With a job as big as the Internal Revenue Service's, there has to be a pack of watchdogs – maybe several packs – to help the agency stay on track. That’s where Electronic Tax Administration Advisory Committee (ETAAC) comes in.
The committee's main purpose is to help guide the IRS as it attempts to modernize and expand electronic tax filing, which includes implementing the requirement that tax preparers must e-file individual tax returns over a three-year period.
The 13-member committee is made up of representatives from state departments of revenue, tax software producers, solo tax preparation firms, large tax preparation firms, and not-for-profit agencies. Decisions are made based on discussions with key IRS personnel and by examination of reports from the IRS Oversight Board, the National Taxpayers Advocate, the Government Accountability Office, and the Office of the Treasury Inspector General.
How is the IRS doing?
After careful examination, the ETAAC concluded that considerable progress has been made since its 2009 report. A key goal that the IRS is pursuing is to achieve an overall e-file rate of 80 percent for all types of returns filed.
Among individual returns, the rate of e-filing increased from 69 percent to 72 percent between 2009 and 2010. The progress was led by those using self-help tax preparation software, which increased by 8 percent. To reach an 80-percent overall e-file rate, 40 million additional individual tax returns would have to be filed electronically.
The IRS, according to the ETAAC, has reached a critical point where it’s time to make full scale changes. The agency needs to
- Increase its responsibilities
- Reduce its federal budgets
- Raise taxpayer expectations
For those efforts to be successful, the ETAAC stated that the IRS must pursue close collaboration with all stakeholders in the e-file process: taxpayers, Congress, the Treasury, the tax preparation industry, and the filing industry.
The 2009 report
In the ETAAC’s 2009 report, three key success indicators (KSI) were established. In 2010, the ETAAC looked at these indicators to measure the progress made since the 2009 report.
KSI-1. Expanding e-filing is a strategic priority for Congress and the IRS. To achieve the objective, ETAAC stated that:
- Modernization of the business systems should be funded by Congress and completed by the IRS before any new projects are attempted.
- Requirements for tax preparers should be tightened.
- The IRS and the electronic tax preparation industry need to focus on close collaboration with each other.
- Plans to increase e-filing should be based on a benefit-cost analysis and an analysis of the return on investment.
KSI-2. The electronic experience is trusted. To achieve this:
- The IRS needs to strengthen oversight of tax preparers and of the tax software industry without adding more regulatory burden that does not deliver corresponding benefits.
- The IRS needs to address three challenges that stand in the way of expanded e-filing: IRS security, e-authentication, and e-signature.
KSI-3. The electronic experience should be easy and fast. To achieve this:
- The IRS needs to determine if it is ready for the increase in e-filing, and also for the impact that accelerated reporting will have on businesses and taxpayers.
- The IRS needs to find ways to reduce rejected e-filing attempts.
Here is what the ETAAC found regarding specific recommendations made in 2009, and the concerns that remain:
- Take steps to require tax preparers to e-file. In response, Congress passed the Worker, Homeownership, and Business Assistance Act of 2009, giving the IRS the power to make that demand.
- Focus on modernization. The ETAAC noted that the IRS has continued to push toward modernization of its processes and technology. The committee also recognized that IRS management and technical resources are “severely strained,” making progress in this area difficult. The committee recommended that no new IT programs be undertaken until modernization is achieved.
- Include states in data strategy. The ETAAC stressed the need for the IRS to consider the needs of states in its data strategy. Extending national data standards to states will help those states improve their tax administration. Also, by not making common functions like e-signature, e-authentication, data definitions, and data exchange available to states, the IRS is creating barriers to expanded electronic filing.
- Modernize preparer e-services. The ETAAC is concerned that the IRS e-service suite of products remains dated and unable to accommodate a significant increase in e-filing. Online services need to be revitalized, said the ETAAC. The committee urged the IRS to estimate expected usage from the preparer e-file requirement, and to make investment in these services a high priority.
- Make electronic strategy an IRS priority. The IRS's increased focus on strengthening its electronic filing capability is encouraging, said the ETAAC. The tax agency is working to improve its Web portals and related operations. The goal is to make the IRS Web environment more efficient and effective while also becoming more secure, reliable, and customer centric.
- Collaborate on tax software standards. TheETAAC commended the IRS for forming a Software Risk Assessment Subcommittee to get input from states and industry regarding electronic filing and preparation, and to look at the security, privacy, accuracy, and reliability of commercial software and e-file systems.
- Rebrand e-filing. The committee said that the IRS has strengthened its focus on marketing e-filing to taxpayers. The committee encouraged the IRS to continue promoting free file and free file fillable forms to self-preparers and professional preparers who still paper file.
- Develop more efficient processing of e-file rejects. The ETAAC encouraged the IRS to find a better way to deal with rejected attempts at e-filing. New laws have made the process even more complex and increased the number of rejects and the level of frustration. That, in turn, has made a heavier workload for the IRS, which already is overburdened.
- Renew free filing. The committee would like to see the IRS renew its Free File Alliance agreement, which provides services to taxpayers with adjusted gross income of $57,000 or less. TheETAAC would also like to see eligibility for free taxpayer assistance extended as far as possible. This should be done by increasing public awareness about the programs available.
- Ease the signature burden. The IRS needs to take steps to make it easier to share return with the appropriate state.