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Federal e-filing history now includes more than 1 billion taxpayers served

The Internal Revenue Service borrowed a phrase from a popular fast food franchise in announcing that it had served more than 1 billion taxpayers via electronic filing, but I suspect the tax agency is bit behind in corresponding "happy returns."

Still, 1 billion-plus e-filings since 1986 is a momentous number.

So that threshold has earned this week's recognition as the featured By the Numbers figure:

1 billion efiled returns

When electronic tax return filing started, it was simply a pilot project to gauge public acceptance and evaluate the costs. It went nationwide in 1990

"The one billion milestone means e-file has delivered real services to taxpayers, including faster refunds and more accurate tax returns," said IRS Commissioner Doug Shulman.

It also benefits Uncle Sam. It costs the IRS 20 times less to process an e-filed return instead of a paper filing. That means a more efficient government, said Shulman, that's saved hundreds of millions of taxpayer dollars.

Congress originally set an 80 percent goal for the electronic filing of federal tax and information returns back in 1998. So far this year, more than 79 percent of taxpayers have used e-file to submit their tax returns. And procrastinators who got an extension have until Oct. 17 to e-file their returns.

On the tax preparer side, during the 2012 filing season tax pros who file 11 or more returns will be required to e-file. This requirement should put the IRS within reach of its goal of 80 percent e-file rate for individual tax returns.

E-filing history: In celebration of the 1 billion number and 25 years of e-filing, the IRS compiled a timeline of notable achievements in the e-filing process.

Electronic tax form submission began in 1986 as a test, with only five tax preparers in three metropolitan areas -- Cincinnati, Raleigh-Durham and Phoenix -- participating.

The system 25 years ago could only process returns that were due refunds. One IRS employee was assigned to manually turn on a modem every time tax returns were e-filed. That first e-filing season 25,000 returns were processed.

In 1987, 66 preparers from seven cities participated and filed 78,000 tax returns. That year, electronic direct deposit of refunds was added and 78,000 returns were e-filed.

By 1988, the IRS moved to an IBM Series I processing system, the 16-bit minicomputer, which finally eliminated the need for an IRS employee to plug the phone into a modem. That year 583,000 returns were e-filed and Form 1065 (partnerships) and Form 1041 (trusts) were added to the e-file list.

In 1989, the pilot e-filing program expanded to 36 states, breaking the 1 million mark in e-filed returns.

In 1990, IRS e-file went nationwide and 4.2 million returns were filed electronically.

1992 saw the debut of Telefile debuts for 1040-EZ taxpayers to submit their returns by phone. The IRS also began accepting individual e-filed tax returns where tax was owed, but any tax due had to be paid by check or money order mailed to the IRS with a paper voucher.

In 1998 Congress mandated that IRS reach an 80 percent e-file rate for "all federal tax and information returns."

By 1999, the IRS was accepting electronic payments through credit cards or direct debit. That year pilot programs also allowed taxpayers to sign returns electronically instead of mailing a signature form.

2002 heralded the arrival of taxpayer Personal Identification Number (PIN) filing, which allowed taxpayers to electronically sign their returns, making e-file entirely paperless.

In 2003 Free File debuted. E-filing also expanded for business filers, with the quarterly Form 941 for employment taxes and the annual Form 944 for small businesses being accepted electronically.

In 2004 the IRS unveiled Modernized e-File (MeF), the next generation of electronic tax submission. The agency that year began accepting business and information returns, such as the Forms 1120, 1120-S and 990 series.

By 2005 the e-filing system crossed the 50 percent threshold, with 68.4 million returns filed. Telefile, which had seen users hang up the phone in favor of computer filing, ended.

In 2006, e-filing became mandatory for businesses and exempt organizations with assets of $50 million or more.

In 2007, the required e-filing threshold for businesses and exempt organizations was lowered to assets of $10 million or more.

By 2009 Congress was putting more pressure on tax preparers to e-file, passing legislation that requires tax pros who file more than 10 individual tax returns to file electronically. The requirement, however, was phased in, with the threshold set at 100 or more for 2011 and 11 or more for 2012.

In 2010, the IRS began a three-year roll out of Form 1040 series and 23 related forms for e-filing. The agency also stopped mailing paper Form 1040 packages.

In 2011, electronically filed returns crossed the 100 million mark in one filing season, with approximately three out of every four individual tax returns were filed electronically.

The really big number this year, of course, is the total of e-filed returns over the last quarter century exceeding 1 billion.

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