PAPER IS THE IRS KRYPTONITE

As most of you probably know, in my 50 years as a paid tax preparer I NEVER used flawed and expensive commercial tax preparation software to prepare or submit a federal income tax return (and I never will) – so I never “electronically filed” a Form 1040.  It is not that I oppose electronic filing – I do not.  I simply can’t do it.    

All my 2020 Form 1040s and 1040-SRs were prepared manually and mailed to the IRS by the client.  So, I expect the majority of the 2020 tax returns I prepared are currently part of the 7 Million paper-filed returns sitting in a pile somewhere in an IRS office – the direct result of the Service totally shutting down for over 6 months in 2020 in reaction to COVID.  Refunds requested by my clients that have been issued were seriously delayed and many clients are still waiting for their check.  And a large contingent of clients recently received the initial wave of CP 80 notices I described in yesterday’s post “WHAT TO DO IF AN IRS NOTICE TELLS YOU IT HAS NOT RECEIVED YOUR 2020 RETURN”.  

The National Taxpayer Advocate recently stated, "Paper is the IRS’ Kryptonite".  In a recent release the IRS recommended that taxpayers file their 2021 tax return electronically to assure prompt processing and request direct deposit for prompt issuance of any refund.

If paper is the Service’s “kryptonite” and it truly wants all taxpayers to submit their returns electronically it should allow taxpayers, and tax preparers, to submit federal income tax returns directly to the Service free of charge on the irs.gov website via an IRS created and maintained electronic filing system.

Before I retired most of the state returns I prepared were for NJ residents.  For many years now I have been able to go to the website of the NJ Division of Taxation and directly electronically file client NJ-1040 forms free of charge originally using the NJWebFile system and more recently via the improved New Jersey Online Income Tax Filing system.  I have had minimal problems with these NJDOT created and maintained electronic filing systems over the years.  FYI in the last couple of years I could also file NJ corporate income tax returns electronically through a similar state created and maintained system.

The Internal Revenue Service should create a system similar to NJ’s online income tax filing system for electronically filing federal income tax returns.

The IRS does have a Free File program available to taxpayers whose Adjusted Gross Income (AGI) is $73,000 or less.  But it uses outside commercial tax preparation software (highlights are mine) –

“To receive a free federal tax return, you must select an IRS Free File provider from the Browse All Offers page or your Online Lookup Tool results. Once you click your desired IRS Free File provider, you will leave the IRS.gov website and land on the IRS Free File provider’s website. Then, you must create an account at the IRS Free File provider’s website accessed via IRS.gov to prepare and file your return.”

This means you need to provide your tax and other personal information to an outside software company - and there is no doubt in my mind that the software company will attempt to get some money from you for auxiliary services like filing state returns.

So IRS, if you really want all Americans to file their income tax returns electronically provide them with a way to do so free of charge on the IRS website without using any outside commercial tax preparation software.

TTFN