Menu

Tax Strategies & Credits

Is Tax Return E-Filing Worth It?

by
Lee Reams, BSME, EA
on
2/1/2017
Is Tax Return E-Filing Worth It?

I have been in the tax business for over 45 years – I did my first return for a fee in 1970. Back in those days, preparers used code sheets to interview clients and then sent the code sheets to computer service bureaus, where they were computer processed and printed. The printed returns were then sent to the practitioner, who would in turn send them to the client to file with the government.

Then along came the PC and laser printers. As an aerospace engineer with computer experience, I was quick to embrace these new technologies, which allowed practitioners to process and print clients' returns in-house. Having access to the tax preparation software on my PC also provided me with the ability to ensure that the end result was correct and to conveniently test various scenarios to provide the best tax results for my clients.

Fast Forward to E-Filing

The evolution of the tax preparation business continued with the IRS's development of the e-filing process, which shifted the data-entry function for tax returns from the IRS to the tax preparer, thereby allowing the IRS to lay off thousands of their data entry clerks.

It also created what I call “data entry preparers,” who converted their client interview appointments into data entry sessions where they focused more on the minutia of data entry and limited the time they spent analyzing the client's particular situation looking for legitimate ways to minimize their taxes.

E-filing also opened the door for novices to hang up a “tax preparation” shingle, since all they needed was tax software and data entry skills.

Then Along Came Automatic Deposit

Automatic deposit soon followed, allowing the IRS to wire a taxpayer's refund directly into the taxpayer's bank account. Again, this innovation saved the IRS money from having to print and mail refund checks. Also, taxpayers could authorize direct withdrawal of the tax due from their bank accounts, which also saved the IRS from having to handle and deposit untold millions of paper payments.  

But Guess Who Has Been Watching

All of these savings and work flow efficiencies were great, except the piggy bank got left unguarded, and what seems like every computer-literate crook in the U.S. – and even those all over the world – took notice. And did they take advantage! 

They very quickly realized they could e-file returns early, before W-2s were filed by employers, using stolen IDs and phony W-2s, and the U.S. Treasury willingly shelled out refunds, which got direct deposited into bank accounts set up by the crooks, who promptly cleaned out the accounts and vanished without a trace.

Now after years of this going on, the IRS is just now testing some W-2 safeguards on a limited basis and is not issuing refunds for returns with earned income tax credit or refundable child credit – historically the returns that are most susceptible to fraud – until after February 15, giving the IRS time to process W-2s, which starting this year are due January 31.

Not to be outdone by our bureaucratic IRS, these very clever crooks are now going after the tax preparation community by pretending to be prospective clients or the IRS and asking tax preparers to update their PTIN accounts, all as a ruse to get the tax preparers to click on an embedded link, which will send the tax preparers to a bogus website that asks for their personal information and PTIN number, or worse yet, gain access to the preparers' computer and all of its sensitive client data to file phony returns.

For the second year in a row, the IRS (IR 2017-10) has renewed its warning about an email scam that uses a corporate officer's name to request employee W-2 forms from the company's payroll or human resources departments, with the cybercriminals tricking payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then use that information to circumvent the IRS's new safeguards to file fraudulent tax returns for tax refunds.

It seems that as fast as the IRS plugs a hole in its leaking filing system, another one or two open up. Things are not getting better; it seems they are getting exponentially worse. The question is whether e-filing of tax returns can ever be made criminal-proof. Is e-filing really worth it?

share this post
Search for matches...
Lee Reams, BSME, EA

Lee Reams, BSME, EA

Editor-in-Chief

Besides his role at CountingWorks as an educator and speaker to thousands of accountants nationwide, Lee manages a technical research service for a large group of tax accountants which sharpens his technical skills. Lee served on the Board of Blackline Systems, is a former Board of Director for the California Tax Education Council, is a Past President of the San Fernando Valley Chapter of Enrolled Agents, Member and Past Director for the California Society of Enrolled Agents.

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

Need help selecting a firm?

Use our specialized search engine and get matched to the best accounting and tax firm for your needs.

Get Started

Related Posts

Latest Posts