Feb 19, 2008

Should I e-file my tax return? Hmmmmm....

There are two schools of thought here as to whether you should file your tax return electronically: yes it is great- I get my refund faster! or heck no, why would I give the IRS all of my information!

Some factors to consider:

1. Filing electronically gives the IRS immediate use of your data. The IRS takes about 6-8 weeks to "post" your return to their master file. Filing electronically gives the IRS about 10 days to post the return. The time for the IRS to audit your return is 3 years from the due date of the return or date filed, whichever is later. Filing the return by paper decreases the time for the IRS to review the return and select it for examination. At the very least, it would put pressure on them with other priorities in mind to make an audit decision. The same could be said about filing early- yes you get the refund faster, however, the IRS has more time to consider the return.
2. Filing electronically gives the IRS your entire return to review via their master file database. Filing by paper only allows the IRS to key critical items on your tax return. If you do not believe me on this fact, pull a return transcript on a paper filed return and compare it to the return you actually filed. You will notice significant differences especially if you made disclosures on your paper return.
3. A paper return can have documentation attached that may preclude an examination. If you file by paper, you are given the opportunity to attach disclosures of your position. For example, if you have an enormous amount of charitable deductions and you have the required documentation, you may attach it so as to provide substantiation for any potential audit. The IRS classification specialist who selects the return for examination or the downstream examiner must consider these facts attached. With so many returns to examine with great potential for adjustment, the IRS Agent will take heed of the disclosures and consider the cost/benefit in an examination of a return that appears to have the proof of the deduction already attached to the return.
4. The IRS has sped up payment of refunds. In fact, if they are substantially late in paying a refund, they must pay interest on the refund. Hence, the difference in a paper filed or an e-filed return refund is negliglible- the maximum of 6 weeks delay. If you direct deposit, the difference in time is more likely to be around 2-3 weeks.

Having spent my time around the IRS, I can tell you what some insiders say: why does anyone file their return electronically other than to get their refund a little quicker?

The civic respopnsibility to lower the government's cost in filing your return electronically is only reason I would file electronically. Otherwise, inviting, in any manner, an audit is not prudent.

4 responses:

Andrea February 20, 2008 at 10:16 AM  

I think a 5th point should be by giving the IRS your bank info for direct deposit in an e-file, you're giving them an easy source of levy in the future. By submitting a paper return and accepting a paper check, you're cutting them off from a funding source. You can specify a DD refund in a paper return but let's be honest, people e-filing want to get filed and get their money ASAP, meaning they're more likely to use DD too. Another reason why e-filing is dangerous.

myfavdeals March 13, 2008 at 1:37 AM  

If you are eligible, you can go through IRS's Free File website to file your federal tax return for free.

For a list of state free file programs, check out State Free File.

QckTax March 13, 2008 at 10:41 PM  

Even the irs has to go through the banking channels to levy. I think they know everything about your finances, just witholding that DD information from them isn't buying you much.


Andrea March 18, 2008 at 10:46 AM  


I have to disagree, although thinking the IRS/government knows everything is a common misconception. There's no master "directory" the IRS can access to find you and all your personal finance data. And not only that, the IRS is an extremely large, slow, and disorganized body, meaning that they have a harder time gaining access to info the older that info gets in their system.

I have seen and heard plenty of cases first hand that involve individuals staying off the IRS' radar by moving around a lot or not providing them with banking info. And it's only when they do give some kind of personal info that the IRS finds them and slaps them with a huge tax bill.

Personal finance is an individual choice, but I'd prefer to not give the IRS the info they need (to take my money) rather than playing the odds. Call me paranoid, but that's how I see it.

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