Tax Season Review . . . The Buzz

This tax season brought some surprises to the usual trends from prior years. Early reports show the IRS e-file Program has experienced another strong increase in 2001, with as high as 40 million e-filed returns this year. Online self-prepared returns also had another banner year, experiencing 30 percent growth. We're definitely witnessing the IRS getting closer to meeting the goal set by Congress to have 80 percent of all returns e-filed by 2007!

Even with the proven ease of electronic filing, this year still presented some challenges. By far, the largest error codes were within the 500 series, indicating mismatches with the IRS and Social Security Administration databases for SSNs, EINs, names and dates of birth.

And if you are still sending in returns on paper, you may be interested in errors the IRS found on paper returns submitted by paid preparers. On page 10, you will find the most common rejects on paper returns through March 9. By using tax software and electronic filing, many of these errors could have been caught; however, some of these rejects also mirror those experienced on EF returns.

The most problematic part of the season occurred early when the IRS found a bug with its debt indicator, sending the financial product providers into a spin. Then the IRS announced that the problem was fixed, when it wasn't. Many taxpayers received loans for refunds that would eventually be confiscated by the IRS to pay outstanding government debts.

The impact of this early error was felt throughout the entire season. Many banks changed next-day loan requests to deposit checks, commonly called RAC or Bonus Checks. While these checks are still printed in preparers' offices, taxpayers may have to wait two weeks or more before their refunds are available.

While the complete impact of this may not be known for months, we anticipate that loss rates on loans will be higher. This could impact not only end-of-year volume bonuses for preparers, but also next year's pricing. The banks may not be as aggressive on pricing as they would have been had the IRS DI program worked smoothly.

There are not any reports of tax software companies that "crashed and burned" this year, but we have heard that many had problems getting their EF modules to the market on time. Some providers still had problems with EF into March, weeks after the peak of electronic filing.

In addition, Windows 2000 and Windows ME hit the marketplace, and both appeared to work well with DOS and Windows-based programs.

With new tax legislation on the horizon, next year brings a considerable amount of uncertainty. However, we know informed tax professionals will continue to be a necessity. As everyone prepares for a wave of new tax laws, more taxpayers will be turning to you next year to prepare their returns. Be prepared, keep those good employees around, find ways to be more productive, and sharpen those marketing skills for another banner year.