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May 26, 2004

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Palo Alto Online

Publication Date: Wednesday, May 26, 2004

Tax preparers embrace e-filing Tax preparers embrace e-filing (May 26, 2004)

Popularity of online tax returns doesn't hurt more traditional businesses

by Terry Tang

For many taxpayers this year, the storm cloud surrounding April 15 lifted with the click of the mouse.

Faster, simpler, cheaper -- there are numerous reasons why online tax filing is growing. As technology and state law catalyze the e-filing trend, Californians have a strong impetus to lead the electronic charge.

Whether the tax preparation industry likes it or not, accountants and agents will have to get with the e-file program. Hoping to reduce the costs of processing paper returns, the California Legislature passed a new "Mandatory e-file" law last year. Tax preparers who worked on more than 100 individual income tax returns during the 2002 tax year must file returns electronically for the current year. However, individuals worried about their finances drifting into cyberspace can sign an online Opt-Out record.

"Electronically filing -- all that really does, from the government's point of view, is it saves a lot (of time)," said Barbara Brown, a CPA and partner at Palo Alto's Brown Adams firm. "From the clients' standpoint, all it saves them is not having to take it to the mail box."

This year, thanks to the state mandate, Brown's company filed 600 individual returns electronically, which comprised 55 percent of clientele. Only 10 clients e-filed the previous year.

"It would be interesting to see in the U.S. statistics, how many were from California," Brown said.

So far, most CPAs have not encountered any significant problems accommodating electronic filing and training themselves to use more software. The benefits outweigh the potential for mistakes when typing things into a computer. Refunds come sooner, fewer arithmetic errors arise, and the postage and paranoia of regular U.S. mail no longer becomes an issue.

The amount of paper saved has also been a plus.

"If you file a paper tax return, there is a remote possibility the IRS might not get the return," said Bert Torres, owner of Irvin Abrahamson & Co. "Believe it or not, the IRS sometimes loses the tax returns in their service center. That happens all the time because they have to deal with a whole lot of paper."

At this point, it would be considered unusual to find any accountant who does not use the Internet to file tax returns. David Hatt, a Menlo Park enrolled agent at Norberg Schwerin & Hatt, has been e-filing clients' returns for more than eight years.

"Before, it was a great way to distinguish myself from other tax preparers rather than give a paper return to file," Hatt said.

Still, he doesn't think self-preparation through e-filing will hurt businesses in the Bay Area since "in Silicon Valley, people here are pretty computer and Internet savvy. It's nothing new to them."

Electronic filing within the U.S., as of this year, reached a new high of almost 60 million, according to the Internal Revenue Service. Meanwhile, the number of people who filed from a home computer hit 14 million, a 21 percent increase from the season before.

One explanation for the surge in e-filing could be the incentives thrown in from state and federal governments. The IRS has given a big push to its online Free File program. Wired taxpayers can access a link from the IRS's official Web site and see if they qualify for any free tax preparation and electronic filing services for federal income tax returns. A partnership between the IRS and private software companies, who make up the Free File Alliance, allows for availability of these gratuitous services.

Eligible Californians, meanwhile, can access links to free e-file services at the homepage of the state's Franchise Tax Board. Among the e-file choices for personal income tax returns is NetFile, a state-funded service created by the FTB. To utilize NetFile, computer users need an operating system no older than Windows 98 as well as Adobe Acrobat Reader 5.0 or higher to view their returns.

Accountants like Brown recommend e-filing for individuals with less complicated finances and few itemized deductions. For the most part, they do taxes for people with complex tax situations such as owning their own business.

"For people who have simpler returns, it's a great thing to do," Brown said. "I would consider a simple return to be a 1040A or 1040EZ form."

In his 25 years as a CPA, Torres has seen a few clients leave his services to try the do-it-yourself approach. But, not everyone made the transition successfully. More than once, clients have come back to the fold after finding electronic services and software packages only made calculations more problematic.

"They got notices from the IRS when they did it themselves," Torres said. "So, they decided to come back. It's garbage in, garbage out. If you don't do it right or don't do it correctly, then you don't get the right answers."

A drop in business for tax practitioners could also be attributed to the recession. Nancy Kramer, a CPA at Mountain View's American Express Tax and Business Services, believes many people have less money and fewer assets like stock options. Circumstances, as a result, have made financial records less cluttered.

"With the proliferation of software like Turbotax and the economy down, you do find more people filing their own tax returns," Kramer said. "Most of the people who are coming to CPAs aren't just coming for the physical filing of the forms ... they're more concerned with the implications of what they're doing."

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