IRS seeks proposals to expand electronic filing -

The agency wants vendors to offer proposals to expand electronic filing and make it the
preferred filing method.

IRS will issue a final RFP late this year and award the contract early next year, said
Terry Lutes, acting assistant commissioner of IRS for electronic tax administration. He
said IRS might choose more than one contractor.

Lutes said the project has two goals: achieving a large increase in electronic filing
beginning with the 1999 tax season using the existing systems infrastructure and boosting
electronic filing in the long term by enhancing IRS' systems.

The number of returns filed electronically has been growing by about 15 percent per
year, Lutes said. "We will be looking for comments on how to increase that figure
substantially after 1999," he said.

A June report by the congressional National Commission on Re-structuring the IRS said
only about 10 million of the 120 million tax returns filed annually are sent to IRS
electronically. Another 60 million are prepared electronically but mailed to IRS.

The commission suggested electronic filing should increase to 80 percent over the next
10 years. But Donald Lubick, acting assistant secretary of Treasury for tax policy, told a
congressional committee this month that Congress should not mandate a specific figure.

Current systems can handle an immediate increase in returns filed electronically, Lutes

"The bottom line is that electronic filing was in the test mode before. But it is
proven technology now, and we have to find ways to improve the product," Lutes said.

Industry and congressional sources have said data security, the cost of electronic
filing and IRS' requirement that taxpayers file a paper signature form are the primary
factors inhibiting its use.

Tax preparers now charge customers between $10 and $45 to submit returns
electronically. The congressional IRS commission report said it costs IRS about $7 to
process a paper return but it is not clear how much the agency spends to handle an
electronic return.

The commission and tax industry representatives have suggested IRS pay a portion of the
$7 to tax preparers so they can lower their cost and make electronic filing more
attractive to taxpayers.

Lubick told the House Ways and Means Subcommittee on Oversight that the Treasury
Department, though supportive of the idea to offer an incentive, is against paying the
preparers. He said the money should be paid directly to taxpayers.

IRS has posted the draft RFP on its World Wide Web site at

IRS will accept vendor comments on the draft until Oct. 15. The service will hold a
vendors conference next week.

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