E-file

E-file is a government system, operated by the IRS, used to submit tax returns electronically rather than by paper.  During the 2024 tax season 98% of the tax returns I prepared were e-filed.  According to the IRS about 90% of tax returns are e-filed.

I file paper returns only when it is required by the IRS. In the past I have prepared paper returns at the request of taxpayers, but I stopped that about five years ago.  It seems that I was running into problems whenever I paper filed a return and it is more work for both me and the taxpayer.  The e-file system will check the returns for basic errors such as an incorrect Social Security number and it also provides an accurate record of when the return was filed.

After the return is prepared in my tax prep software, the software will check my work, and I am not allowed to e-file until any errors it has detected are corrected.  I could ignore the errors, print the return and put it into the mail, but if I want to e-file, the errors must be corrected.  Recently I had two new customers bring me some problems they had with work done by another tax preparer who was paper filing returns.  The returns contained basic errors that would have been caught in the e-file system.

If the software is happy with the return I have prepared, it will allow me to send in the return electronically to the software company I use.  They act like a wholesaler, collecting returns from the preparers that use their software and pass in on to the IRS.  The IRS takes one final look at the return, and they can either issue an acknowledgement or reject the return.  This process only takes a minute or two to complete.  With simple returns, I will e-file the return with the taxpayer in my office and get an acknowledgement before they leave.

A part of the rejects I encounter are because of a typo on my part, and that is easily fixed.  Other kinds of rejects are not as easy to resolve.  Besides typos, the other big reason I will get a reject is because a dependent on the return I have filed has been already claimed on another return.  Sometime this is done in error but often it will involve a dispute between two individuals about the right to claim a dependent and that can get complicated.  Other times there can be a case of outright fraud, someone claiming a dependent they did not support.

If a taxpayer that is claiming a dependent on their return is rejected for this reason, there are several solutions.  The rejected taxpayer can claim the dependent on a paper filed return and the IRS will determine who is able to claim the dependent.  The IRS, of course, has many rules regarding the claiming of dependents and they will apply those rules to make a decision.  The problem is that it can take the IRS a year or so to resolve the matter.  I often recommend that the taxpayer try to work it out directly with the other claimant.  The taxpayer that claimed the dependent and received the refund could just share the refund with the unhappy taxpayer/former friend.  Sometimes this works, sometimes it doesn’t.