Except for individual returns, those rates were  far from the 80 percent goal. IRS is implementing the e-file mandate in two phases. In 2012, the e-file  requirement will apply to paid preparers who reasonably expect to file  more than 10 individual, estate, or trust tax returns. E-filed tax returns provide IRS with digital information. 2.) The preparers we talked with who were new to e-filing said they  experienced increased costs and administrative burdens as a result of the  mandate. We interviewed 26 prepare who were members of national preparer groups. Several preparers who had been e-filing prior to the  mandate said they experienced some of these same problems when they  first e-filed, but do not any longer. Three of the preparers we  interviewed noted that their software automatically generated the new  forms needed to comply with the mandate (e.g., Form 8948), and two  preparers said that they heard about the mandate through their software  companies. .

	IRS Is Developing ith Plans to Deal w Noncompliant Preparers and Study Lessons Learne E-file Mandate Implementation

		IRS Does Not Know Extent of Preparer Noncompliance with t Mandate or Have the Authority to Issue Monetary Penalties

IRS officials believe there are potentially three types of p may not comply with the e-file mandate: Preparers who   the mandate or do not fully understand the  requirements;  know about the mandate, sign the tax return, but intentionally choose  not to e-file; or  complete tax returns, but do not sign the returns or submit them  electronically. Sanctions can include censure, suspension from practic before IRS, or disbarment. IRS already has authority under the IRC to impose  penalties in other, similar circumstances. Without such penalty authority, IRS may be limited in its ability to  deter noncompliance and enforce the e-file mandate. In addition, as previously  noted, IRS has a policy of posting the same information from electronic  and paper returns to its databases, so that similar paper and electronic  returns have equal chances of being selected for audit. However, IRS officials told  us that IRS does not have funding at this time to transcribe all the  remaining data lines from paper returns. IRS Does Not Have a Complete List of Forms That Cannot Be Accepted Electronically Nor Does It Have a Time Line for Adding Them to the E-file System

Preparers and taxpayers wanting to e-file may not be able to because  some forms have not been added to IRS’s e-file systems. Matter for Congressional Consideration

Congress should consider amending the Internal Revenue Code to  authorize IRS to assess penalties on preparers for failure to comply with  section 6011(e)(3). Recommendations for Executive Action

To help increase electronic filing and to better target IRS’s efforts, we  recommend that the Commissioner of Internal Revenue direct the  appropriate officials to take the following five actions:    develop a plan for and schedule to conduct a study that identifies and  documents lessons learned from the implementation of the e-file  mandate;    determine whether and to what extent the benefits of bar-coding  would outweigh the costs;    determine the relative costs and benefits of transcribing different  individual lines of tax return data;    develop and prioritize a list of forms that still need to be added to the  Modernized e-File system; and  create a timetable to add additional forms to the Modernized e-File  system, particularly for high-volume forms, such as the 1040-X and  1040-NR. To assess IRS’s analysis of options for digitizing more data from paper  returns, we reviewed IRS’s 2008 proposal, Modernized Submission  Processing: Solution Concept Briefing, to add a bar coding system to  process paper returns and analyzed IRS’s priority transcription list  developed by IRS’s Deputy Commissioner’s Office for Service and  Enforcement (Service and Enforcement). To determine whether there are any tax forms IRS cannot accept  electronically and assess IRS’s plans for adding them to the e-filing  system, we compared a list and time line of all tax forms that Submission  Processing planned to add to the e-file system to a list of all existing IRS  forms obtained from the Forms and Publications division. For 2012, when the  mandate threshold is lowered to more than 10 returns, IRS officials  project that e-file applications will increase by 38 percent over the  average annual applications based on prior years.
Why GAO Did This Study

The Internal Revenue Service's (IRS) goal is to receive 80 percent of all major types of tax returns electronically by 2012. Legislation passed in November 2009 supports the 80 percent goal for individual income tax returns by requiring tax return preparers who file more than 10 individual returns per year to file them electronically, or e-file. GAO was asked to review IRS's implementation of this e-file mandate. Specifically, GAO (1) described e-file rates and preparers' experiences implementing the mandate, (2) assessed IRS's plans to enforce the mandate, (3) assessed IRS's analysis of options for digitizing more data from paper returns, and (4) determined whether there are any tax forms IRS cannot accept electronically and assessed IRS's plans for adding them to the e-file system. To conduct these analyses, GAO reviewed IRS processing data and e-file planning documents, and interviewed IRS officials and 26 members of national preparer organizations.

What GAO Found

In 2011, 79 percent of all individual tax returns were e-filed, a noticeable increase over prior years. Both preparer and self-prepared e-file rates increased, which IRS officials attributed to different factors. They said the e-file mandate was one key factor in the growth of preparer e-filing. Preparers GAO interviewed who were new to e-filing said they experienced increased costs and administrative burdens due to the mandate. Several preparers who had been e-filing prior to the mandate said they experienced some of these same problems when they first e-filed, but they now find that e-filing helps their business--for example, by reducing the time needed to file returns. IRS's plans to identify preparers who are not complying with the mandate are not fully developed because IRS does not know the extent of noncompliance and it may be low. Nonetheless, officials stated some noncompliance likely exists and may increase in 2012 when the mandate applies to more preparers. Regardless of the extent, IRS does not have authority under the IRC to assess penalties on preparers who fail to comply. IRS may be able to impose sanctions under Department of Treasury regulations that govern practice before IRS. However, the process is costly and the penalties, which could include suspension of practice, may be harsher than needed. IRS is considering pursuing two options to digitize more data--bar coding and additional transcription. IRS does not transcribe all lines from paper returns. IRS's policy is to post the same information from electronic and paper returns to its databases, so that similar paper and electronic returns have equal chances of being audited. IRS has not analyzed the costs and benefits of these options, which could support informed funding decisions. Some forms cannot be e-filed, including two relatively high-volume forms for amended returns and nonresident aliens. IRS has not developed a complete list of forms that cannot currently be e-filed nor does it have a time line for adding them to the e-file system. Without adding forms such as these to the system, IRS will limit e-filing's growth potential. Congress should consider amending the Internal Revenue Code (IRC) to provide IRS with penalty authority for preparer noncompliance with the mandate. GAO also recommends, among other things, that IRS conduct analyses on the costs and benefits of implementing bar coding and additional transcription and create a time line and list of forms to be added to the e-file system. IRS agreed with the recommendations.