What is electronic filing?
In the past 25 years, electronic filing has revolutionized the way individuals, businesses and governments report, process and store essential information. Simply put, electronic filing is a computer-based system for the storage, cataloguing and retrieval of documents. It replaces tangible, hard-copy paper documents with electronic files, which can be stored on individual computers or in larger databases. Perhaps most importantly, electronic filing allows for the transmission of information between two parties securely and almost instantaneously.
E-filing and the IRS, a brief history
For most of us, electronic filing, or e-filing, will be forever linked with tax returns. Indeed, it was the Internal Revenue Service (IRS) that popularized the idea of e-filing for most Americans. The shift to electronic filing began in the early 1980s as a response to the increasingly onerous process of filing individual and corporate tax returns. Tax preparers began using specialized software to help ease this burden, but they still had to print out all of the forms and mail them to the IRS. The IRS's storage costs for all of these paper forms were exorbitant, not to mention the possibility of loss or damage to the documents.
By 1986, a system of transmission was agreed upon by which the tax preparers' computers could transmit information directly to the IRS. In a pilot program, five tax preparers used a machine called a Mitron, which was a tape reader with a modem, to transfer the information of 25,000 returns. The IRS received these returns and processed them using a machine called the Zylog S8000. The Zylog was a small super-computer that could read the tape transmission and organize the data into a form that was easy for the IRS's Unisys system to use.
The success of this initial test led the IRS to expand its e-filing system to 66 tax preparers in 1987, who, in total, filed 78,000 returns successfully. By 1990, the IRS had introduced the service for nationwide use, increasing the number of e-filed returns to 4.2 million. At the same time, a number of the large tax preparation companies began to take advantage of e-filing technology, vastly expanding the program's popularity. With the expansion of online services and access, the process of online filing has gotten simpler and more widely used. Last year, the IRS reports, 126 million returns were filed electronically. Meanwhile, the technology that makes e-filing possible has been adapted for many business and government applications across the world.
The Wide-Ranging Application of E-Filing Technology
Since its inception more than 20 years ago, the basic process of e-filing and electronic transmission of data has been adopted by many businesses and government agencies. For example, since 2015, companies that seek to incorporate in Delaware, in order to take advantage of that state's business courts and legislation, must file their initial corporation documents and their annual reports electronically. Likewise, companies doing business in the UK are encouraged to file electronically with the Companies House for most official correspondence, including annual accounts, annual returns, change of company details and copies of resolutions. Indeed, multinational corporations across the globe use electronic filing applications to track and organize complicated compliance initiatives.
Benefits of Electronic Filing Technology
Speed
The most obvious benefit that electronic filing gives its users is speed. Whether you are preparing a tax return or gathering the documents necessary to incorporate a company, the process can be tortuously slow. Before the introduction of e-filing, each required document had to be requested by mail or retrieved from a government office, creating headaches and inefficiencies for everyone involved. With online access now so prevalent, most necessary documents are available for quick download from the appropriate agency's website. Electronic filing programs offer helpful online templates that streamline the required work and prompt users through each stage of the process. Once the necessary forms are successfully completed, sending the file is as easy as sending an email. E-filing does away with the hassles associated with the cost of postage, the long lines at the post office or the uncertainty of postal delivery. Instead, users often receive email verification that their document has been delivered, offering them peace of mind.
In regard to tax returns, e-filing can often result in faster refunds. The IRS must reenter the data from all paper returns, slowing down the overall process and opening returns up to possible mistakes in transcription. E-filing bypasses this step by reporting taxpayer data directly to the IRS.
Accuracy
One of the hazards of manually filed reports is the possibility of human error. If not recognized in time, these mistakes might delegitimize a report, or in the case of tax statements, put the individual at risk of an audit. Electronic filing helps reduce the risk of these mistakes by using prompts and document wizards to guide its users through the process. For example, many electronic tax programs perform calculations for the users, reducing the chance of mathematical errors. In addition, some filing systems for annual or biannual reports allow users to automate parts of the data entry that have not changed from preceding years. Users need only review the data and make any relevant changes for the current year. Electronic filing programs are also equipped with built-in check-ins that help users avoid omission errors that can delay the processing of their reports.
Improved Workflow and Documentation
Electronic filing allows business users to introduce processes of standardization and atomization in regard to reports and documents. This saves effort in gathering and verifying past data, and reduces the amount of time and money businesses must spend on amended reports. Customizable email alerts can remind appropriate employees of upcoming filing dates or compliance initiatives, staving off any negative repercussions from late filing. In addition, electronic filing creates a verifiable and transparent 'paper trail' for use during compliance audits. Assuming the business uses responsible cybersecurity, reports created through electronic filing can provide a permanent record of transactions or other business dealings, which can be easily organized, catalogued and retrieved.
Electronic Filing Offers Many Benefits
Electronic filing offers individuals and businesses speed, accuracy, efficiency and security. If you have more questions about how you can take advantage of electronic filing processes, contact a Diligent representative for more information.
