Putting The ‘E’ In Tax Fast, Accurate ‘E-Filing’ Brings Taxation Without Frustration

Let’s say John Smith, an imaginary Coeur d’Alene taxpayer, decides this is the year he’ll start filing his income taxes online.

After spending about four hours preparing his taxes on the popular TurboTax program, Smith finds himself at the critical point - learning if he owes money or receives a tax refund.

A push of the mouse button and the computer screen tells him that he and his wife Jane will get a refund of $49.

Another click and the Smith tax return starts its journey, making two brief stops before finally landing inside a mainframe computer in a two-story building in Ogden, Utah.

The Smiths have crossed over. Like 29 million Americans who filed taxes online last year, they’ve abandoned stamps and envelopes, choosing a system that’s faster and more accurate.

IRS officials say they could save from $30 million to $55 million yearly if twice as many people filed taxes electronically. With electronic filing, the agency needs fewer workers to open mailed returns, then input them into IRS computers.

Those who’ve already adopted e-filing say its chief advantage is speed.

“But it’s also one way for me to control the information,” said Heidi Merrick, who works as a tax preparer in Stevens County.

“No one else enters my data but me,” she said.

Some people think it’s hip to file taxes online.

“Yeah, I decided to file taxes online partly because it was cool, it was techno,” said Colville taxpayer Ed Shaw.

This year the IRS hopes to suck in from 33 million to 35 million electronic filings - roughly one-fourth of all tax returns.

Most of those e-files will come from certified tax preparers, many charging a small fee for the service.

About 3.5 million electronic returns will come from people like John and Jane Smith, who are using their home computers for taxes.

Congress has told the IRS to make the e-filing system easier and quicker to use. It wants 80 percent of all returns by 2007 to be filed electronically.

The big challenge facing the IRS this time of year is handling the huge volume of data streaming into its processing centers.

From March 3 to this year’s April 17 tax-filing deadline, the IRS expects to receive 80 million mailed and e-filed returns.

That means two of every three returns sent to the IRS pours in during the final six weeks of the tax season.

Our hypothetical North Idaho couple is no exception, waiting until last week to buy a computer program to help prepare their taxes.

Over the weekend, John Smith sat down in front of his computer with the couple’s W2 forms and a small stack of financial papers.

It took four hours to complete the return. TurboTax - like dozens of similar commercial tax-software products - made the needed calculations at every step of the process.

It even helped find several deductions he had overlooked - deducting the cost of three investment magazines he reads, since they’re considered educational resources.

TurboTax also helped the Smiths file their Idaho state income tax returns in piggy-back fashion with their federal return.

This morning before heading to work, John Smith sits in front of his computer and decides to transmit their return.

It’s then he learns that TurboTax won’t directly ship his return unless he pays an extra $14.

If Smith had used a professional tax preparer, the return would be transmitted free. But he would have paid from $30 to $100 to have someone prepare the return; that fee varies with the complexity of the return.

But at least Smith learns that the $14 fee guarantees him he’ll know within 24 hours if the return is accepted or if it has an error.

John Smith taps in his credit card number, sends the file, shuts off his screen and goes to work.

Before he gets there, a computer operated by Intuit, the company that produced TurboTax, receives his return, codes it and reships it toward the IRS.

Within 40 minutes from being sent, the Smith tax return completes the first leg of its journey - arriving at an IRS gathering center in Austin, Texas.

From that point on, the IRS data pipeline takes over. If the Smiths live east of the Mississippi River, their return would land first at a holding center in Memphis.

Once inside the Austin center, the Smith tax return joins several thousand others going through a series of automated data-checks.

IRS computers establish that each return includes valid Social Security numbers. They also compare those numbers with prior-year tax returns, finding if the same number always is used by one person.

Because the Smiths live in North Idaho, the Austin IRS computer earmarks their return for processing in Ogden, Utah - one of three “nodes” that perform the nuts-and-bolts number verification on each return.

The Utah center will handle about 9 million electronic files this spring, in addition to more than 12 million paper returns.

At noon today, about 35,000 electronic files at the Austin center are downloaded by computer to a mainframe computer in Ogden. The Smith file is one of them.

Those downloads occur twice a day. The next will be at midnight.

When the Smiths’ return gets to Ogden, it is placed onto a “batch list” that can hold up to 75,000 files that will be processed by the Ogden mainframe computer.

If the Smiths’ neighbors mail their 1999 tax form the old-fashioned way, it would also arrive in Ogden for processing.

In that case, one of dozens of IRS workers would open the envelop and transcribe the numbers from the return into the processing computers.

Once the mailed-in forms are transcribed into computers, the IRS deals with all tax returns identically, says Terrence Donohoue, a Denver IRS tax specialist.

“Using e-filing eliminates that opening of envelopes and inputting of numbers,” said Donohoue. “Any time you have human hands working on information, you create a chance for error.”

The IRs estimates that electronic returns generate errors only 1 percent of the time. Mailed-in returns average a 15 percent error rate, said Donohoue.

In the case of the Smiths’ return, the mainframe computers treats it like every other married-filing-jointly 1040A form. Relying on software routines. The computers look for calculation errors or unusual dollar amounts in wrong places, said Jean Silva, an e-file coordinator with the IRS Ogden center.

If a simple math error pops up, the IRS recalculates the taxes owed.

If a Social Security number doesn’t match or another major error occurs, the Ogden center rejects the return.

An IRS mainframe computer at Ogden starts processing the Smiths return at 3:35 p.m. this afternoon, about six hours after he sent it from his home.

Because the computers in Ogden handle large numbers of returns at the same time, the full analysis of the Smiths return can take from two to four days.

So let’s say by Wednesday at 9:30 a.m., the IRS mainframe in Ogden considers the Smith return officially processed.

That’s helpful for the Smiths because at noon on Thursday, each IRS processing center “drains” all the finished returns from the previous seven days.

At that point, Ogden’s computers gather up the verified returns processed since the previous drain, and ship them electronically to an IRS center in Tennessee for final processing.

That center separates the returns into groups made up of those with money owed and those due refunds.

The Smiths indicated they want their refund directly deposited into their Coeur d’Alene credit union.

Because of the volume of refunds being processed, that $49 deposit won’t occur until the following week - 10 days after John Smith filed his electronic return.

Mailed returns typically take four to six weeks for a refund to be sent, depending on what point in the tax season the IRS processes the paper.

The same day that the Ogden center completes the Smiths’ return, the mainframe computer makes a backup copy of their file.

Another electronic copy is transmitted to an IRS center in Martinsburg, Tenn., the official repository of all tax records.

IRS computers there can store 25 million tax returns on a single 16-gigabyte hard drive.

If the IRS had to store those files on shelves, they’d need about 5,500 feet of shelves.

“That is exactly why we need people to use electronic filing,” said Silva. “We can’t hold all that material in paper form. It’s just too much.”

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