Thursday, June 24, 2010


Here is the text of a letter I have sent to IRS Commissioner Douglas Shulman regarding the new requirement that all tax return preparers who prepare 10 or more returns must file 1040s electronically beginning with the 2010 returns filed in 2011 -

Dear Commissioner Shulman:

I can understand why the Internal Revenue Service wants all returns eventually submitted electronically, and why Congress chose to require all return preparers to do so beginning with 2010 returns filed in 2011.

Electronically submitted returns cut down substantially on IRS processing costs. There is no longer the need for a “middle-man” data entry clerk to enter information from paper returns into the IRS computer system.

Electronically submitted returns also reduce human error. Since the preparer of the return is basically entering the information directly into the IRS system one avoids the potential for errors made by the “middle-man” IRS data entry clerks.

I am not against electronically submitting income tax returns. I do so with many NJ state income tax returns via NJWebFile. I can go to a site within the NJ Division of Taxation portal and directly enter the information that normally would have been presented on the NJ-1040.

The problem with the NJWebFile system is that is has too many limitations and conditions. I cannot submit NJ-1040s that report income from self-employment, either from a federal Schedule C or a K-1. There are also limitations in the number of source information returns that can be entered. When using the NJWebFile system you do not merely enter NJ-1040 line totals, such as total wages or total interest or total dividends. You enter the information from each W-2 or 1099 separately.

In 39 tax seasons I have never used flawed tax preparation software to prepare federal or state individual income tax returns. I have no intention of starting now. I am not going to spend thousands of dollars each year, resulting in higher fees to my clients, on the initial purchase and annual update of tax preparation software.

It is my understanding that currently in order to submit federal income tax returns electronically one must use flawed tax preparation software and enroll as an Electronic Return Originator (ERO).

I will gladly comply with the Congressional mandate for electronic filing as long as I can do so at no additional cost to me, or my client, via the IRS website.

The IRS had made attempts at an online “free-file” program in the past, but its availability was extremely limited and it was done not directly by the IRS but via 3rd party contractors with conflicting profit motives.

I can understand the IRS requiring an enrollment and renewal fee for its new tax preparer registration regime. This is a minor amount that will be used to fund the program, which will provide benefits both to me as a tax preparer and the taxpaying public, as well as the Internal Revenue Service.

I do not see how Congress or the IRS can require me to spend thousands of dollars each year to purchase software to comply with this new requirement. And, if all tax return preparers are required to be registered, and all tax return preparers are required to submit returns electronically, there is no need for the additional step of becoming an Electronic Return Originator.

Will the Internal Revenue Service be providing tax preparers with a free method of submitting income tax returns online? Or will it force all preparers to choose to either purchase expensive, flawed software or request that their clients OPT OUT of electronic filing?

Thank you for your cooperation.

Sincerely yours, Robert D Flach

So what do you think?


1 comment:

Eva Rosenberg, EA said...

Hi Bob,

You bring up some good points about multiple registrations for the various IRS programs - EROs, PTINs, EINs, etc. We were sitting in class the other day, just listing all the different numbers tax preparers must have for IRS. One registration, with one set of numbers would save everyone time, including IRS - and would reduce the strain on our aging memories.

But, Bob, I guess I don't understand the issue about electronic filing and flawed software. Or even the NJ online system.

Tax software these days can be had relatively inexpensively. There is always a new company entering the market with decent low-cost software.

If a combination of price AND quality is your main issue, some more established companies, like TaxSlayer Pro and Drake Software would cost you no more than about $10-$15 per client in a practice of 50-100 clients. Much less, in a larger practice. Incidentally, these companies do not charge you any electronic filing fees.

The fact is, using professional tax software reduces your errors. It saves you time over preparing returns by hand - changes can be made to all relevant forms at one time, without lots of erasures. They include tools and calculators to quickly help you test scenarious - like MFS vs MFJ. The time it saves you more than makes up for the extra $10 per client - and gives you more time to take on more clients.

And no doubt, with professional software, you can even file NJ Schedule C tax returns electronically.

I've known many people who were reluctant to covert to electronic filing over the years. Once they did it, they actually loved it!