II. Explanation of the Bill
(Sec. 2001 of the Bill)
Treasury Regulations section 1.6012-5 provides that the Commissioner may authorize a
taxpayer to elect to file a composite return in lieu of a paper return. An electronically filed return is
a composite return consisting of electronically transmitted data and certain paper documents that
cannot be electronically transmitted.
The IRS periodically publishes a list of the forms and schedules that may be electronically
transmitted, as well as a list of forms, schedules, and other information that cannot be
During the 1997 tax filing season, the IRS received approximately 20 million individual
income tax returns electronically.
Reasons for Change
The Committee believes that the implementation of a comprehensive strategy to encourage
electronic filing of tax and information returns holds significant potential to benefit taxpayers and
make the IRS returns processing function more efficient. For example, the error rate associated
with processing paper tax returns is approximately 20 percent, half of which is attributable to the
IRS and half to error in taxpayer data. Because electronically-filed returns usually are prepared
using computer software programs with built-in accuracy checks, undergo pre-screening by the
IRS, and experience no key punch errors, electronic returns have an error rate of less than one
percent. Thus, the Committee believes that an expansion of electronic filing will significantly
reduce errors (and the resulting notices that are triggered by such errors). In addition, taxpayers
who file their returns electronically receive confirmation from the IRS that their return was
Explanation of Provision
The provision states that the policy of Congress is to promote paperless filing, with a long
range goal of providing for the filing of at least 80 percent of all tax returns in electronic form by
the year 2007. The provision requires the Secretary of the Treasury to establish a strategic plan to
eliminate barriers, provide incentives, and use competitive market forces to increase taxpayer use
of electronic filing. The provision requires all returns prepared in electronic form but filed in paper
form to be filed electronically, to the extent feasible, by the year 2002.
The provision requires the Secretary to create an electronic commerce advisory group and
to report annually to the tax-writing committees on the IRS's progress in implementing its plan to
meet the goal of 80 percent electronic filing by 2007.
The provision is effective on the date of enactment.