Schaefer's push for e-filing meets with some resistance

September 26, 2004|By JAY HANCOCK

BOB CASSEL knows electronic tax-filing is the future. It's accurate. It's fast. It saves paper. It saves money. He's just not ready to climb on board.

"Am I ultimately in favor of electronic filing?" says Cassel, a financial planner and tax pro for Baltimore-Washington Financial Advisors who handles about 300 returns a year. "The answer is yes. I just haven't gotten off my butt."

William Donald Schaefer wishes he would.

Noting that Maryland trails other states in electronic filing, the state comptroller is urging professional preparers such as Cassel to substantially boost electronic returns for their clients - or else.

"We're asking for a 50 percent increase" next tax season, Schaefer says. "So long as we continue to get more and more electronically filed, we're not going to go to a mandate. I don't want to do that."

But he will push for mandated electronic filing, he implies, if tax pros don't do it voluntarily.

His proposal, unveiled in a recent edition of a newsletter he sends to tax professionals, sent ripples through the tax community by raising the possibility of limiting paper returns - as Virginia and other states have done.

"It was kind of a veiled threat," says Carol Katz, an accountant and deputy tax director at Leonard J. Miller & Associates in Baltimore, where most of her 300 clients' returns are submitted on paper. "So what can we do? If we have to, we will. It's more of a benefit to the state and the IRS than it is to the client."

True, and that's why state and Internal Revenue Service officials promote e-filing, and why some taxpayers and advisers resist.

For Maryland, electronic returns cost 38 cents to process vs. $1.95 for paper - a savings of 80 percent, says Schaefer spokesman Michael D. Golden. About half of Maryland's 2.6 million tax returns for individuals are filed by third-party professionals, but only half of them were submitted electronically this year.

Converting those 650,000 stragglers from dead-tree to digital would save Maryland $1 million a year at a time when state programs are under financial pressure. The savings could finance additional audits and other measures to catch tax cheats - producing new revenue, Golden suggests.

The federal government has accepted electronic returns since the mid-1980s, but this year about 40 percent of individual returns still came in on paper. The IRS wants that cut to 20 percent by 2007. In Maryland, only a little more than a third of all individual returns arrived by wire this year - a 13 percent increase compared with gains of 20 percent last year and 35 percent in 2002.

E-filing is not difficult, even if you do your own taxes. Governments have gotten much better at accepting electronic returns since they started experimenting with it years ago. And most professional preparers already use TurboTax or other software - so the data already exist inside a computer.

So why wouldn't you file electronically?

"A lot of people might owe money - and then they're in no hurry to file," says Katz. "It's more of a psychological thing for some people."

Others worry - perhaps legitimately - that contributing financial information to a vast government database increases the risk of an audit. It's easier to see "red flags" on a return if revenue officials can search for them digitally.

And tax professionals say that converting to e-filing involves cost and trouble even if returns are already on an accountant's hard drive. Transmission fees, extra software and added time to key in W2 wage data all may be involved, they say.

But governments are getting antsy. State governments, which unlike their federal brother must usually balance their budgets and need to cut costs, are becoming impatient.

"Force of habit is the big bugaboo" against e-filing, says Verneda Smith of the Federation of Tax Administrators, a trade group for revenuers.

To break the habit, Virginia, Alabama, California, Michigan, Minnesota, Oklahoma and Wisconsin have required e-filing from all but the smallest professional preparers. (The mandates generally allow exceptions if a taxpayer specifically asks for a paper return.)

E-filing has doubled in some of those states as a result, Schaefer says. But Maryland tax pros - even ones who already file electronically - are not nuts about that idea.

"I would like it that they would encourage it, but I would not like it that they would mandate it," says Tom Bowman, a Columbia accountant who figures 90 percent of the personal returns his firm handles are filed electronically.

Even so, substantially increasing e-returns may take more than a personal invitation from the comptroller.

"Just because William Donald asks for volunteers, would I change my mind?" says the paper-bound Cassel. "No, not necessarily."

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