Thursday, January 27, 2011


Tax season officially (for me) begins next week. FYI, I have not registered as an ERO (Electronic Return Originator), and I do not intend to submit any 2010 Form 1040s (or 1040As) electronically this tax season, regardless of the new “mandate”.

I have listed below the reasons why I am “exempt” from the mandate. Obviously item #6 is the most important.

(1) I do not object to electronically submitting federal or state income tax returns to the IRS or state tax authorities. I acknowledge and sympathize with the Internal Revenue Service’s desire to have returns submitted electronically. I also acknowledge that submitting returns directly to the IRS electronically reduces the potential for error by eliminating the “middle-man” step of having someone transcribe a written 1040 into the IRS software system. I would gladly submit, on my client’s behalf and if they do not choose to “opt-out” based on personal preferences, the federal income tax returns I prepare electronically if I could. I currently, whenever possible, and when not specifically told not to by my client, submit full-year resident NJ-1040 state income tax returns electronically directly to New Jersey via the NJWebFile system available at the website of the New Jersey Division of Taxation

(2) I have been preparing 1040s for a fee since February of 1972. During the past almost 39 years I have never used flawed and expensive tax preparation software to prepare a federal income or payroll tax return, and I have no intention of unnecessarily incurring substantial expense to purchase such flawed tax preparation software.

(3) The very minor advantages to me that tax preparation software might provide does not justify the additional substantial expense. On average, I would not save any time by using tax preparation software instead of preparing the returns manually. The resulting 1040 or 1040A would be no more accurate, as the finished return would need to be subject to the same checking and verification process as a manually prepared return. Using tax preparation software would substantially waste paper and printer ink, adding to the cost of purchase and annual update. I find that with the NJWebFile system I use at least twice as much paper, and ink, in printing out copies of the submitted return than when prepared manually.

(4) The only way I can currently, properly, and efficiently submit completed federal income tax returns directly to the Internal Revenue Service is by using flawed and expensive tax preparation software. As I do not use tax preparation software I therefore cannot submit my returns to the IRS electronically.

(5) Several states that mandate e-filing currently exempt preparers who do not use tax preparation software.

(6) I do not “file” my clients’ income tax returns. I prepare the return manually and give/send the finished returns to the client, with a non-stamped addressed envelope, and the client(s) sign(s) the return and mails it directly to the IRS themselves. For purposes of §6011(e)(3) and these regulations only, an individual income tax return is considered to be "filed" by a tax return preparer or a specified tax return preparer if the preparer submits the tax return to the IRS on the taxpayer’s behalf, either electronically (by e-file or other magnetic media) or in non-electronic or non-magnetic media (paper) form. Submission of an individual income tax return by a tax return preparer or a specified tax return preparer in non-electronic form includes the direct or indirect transmission, sending, mailing or otherwise delivering of the paper tax return to the IRS by the preparer, any member, employee, or agent of the preparer, or any member, employee, or agent of the preparer's firm, and includes any act or acts of assistance beyond providing filing or delivery instructions to the taxpayer. If the preparer files no returns whatsoever on the client’s behalf, the preparer would never meet the definition of a specified tax return preparer. I file no returns whatsoever on the client’s behalf, so I do not meet the definition of a specified tax return preparer under the regulations for the e-file mandate.

So – does anyone have any comments?

1 comment:

Mary O'Keeffe said...

There seem to be more flaws than ever in the software we use at VITA sites, TaxWise. This is not just based on my experience but on the complaints I have seen from paid preparers.

The flaws have not affected the accuracy of our taxpayers' returns, due to the fact that we have an elaborate quality review process, including comparing the computer-generated return with hand-done pro forma 1040, but they have created a lot of extra work for me and for my students.

I don't know how much the program costs paid preparers--the IRS purchases it for VITA sites so I don't see the price tag--but I am sure it must cost a lot. The many hours of customer support CCH staff spends dealing with all the flaws are expensive to pay for, and that has to be recouped in the cost of the product.

However, if Congress would stop with the procrastinating and the last minute "bed buffaloes" they insist on inserting into the tax code at the end of each year (with this year being even worse than usual), and if Congress would get serious about tax simplification, I think it would be straightforward for software companies to design inexpensive and reliable software.

Those are big "ifs."