A six-year-old mandate requiring large corporations to file their tax returns electronically has cut costs for businesses and the government, but could have raised the number of unnecessary audits the government performs, according to a watchdog report released publicly Tuesday.
Most of the government savings from the corporate e-file program come from a hike in the average amount of unpaid taxes found in e-file audits and from reduced labor costs because the Internal Revenue Service isn't manually checking paper returns, according to the report from the Treasury Department's Inspector General for Tax Administration.
The report did not give a dollar figure for those savings, saying the IRS' large business and international division hasn't tracked the savings and that it was impossible for the IG's office to separate electronic-filing savings from those attributed to other reforms introduced during the past five years.
The audit did attempt to sort out likely e-filing savings in a few categories. Between 2002 and 2005, the average large business and international division audit recommended between $254,000 and $507,000 in additional taxes, according to the report. Since 2006, that average has ranged between $512,000 and $712,000, the report said.
The division also has saved about $280,000 in processing costs since the transition and about $80,000 in storage costs, the audit said.
The number of audits the division completes without finding any delinquent taxes has actually increased since 2006, the audit said, though, again, there could be other factors involved beyond the transition to e-filing.
The division's post-audit "no change" rate was 22 percent to 24 percent between 2002 and 2005, before the e-filing mandate, and grew to 25 percent to 30 percent between 2006 and 2010, according to the report.
"A high no-change rate means a significant amount of resources are being devoted to unproductive audits and compliant corporations are being unnecessarily burdened by audits," the report said.
The Treasury Department issued a temporary regulation in 2005, mandating e-filing for corporations with assets greater than $50 million and that file more than 250 returns annually. The department lowered the bar for total assets to $10 million in 2007.
E-filing still is voluntary for individuals. It has reduced the average cost for processing an individual return from $2.87 to about $0.35, the IRS said.
The agency's goal is for 80 percent of all individual and businesses to submit returns electronically by 2012.