Who Benefits from E-File Mandates?

Two years ago, California tax preparers were faced with an electronic filing mandate. This mandate was originally developed in the hopes of reducing the state budget deficit. As this mandate continues, all tax professionals who prepare over 100 returns for tax year 2004, and use tax preparation software to prepare at least one of them, are required to e-file all personal income tax returns they prepare. Those who do not comply are faced with a $50 fine per return. Exceptions can be made if taxpayers complete an opt out form exempting themselves from electronic filing.

Drake is a qualified sponsor of continuing education with the National Association of State Boards of Accountancy (NASBA), the California Tax Education Council (CTEC), and the Internal Revenue Service (IRS). Maintaining these sponsorships and providing several options for obtaining CPE credit is one more way Drake Software strives to give tax professionals all the tools they need to succeed.

California tax preparers who use Drake Software to prepare returns report that this mandate did not negatively affect their filing season. In fact, most report 100 percent of their tax returns were electronically filed. Tax preparers who were already participating in free electronic filing, such as Cal Ellisor, found this mandate did not affect their business at all. “It was business as usual,” he said. Bob Black of Sierra Tax Service added, “We expected lots of resistance, but because of the positive way we presented it, we had very little. It was a lot less work to e-file the majority of our returns.”

Are the state’s responses as positive? It appears so. Sean McDaniel of the California Franchise Tax Board reported, “We are seeing that preparers who e-filed maybe half their returns last year were able to do over 80 percent this year. This is definite evidence that there is a ramping-up or phase-in period associated with mandates. Most folks we talk to indicate they are glad they made the switch to e-file; that it’s much easier to manage than they thought it would be and had they known, they would have transitioned to e-filing long ago due to the cost savings they realize.”

It seems everyone benefits from e-file mandates. States benefit because it helps reduce budget deficits; tax preparers benefit because it saves them time and money; and taxpayers benefit because they receive acknowledgement of their tax returns, as well as their refunds, weeks sooner than if they filed on paper.

From September 2005