One Big Problem with eFiling of Income Tax Returns


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9 Comments

2-28-11

Each year, more and more taxpayers are filing with eFile. Are you one of them? There are many advantages to eFiling:

  • It’s faster,
  • You save on postage,
  • Most states now accept eFiling as well, and
  • Faster refunds.

There is one potential challenge with eFiling though. I’ve been a CPA for almost 30 years now and in that time, there is one thing I can tell you with absolute certainty about the IRS: They lose returns.

I always tell my clients to mail their returns with the green return receipt requested card. When the IRS receive the mail, they sign for it, and that receipt is sent back to you. That allows you to prove to the IRS that you filed the return and that you did it on time. I can’t stress this enough. Chances are at some point in your life, you will need to prove to the IRS that you filed a return or responded to a notice on time. If you don’t have the proof, you can face significant penalties and interest. With the proof, you’re in the driver’s seat.

I would estimate that about 5% of everything that I mail to the IRS gets lost and I have to prove that it has been mailed. Keep track of all mailings to the IRS or any state agency for that matter with the return receipt card. And make sure you hang on to the cards for at least 10 years.

With eFiling, there is no mail and so no proof of mail with return receipt.

The IRS will acknowledge that they have received your eFile within 48 hours. Make sure you keep that receipt! If you change computers or your email software automatically erases emails after a certain period of time (weekly, monthly, etc), you could lose that proof. And just like with the regular paper filing, it could be a year or more until you hear from the IRS or your state that there is a problem. If you don’t have that proof that it was accepted, you’re going to be facing penalties and interest.

eFiling of income tax returns can be a benefit, as long as you keep track of your acknowledgement and have a plan to keep the copy for years.



9 Comments

  1. Diane Kennedy says:

    The DCN is an IRS number. So that’s the info you need to keep track of. Thanks for giving us a real life example Charlie!

  2. Charlie Way says:

    Last time I e-filed, I got this from the software company:

    “The Electronic Filing Department has received notice that the Federal electronic return for was accepted by the Internal Revenue Service on .

    The Declaration Control Number (DCN) for this return is 00-210022-12345-6.”

    Do you know what the DCN is? Does this come from the IRS?

  3. Diane Kennedy says:

    Oh, if you got a refund, I would think that would be proof. In the case of the clients who had problems the IRS was saying they never got the returns, so there was no refund.

  4. wayside says:

    I do e-file the state return, I only recall getting the confirmation from the software company.

    I’ll definitely be paying closer attention this year.

    Wouldn’t getting a refund be proof that you filed a return?

  5. Diane Kennedy says:

    Wayside, just saw your second comment.

    The acknowledgement may go directly to the software company, depending on how they have it set up with the IRS for eFile. I would definitely demand to get a copy of the acknowledgement. If they refuse, look into that – I believe they are required by the IRS to give that copy to you.

    Are you e-filing your state return as well? Do you get an acknowledgement there?

  6. Diane Kennedy says:

    Hi Wayside:

    We had two clients who had lost eFile returns in 2008. I don’t believe we had any last year. We had filed the 2008 returns for them (both Form 1040s) and had the authorization, so were able to show them to the IRS. The IRS never acknowledged that we sent them, the problem just seemed to go away…

    I heard from another colleague last year who had a bunch of his clients (2009 returns) with lost eFiles. I suspect it could be related to the software that you’re using.

  7. wayside says:

    Now that I think about it, I don’t think I get an acknowledgment from the IRS when I e-file, I think it comes from the company whose software I use.

    Would this be acceptable to the IRS?

  8. wayside says:

    Have you actually experienced, or know anyone who has, or even heard of anyone who has, a lost e-file’d return?

    I would think losing things is much less of a problem with e-filing.

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