More MeF filing is the result of an increasing number of tax preparation software platforms the IRS matches with the system. The IRS can accept MeF filings from the most popular tax preparer computer programs. In addition, the IRS mandated use of MeF in 2012 by all tax preparation companies with one million transmissions in 2011.
Since every tax professional preparing at least eleven returns per year must have electronic filing capability, the IRS is positioned to require MeF for all filings in the future. The registration of tax preparers gives the IRS leverage for enforcement.
Three recommendations by the TIGTA aim to ease complete transition from the legacy system. The first TIGTA proposal is for the IRS to defer fully retiring the legacy system until the risk in such action is addressed. The IRS agrees and has announced that the legacy system is available for the 2013 filing season as a backup if MeF experiences problems.
A second TIGTA recommendation that was also accepted by the IRS entails new MeF system performance test procedures. The third TIGTA suggestion for development of a specific IRS plan to retire the legacy system remains unfulfilled because the IRS lacks a detailed timeline.
The IRS has developed Release 8.0 of MeF for the 2013 filing season. Time will tell if this new version makes tax preparer jobs easier. The advantages of MeF for faster acceptance of tax returns and processing of refunds are only achieved if the system functions properly. A repeat of past MeF problems will trigger switching to tax return transmission using the legacy system. Tax practitioners are hoping to avert that situation. But, if it arises, they’re faced with wondering how many returns the IRS legacy system can handle.
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