On November 6, 2009, President Obama signed into law the Worker, Homeownership, and Business Assistance Act of 2009. Among its several provisions, the act mandates paid tax return preparers who prepare more than 10 returns to electronically file (e-File) all individual, estate and trust returns they prepare after December 31, 2010. Thus, the new rules will apply to 2010 and future Forms 1040, U.S. Individual Income Tax Returns, and 2010 and future Forms 1041, U.S. Income Tax Return for Estates and Trusts, and any amended or delinquent returns prepared and filed after December 31, 2010. There is no provision to “opt-out” or to allow a taxpayer to elect to paper file their return under the new law. The State of Pennsylvania has passed a similar bill, Act 50 of 2009, which allows the Pennsylvania Department of Revenue (PA DOR) to require tax preparers who prepare more than 50 returns per year to file the returns in a manner prescribed by the PA DOR for returns filed beginning after January 1, 2011 for the 2010 tax year.
e-Filing has been around for a while
The Internal Revenue Service started mandating e-filing in 2005 requiring C and S corporations and tax exempt organizations that had $10 Million or more in assets and filed at least 250 information returns, to e-file their returns. E-filing is also required by partnerships with more than 100 partners. Even though individual e-filing has been around since the 90’s, e-filing an individual, estate, or trust return was voluntary until now. In 2008, the IRS received 156.3 million individual returns of which approximately 58% were e-filed. According to the Treasury Inspector General for Tax Administration, it is estimated that the mandate in the new tax bill will increase the number of electronically filed returns by 26.9 percent.
There are many advantages to e-file a tax return
E-filing is faster, easier, safer, more accurate, environmentally friendly, and cheaper. E-filing is faster and easier, because at the click of a button the return is sent to the government. There is no need to make a filing copy of the return, no envelopes, and no trips to the post office. The computer provides an e-postmark which provides an instantaneous confirmation of filing the return. Since the government receives your return in seconds versus days after going through the mail, refunds are issued faster. There are less errors and notices due to human input errors. Also, e-filing the return through a very secure portal keeps the process safe from internet pirates. Tax payments are controllable on e-filing. Taxpayers have the option to file before the due date, but setup the balance due to be pulled from their bank account on the April 15th deadline. The environment is happier and healthier because fewer trees are needed to produce paper returns. With no paper to mail, money is saved on postage and overnight delivery services. It is estimated that the IRS will reduce paper tax return processing costs by $66.6 million annually with this law change.
How e-Filing works
The paid preparer prepares the return as usual using tax software. The taxpayer receives a copy of the return as they would in the past. Instead of an additional filing copy with envelopes, they would receive Form 8879, IRS e-File Authorization Form, and Form PA-8879, Pennsylvania E-File Signature Authorization, for individual returns or Form 8879-F, IRS e-File Authorization Form for a Form 1041, for a Federal estate or trust return. The taxpayer will review the return to verify that it is complete and accurate and then sign the e-File Authorization forms. Once the paid preparer receives the signed Forms the returns are released by e-filing to the IRS and Pennsylvania. At that time, the paid preparer receives the e-postmark that evidences the return was filed. Within a day or two, notification is received that the return has been accepted (or rejected).
Summary and conclusion
E-filing is on its way. Be prepared to say goodbye to mailing your returns and hello to the era of submitting with a click of the mouse.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.