A new report finds that the Internal Revenue Service is benefiting from new e-file requirements, through faster processing, greater accuracy and reduced costs. Still, there is more the IRS could be doing to realize the benefits of e-filing, find auditors in a May 19 report (.pdf), only recently made public, from the Treasury Inspector General for Tax Administration.

When e-filing began, IRS expected it would lead to the elimination of more compliant corporate taxpayers from the audit stream, according to the report. "This key benefit has not materialized to date," say auditors.

"In each of the fiscal years since mandatory e-filing was introduced for large corporations, a higher percentage (roughly one out of four) of corporate returns audited were closed with no adjustment when compared to any of the three fiscal years preceding the program's introduction," wrote report authors.

But if e-filing hasn't had its anticipated impact on corporate auditing, it has at least saved the IRS the costs of manually handling and sorting tax returns, transcribing return data for computer processing and storing paper records, the audit says--although auditors had to rely on their own cost calculations. The IRS large business and international division itself hasn't completed any studies to determine whether the e-filing of returns has actually resulted in cost savings, meaning that TIGTA had to use data from the wage and investment division submission processing function to calculate cost savings for the report.

Auditors estimate LB&I reduced the cost of storing paper documents by 46 percent over the last 4 years by moving to e-file. They also estimate processing costs were reduced by $279,478 over the last 4 years.

TIGTA recommends that Heather Maloy, commissioner of LB&I, ensure that projects better use e-file data to improve audit methodology. Auditors also recommend the LB&I commissioner assess protocols for promoting and sharing best practices for working with e-file data. Maloy concurred with TIGTA recommendations in a written response to the audit.

In January 2005, the Treasury Department issued temporary regulations that required corporations with assets of $50 million or more and that file 250 or more returns per year to e-file their corporate tax returns. That requirement expanded to companies with $10 million or more in total assets in November 2007.

Well over 60,000 corporate tax returns were e-filed by the 2009 processing year, while about 31, 000 were paper, according to the report. Back in 2005 only about 1,200 corporate returns were e-filed (versus just over 76,000 paper returns).

For more:
- see the TIGTA report (.pdf) 

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