Tax Portals Could Help Lower Costs

Some firms aren't using IT for tax planning

By Maria Trombly

March 26, 2001 12:00 PM ET

Computerworld - Historically, corporate tax departments have often been among the last groups in many companies to see big boosts in IT investments. That's because those areas are often viewed as fixed costs, and the tax preparation process itself is labor-intensive.

			E-Filing on the Rise The Internal Revenue Service processed a record number of electronic payments from businesses last year, and the 2001 tax season started off with a bang. The Electronic Federal Tax Payment System (EFTPS), which allows businesses to make all of their federal tax payments by phone, computer or through their banks, processed more than 63 million payments last year, a 14% increase over 1999. That amounted to more than $1.5 trillion in tax receipts. That trend continued into January; more than 7.5 million electronic transactions were processed from businesses that month. More than 3 million businesses are enrolled in the system, according to an IRS spokesman. Part of the growth can be attributed to the way the biggest corporate taxpayers - those paying $200,000 or more a year to the federal government - are required to file electronically, with a 10% penalty if they continue to file using paper deposit coupons. According to Terence Lutes, director of the IRS's Electronic Tax Administration, the EFTPS system is 99.9% accurate and capable of handling the growing volume of transactions. Still, some tax professionals have criticized the IRS for not moving fast enough in modernizing its systems. In a report issued by the IRS itself last fall, the agency complained about problems with its computer systems. "The U.S. tax administration system, which collects $2 trillion in revenues each year, is critically dependent on a collection of obsolete computer systems developed by the IRS over the last 35 years," the report said. "These systems are fundamentally deficient. They do not and cannot allow the IRS to administer the nation's tax system and provide essential service to taxpayers at an acceptable level of efficiency, effectiveness and risk." The tax administration system includes a network of 40 mainframe computers, 871 midrange computers, more than 100,000 PCs, 2,779 vendor-supplied software products and more than 50 million lines of IRS-maintained computer code. However, the federal government is investing heavily to modernize these systems. As of September, approximately $250 million had been allocated for the IRS Business Systems Modernization Program, according to an IRS spokesman. For more information, visit www.irs.gov/elec_svs/eftps.html.

But that's beginning to change. Some companies have started to leverage IT to help reduce Uncle Sam's bite by reducing tax preparation time and improving planning.

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