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E-Filing as an Efficiency Winner

Electronic filing has been a "huge win" for the IRS, which processed 94 million returns via e-filing in 2009, compared to 45 million paper returns. Sure, it saves stamps, but e-filing also bypasses an inefficient manual system required to hand-process a paper tax return.

Electronic tax filing doesn't just save stamps. Delivering tax returns via digits and data centers instead of envelopes and trucks is just part of the picture. To get the full picture, don't think of your tax return. Think of General Electric, which historically has the most largest tax return in America.

"General Electric used to deliver their return in an 18-wheeler truck," recalls Tony McMahon, the director of Enterprise Computing Centers for the IRS. Instead, GE's return is now sent electronically using the XML format, as is mandatory for corporations with more than $10 million in assets.

A total of 94 million returns were filed electronically in 2009, up from 79 million in 2007 and 88 million in 2008. About 45 million paper returns were filed last year.

"Electronic filing has been our bread and butter," said McMahon, who described the process in a presentation earlier this month at Data Center World in Nashville. "It's done great things for us."

E-filing is a huge efficiency win for the IRS, as every return filed electronically reduces the load and expense for the inefficient manual systems required to hand-process a filing.   

Here's an overview of the steps the IRS uses to process a traditional paper tax return:

  • When returns arrive in the mail, the checks are separated and deposited
  • Returns are manually sorted by type in special tables known as Tingle Tables (invented by IRS employee James Tingle)
  • The sorted returns are put on carts, coded and assigned a number. "Vendors have tried to come in and automate this, but there's not way to do it," said McMahon.
  • Data from each paper return is manually entered into the IRS systems. "There's a high error rate here," said McMahon, who said about 20 percent of manually trascribed returns enter an error review and correction process.
  • Refunds are sent to the Treasury distribution center. They will arrive roguhly 6 to 8 weeks after a return is filed.

The process is very different for tax returns that use e-filing:

  • The electronic record enters the system. About 2 percent require error checking
  • Files are sent to Martinsburg (MTB) data center and posted
  • The IRS has 48 hours to acknowledge receipt
  • Refunds are sent via electronic funds transfer (EFT) and are typically available within 8 days of filing. 

Error reduction alone offers a compelling reason to file electronically. "It helps our processing, and it helps the taxpayers," said McMahon.

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