Advancements and forecasts of electronic tax return and informational filings in the US

• DOI: https://doi.org/10.1108/IJAIM-06-2018-0072
• Date: 07 May 2019
• Published date: 07 May 2019
• Pages: 352-371
• Author: Kai S. Koong,Shuming Bai,Sara Tejinder,Charlotte Morris

Advancements and forecasts

of electronic tax return and

informational filings in the US

Kai S. Koong

Tuskegee University, Tuskegee, Alabama, USA

Shuming Bai

University of Texas of The Permian Basin, Odessa, Texas, USA, and

Sara Tejinder and Charlotte Morris

Tuskegee University, Tuskegee, Alabama, USA

Abstract

Purpose –The US Congress set the original goal that 80 per cent of all tax returns should to be filed

electronicallyfor the 2007 tax year. Unfortunately,only 70 per cent of the total returns were electronicallyfiled

(e-filed) in 2017. This paper aims to examine the longitudinal progress of total tax returns e-filed by

individuals, businesses and “other”categories for the period from 2004 to 2017 and projects a timeline to

attain the goal.

Design/methodology/approach –A comprehensive computationand analysis were performed for the

volume, ratios and growth of e-filing for the majortypes of return. A parallel analysis was performed for the

business categories.Applying various time series and exponentialsmoothing forecasting models, the authors

projectedmajor return e-filings for the forecast horizons from 2018 to 2025.

Findings –First, individualtax returns filed electronically have attained the target goal of 80 per cent since

2012, the extendeddeadline by Congress, so have corporations and partnershipsfor Fiscal Year 2017. Second,

both the e-file volume and e-file rate for the grand total, individuals and businesses exhibit monotonically

increasing trends over thesample period. Third, of the grand e-filings, individual returns constitutethe vast

majorityof 84per cent, while business e-files are less than 12 percent.

Originality/value –This study is a holistic and comprehensiveanalysis of the adoption of e-filing in the

USA. From the longitudinal analysisand the variety of forecasting models applied, the results show that the

focus should be on the employment tax e-file as it stands at only 41 percent for 2017 due to few mandates,

while the returns make up 65 per cent of total business returns. The authors projected that the grand total

e-filing will attain the Congressional goal of 80 per cent by 2020 along with proposed strategies and

recommendations.

Keywords Individuals, Information, Forecasting, Businesses

Paper type Research paper

1. Introduction

In the USA, electronic tax and informational returnfiling capabilities have been available to

the public since 1986. However, the pilot program was started with only five tax preparers

from Cincinnati, Raleigh-Durham and Phoenix. It was in 1990 that the electronic tax filing

capabilities were available nationally. Data about electronic tax filings have been available

to the public since 1995. By the new millennium, electronicfiling (e-filing) was found to have

taken hold in state and federal agencies (Duncan and Buruss,2005). One such success story

was the California ReadyReturn pilot program that was conducted in 2004 and 2005

(Bankman, 2008). Apart from some issues with the timely availability of data, it received

IJAIM

27,2

352

Received28 June 2018

Revised23 July 2018

Accepted6 August 2018

InternationalJournal of

Accounting& Information

Management

Vol.27 No. 2, 2019

pp. 352-371

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-06-2018-0072

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1834-7649.htm

high ratings from participants. Since then, electronic tax filing practices have grown

significantly during these 14 years, and experts at the Internal Revenue Service (IRS) have

been monitoring its use and have provided Congress with periodic information on the

adoption of this technologyby the public.

In addition, a variety of other researchers have also examined and reported on its

adoption by individuals,businesses and other complying entities.

Attention to the usage and adoption of e-filing became mission critical after the US

Congress passed the IRS Restructuringand Reform Act (IRS RRA) of 1998. Specifically, this

Act mandated that the IRS reach an 80 per cent of e-filing rate for all federal tax and

information returns by 2007. Unfortunately, it is now common knowledge that the 80 per

cent goal was not attained that year (Koong et al.,2008;Lacijan, 2009). The IRS Oversight

Board attributed the inability to meet the original target on a number of factors, including

problems and delays with the IRS Business Systems Modernization program and a public

wariness about transmittingpersonal data over the internet (Russell, 2008).

However, it shouldbe pointed out that the IRS has been proactive in its effortto boost the

utilization of electronic tax filing by the public during that period. For example, after 2005,

the IRS ended Telefile and tax filing by phone after Free File was introduced and

implemented in 2003 to enhance efficiency. That same year, the 68.4m individual electronic

tax filings helped to push the utilizationrate above the 50 per cent threshold. IRS also began

modernizing its legacye-filing system in 2004 and extended the deadline until 2012.

There have been major developments in individual Form 1040 e-file over the years to

push for the 80 per cent e-file goal. For example, privateindustry leaders began offering free

Federal e-file in retail tax preparation software in 2009 and the first phase of Form 1040

Modernized e-file (MeF) in 2010. Furthermore, the IRS initiated preparer (with 100 or more

returns) e-file mandate in 2011, with fullimplementation of preparer (11 or more returns) e-

file mandate and Form 1040 MeF in 2012. All of these progressive efforts and instruments

helped to achieve the 80 per cent e-file target in 2012.

Fiscal year 2018 is expected to be another critical phase for assessing the growth of

electronic tax and informational return filing utilization in the USA. The sweeping

Republican Tax Cuts and Jobs Act (TCJA) that was signed into law in December 2017 is

projected to increase the number of non-itemized tax filers. This prediction is based on the

doubling of the standard deduction allowances for the individual and the family and the

elimination or limitations placed on popular deductions such moving expenses, medical

expenses, Archer MedicalSavings Accounts, State, local, sales and propertytax deductions,

adoption assistance programs, dependent care assistance programs, mortgage interest,

educational, alimony and casualty loss deductions and recharacterization of Roth

conversions (Anglin et al., 2017;Drucker and Rappeport, 2017;Goheen et al., 2017). Of

particular importance to increasing the utilization of electronic tax filing after 2017 is the

elimination of tax preparation expenses (accountants and software) as a deduction. As a

result of these major changesto the tax code, it is expected that the public usage of electronic

tax filing will experiencea dramatic increase in the coming year.

The strategic importance of e-file derives in part from its benefits to taxpayers. The

benefits include no need to mail paper returns, faster refunds, greater return accuracy,

confirmation of e-filing receiptand secure submission of highly personal returninformation.

E-filing also substantiallyreduces IRS submission processing costs. Furthermore, thelower

error rate on e-file returns reduces burden on taxpayers and avoids additional processing

costs for the IRS. In addition, e-file enables100 per cent capture of the information on returns

in a digital fashion, which facilities service improvements (Internal Revenue Service

Oversight Board,2012).

Electronic tax

return

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