80 percent e-filing becomes IRS goal for income taxes

WASHINGTON -- A few tax specialists started replacing stamps with mouse clicks in 1986, when the Internal Revenue Service tested electronic filing as a pilot program in three cities.

The IRS now is now aiming for 80 percent e-filing by 2007 and to help make that happen, the agency announced a program Thursday that gives people access to free tax preparation software through the April 15 filing deadline.

"Virtually every country in the world had the ability for taxpayers to go online and file taxes. We didn't," said Mark Forman, associate director of e-government and information technology in the White House budget office.

That changed Thursday with the launch of Free Filing, a government partnership with 17 private tax-software companies that lets 60 percent of taxpayers, or 78 million, file returns online for free.

Eligibility requirements from the participating companies are generally based on factors such as age, adjusted gross income, state residency, military status or eligibility to file a Form 1040EZ or for the Earned Income Tax Credit. Taxpayers can complete an online questionnaire to determine if they qualify.

The IRS received nearly 85 million paper returns last year and 46 million electronic returns. Officials estimates 54 million will file electronically this year.

The IRS is pushing electronic filing because it reduces errors, speeds processing time, is cheaper and provides better security for private information. But among the reasons that millions of people have cited in continuing to file paper returns is it costs more.

"E-file is quicker. E-file is more accurate," said Robert Wenzel, acting IRS commissioner. "E-file is the best way to confirm the IRS received your return and it's the fastest route to a refund."

Refunds generally are received within 10 days if forms were filed electronically and requested direct deposit.

Electronic tax filing started at the IRS long before the Internet age.

Tax professionals were the guinea pigs in the first test in 1986 simply because, "who else had computers?" said Terry Lutes, director of the IRS' Electronic Tax Administration.

That year, just 25,000 returns were electronically filed out of almost 102 million. The program went nationwide a few years later, but still, only tax specialists had access, he said.

"The volume increased over time, but nobody was sure it would take off," Lutes said.

With the 1990s came telephone filing. But it was and still is limited to lower-income taxpayers. The process can be cumbersome -- a special packet is required. That technology now seems dated with the Internet.

Electronic filing went nationwide in 1997, but not without glitches along the way. High volume caused some problems in transmitting returns and there were initial delays in direct bank deposits of refunds.