The pros and cons of e-filing your taxes
Does filing your taxes electronically increase the odds of an audit?
By Janice Fioravante | Contributor to The Christian Science Monitorfrom the March 12, 2007 edition
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NEW YORK - Nobody likes to talk about it, but everybody knows it's here: tax season. And a big question many taxpayers face is whether to file by paper or electronically. Some taxpayers fear that if they file electronically, they will face the ultimate horror: an audit. But tax experts say that electronic filing actually can decrease the number of errors you may make.
"I haven't seen numbers to back up the IRS's contention that there are fewer errors when you e-file," says Scott Estill, a former IRS senior trial attorney and author of "Tax This! An Insider's Guide to Standing Up to the IRS." "But it's intuitive that e-filing would mean fewer errors." And as for being audited, he says, they can only audit from 1 to 1.5 percent of all returns, which means "you have a 99 percent [chance] of not being audited."
Mr. Estill hit on the crux of arguments for and against e-filing: On the one hand, the IRS contends that tax returns sent electronically are 20 percent more accurate than paper returns. Errors on paper returns can be due to inaccurate Social Security numbers, failure to sign the return, and, even by the IRS's own admission, mistakes by agents transferring handwritten information into its data systems.
"We use electronic scanning and bar codes to turn handwritten forms into electronic format," says Nancy Mathis, spokeswoman for the IRS. "Filing by hand can trigger a desk audit – a verification audit for discrepancies if you don't write legibly or if the numbers don't add up."
On the other hand, some tax preparers wonder if e-filing is the quickest route to an audit. Paper returns may sit on an IRS shelf longer. "I'm asking taxpayers to be prudent," says John Giacchetti, CPA and principal of his own tax-preparing firm in New York. "Don't sacrifice your own interests by doing what's on the Bureau's agenda, in this case, speeding your form through their systems."
Others are equally suspicious. "E-filing would increase your exposure to an audit because it's analyzed instantly for a discrepancy, whereas for manually written returns, less than half are put into this algorithm the IRS has for red flags," says Jonathan Park, who blogs at mymoneyblog.com. "You think every handwritten form is looked at? To cut corners, the IRS can't look at them all. But it costs nothing to look at something that's already in the computer."
Another argument in favor of filing through the mail goes like this: The more money the IRS saves from people e-filing – or the fewer clerks dealing with paper forms – the more money the agency has to hire new auditors.
But then again, additional auditors would help close the tax gap – the estimated $345 billion in uncollected taxes that keeps eluding the IRS due to big-time cheating and tax evasion, says William Henry Jones, senior tax manager at Marks Paneth and Shron, LLP, in New York.
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