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Ease of e-filing is not without concerns

The IRS keeps encouraging taxpayers to file electronically. This week, the agency released new statistics on how successful that effort has been. E-filing by individuals has increased by more than 4 percent compared to last year.

Add in e-filing by tax professionals and nearly 114 million returns had already been filed electronically through May 10. This is up from about 112 million at the same time a year ago.

But as we discussed in our January 16 post, the convenience of e-filing has also come with significant downsides for taxpayers. In this post, we'll review concerns about tax audits and identity theft that affect taxpayers in California and across the country.

One of these downsides is the way e-filing has given the IRS a ready-made database that can be used for tax audits. The IRS admits that it maintains an e-file database that can be used for audit purposes. Because the data is already in computerized form, it is more easily searched for matches that may raise an audit flag.

Another downside from e-filing is greater vulnerability of taxpayers to tax refund fraud based on identity theft. Perpetrators of identity theft scams often file electronically on the victim's behalf. The refund is then sent through direct deposit, a means of transmitting refunds that has grown along with e-filing.

Overall, nearly 80 percent of tax refunds are now dispersed through direct deposit. But the number of refunds dispersed is running behind last year's total so far. Through May 10, about 1.5 million fewer refunds have been sent out.

Source: "More Taxpayers e-file from Home in 2013,"IRS.gov, 5-20-13

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