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The transfer of personal and business information electronically has expanded rapidly during the past decade. Individuals today can access business and contact information via landline, cell phones, pagers, Blackberrys, computers, and other devices almost anywhere. While business transactions used to require the physical delivery of paper documents, many can now be processed much faster electronically. Tax return preparation is no exception; electronic filing (e-filing) has become commonplace.
The Development of E-filing
The IRS started the e-file program as a pilot project for the 1986 filing season in conjunction with tax-preparation software providers and the professional tax community. During the test year, five third-party transmitters were approved by the IRS to file tax returns electronically; they submitted 25,000 returns at three locations. Initially, tax preparers could file returns electronically only if no tax payment was due. The taxpayers that could participate in the program and the types of returns they could file were limited.
The IRS's primary motive for initiating the pilot program was to increase its efficiency in processing tax returns. Prior to the pilot program, IRS staff had to manually enter the information from every tax return, meaning lots of labor time and human error. The new e-file system required only one human input, by the taxpayer or preparer rather than the IRS.
After the success of the pilot program, the e-file program became fully operational for the 1987 tax year. The IRS upgraded its computer capacity and developed an archival and retrieval system that allowed for quick access to tax return information. The e-file system expanded to 16 districts in 1988 and 48 districts in 1989. At first, tax professionals could file no-tax-due returns only; the e-filing of balance-due returns was allowed in 1990.
In 1991, the IRS initiated the federal and state electronic filing program. By 2003, 37 states and the District of Columbia offered federal and state e-filing. In 1992, for the first time individuals could file certain qualifying tax returns from home; the Form 1040 TeleFile pilot program in Ohio processed 125,983...