It’s hard to believe that in just twenty five years, the Internal Revenue Service’s online income tax filing, efile, has grown from processing 25,000 individual income tax returns annually to over 100 million.

The IRS efile has surpassed a landmark of 1 billion individual Form 1040 tax returns received and processed safely and securely. The electronic tax filing is arguably the most successful modernization program ever undertaken by the federal government.

In the 1980s, processing tax returns became increasing ineffective because of the complex, time-consuming and error-prone process of converting hard copy tax returns into a form that could be processed by machine. In addition, the IRS was facing a growing problem of increased cost and space to house the reams of paper forms and tax documents. And so the age of electronic tax filing was born.

The initial IRS efiling process was initiated by a tax preparer using a machine called a Mitron, which was a tape reader with a modem. The tax preparer would insert the tape into the Mitron to transfer the tax data. At the IRS, an employee would transfer the tape into a super mini-computer called Zilog.  Zilog would read the data and convert it to a format that the IRS’s Unisys system could process.

In 1986, the IRS launched it’s electronic tax filing pilot program. Five tax preparers in 3 cities participated, efiling 25,000 tax returns. Although the program could only accept simple returns that were due a refund, it was deemed a success and the pilot was expanded.

In 1987, 66 tax preparers used the online income tax filing system, filing 78,000 tax returns. That year, functionality was added to allow electronic Direct Deposit to put tax refunds directly in the bank accounts.

The following year, a technological update by the IRS to an IBM Series I processing system, eliminated the need for an IRS resource to plug the phone into a modem. Tax preparer interest in electronic tax filing exploded. 583,000 tax returns from 16 IRS districts were filed in 1988.

The efile program was expanded nationwide in 1990. 4.2 million returns were filed electronically.

In 1998, Congress passes a provision setting a goal of an 80% efile rate for all federal tax returns. The following year, efile functionality is added that allows electronic payments through credit cards and direct debit.

Efile becomes entirely paperless in 2002, when the IRS allows taxpayers to sign their tax returns electronically using a Personal Identification Number (PIN).

By 2007, more than 50% of all individual income tax returns were filed electronically (79.9 million).  And in 2010, that percentage jumped to 72% (93.4 million).

In 2011, Efiled returns cross the 100 million threshold in one filing season; cumulative total exceeded 1 billion returns. Approximately three out of every four individual tax returns were filed electronically.

source: irs.gov

The Internal Revenue Service is going after tax return preparers who prepared returns in 2011 but failed to comply with the new federal tax preparer registration program.

Last year, the IRS initiated the Preparer Tax Identification Registration program to oversee the tax return preparation industry and regulate the conduct of tax return preparers. The program requires all paid tax return preparers to obtain a Preparer Tax Identification Number (PTIN). Preparers will be required to sign their names and include their PTINS on the returns and refund claims they prepare.

Earlier this month, the IRS began sending letters to approximately 100,000 income tax return preparers who failed to comply with the new IRS mandate.  The IRS notices explain the program, how to register for, or renew a PTIN, and where to get assistance.

“The vast majority of federal tax return preparers complied with the rules. Obviously, some preparers did not get the word, so these letters provide additional information so they can register as soon as possible,” said IRS Commissioner Doug Shulman. “We owe it to the compliant tax preparers to make sure that everyone is on a level playing field.”

Since last fall, over 700,000 tax preparers have registered and obtained PTINs. Paid preparers who are not tax attorneys, Certified Public Accountants or Enrolled Agents are required to pass a competency exam and suitability check, and complete  15 hours of continuing education credits annually.

Some unscrupulous preparers may attempt to elude the new oversight program by not signing returns they prepare. Taxpayers should never use tax return preparers who refuse to sign returns and enter PTINs.

In an effort to identify these “ghost preparers,” the IRS later this year also will send letters to taxpayers who appear to have had assistance with their returns but lack tax return preparer signatures. The letter will inform taxpayers how to file a complaint against preparers who failed to sign returns and explain how to choose legitimate tax preparers. The goal of the letters is to protect taxpayers by ensuring that all paid federal tax return preparers are registered with the IRS, and sign tax returns they prepare and use an identifying number when required to do so.

Compliance is a central part of the new tax return preparer initiative and the letters are one step in an ongoing compliance effort to ensure tax return preparers are following the new regulations. The IRS also is working to identify tax return preparers who make repeated errors and IRS personnel have had face-to-face meetings with thousands of these tax return preparers over the past two years.

The IRS and taxpayers who use paid tax preparers will benefit from this initiative. Visit the IRS website for more info on the PTINs program.

source: irs.gov

What’s so important about choosing the right tax preparer? As a taxpayer, you are legally responsible for what’s on your tax return even if someone else prepares it. Therefore, it is important to choose carefully when hiring an individual or firm to prepare your return. Most return preparers are professional, honest and provide excellent service to their clients.

How do you know if you’re choosing the right tax preparer? Here are some tax tips for choosing a tax preparer:

• Check the person’s qualifications
  Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics. New regulations require all paid tax return preparers including tax attorneys, CPAs and enrolled agents to apply for a Preparer Tax Identification Number — even if they already have one — before preparing any federal tax returns in 2011.
• Check on the preparer’s history
  Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Professional Responsibility for enrolled agents.
• Find out about their service fees
  Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.
• Make sure the tax preparer is accessible
  Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise. A good tax preparer will also provide you help in answering your tax questions.
• Provide all records and receipts needed to prepare your return
  Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.
• Never sign a blank return
  What are you crazy? Avoid tax preparers that ask you to sign a blank tax form.
• Review the entire return before signing it
  Another one of the top ten tax tips is that before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it. If not ask for answers to your tax related questions.
• Make sure the preparer signs the form and includes their PTIN
  A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.

You can report abusive tax preparers and suspected tax fraud to the IRS on Form 3949-A, Information Referral or by sending a letter to Internal Revenue Service, Fresno, CA 93888. For additional tax help or tax tips visits the IRS website.

Source: irs.gov