Flash: Irs Enters 20th Century - Brief Article

ASK SHERRILL FIELDS WHY more U.S. corporations don't file their taxes online, and she doesn't mince words: "We don't have the capability for them to file electronically."

A rather startling admission, since it comes from the director of the Internal Revenue Service division that has jurisdiction over corporate employment, fiduciary, and income returns. Fields says the reason business electronic filings haven't been on the top of the IRS priority list is that the agency has concentrated its electronic filing efforts on personal income tax returns.

The strategy is understandable. On average, the IRS receives about 120 million personal tax returns annually. By contrast, only about 5 million corporate returns get filed each year. "With a system that facilitates getting 1040s electronically," Fields says, "there's a really big audience you can reach." An audience of 120 million users tends to attract the rapt attention of software developers everywhere. So there are dozens of tax preparation applications that enable individual taxpayers to file their returns over the Net. "When you get into the business arena," notes Fields, "you don't have those large numbers of returns for the software industry to sell products to."

Nevertheless, online filing for corporations is coming--albeit slowly. The IRS has already launched an online system that enables companies to electronically file quarterly employment tax returns, or Form 941. In June, the agency rolled out a service that accepts electronic tax returns for partnerships -- Form 1065. Fields notes that partnerships annually file about 1.8 million 1065s, along with 18 million K1 forms (K1s show the profit/loss distribution of the partnership). So far, the IRS has received some 75 Form 1065s and 1,000 K1s over the Internet.

Small potatoes, sure. But Fields points out that one software maker is already offering a product for partnership filers, while another 43 vendors have applied for government approval of similar programs. And she insists the IRS will have all necessary infrastructure in place to accept annual corporate income tax returns online by the end of 2002.

But some critics say the Internal Revenue Service is not moving fast enough. Current IRS cyber initiatives, they point out, are years behind the ecommerce capabilities of tax departments at major corporations. And it's difficult to see how the IRS will meet the goal for Internet readiness Congress has set for it--that is, 80 percent of all federal tax returns filed electronically by 2007. "We don't think they'll get there," says John Stauffer, a former member of the Electronic Tax Administration Advisory Committee, a group created by Congress to advise the IRS on electronic filing matters. "We don't think they've made the infrastructure investments. The private sector may be willing to ship them something over the Web, but they're not going to have a place to catch it."

At the moment, the IRS's electronic payment services seem farther along than electronic filing systems--no surprise. In September, the agency launched a pilot project enabling businesses to pay their federal taxes via the Net. The system also lets companies access up to six months of payment history for their enterprises. If that pilot is successful, Fields says a full-blown launch will take place in January 2001.

But the IRS had better be careful about what it wishes for. Some agency watchers believe the IRS is not prepared to handle a huge increase in online payment or filing. The tax man, they say, has been promoting online programs but neglecting crucial network build-outs. Scoffs Stauffer: "It's like worrying about what your car's tires look like while the engine's about to blow up."

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