WASHINGTON -- Most Americans know they can file their taxes online, but without incentives they're sticking with the old-fashioned way.
About 87 million of the projected 132 million returns this year will be filled out on paper, then stamped and mailed, according to Internal Revenue Service.
The reliance on paper filing is bad for the IRS, which has been told by Congress to have 80 percent electronic returns by 2007.
"Can the government meet its targets? Absolutely, if they give the right incentives," said James Hines, a University of Michigan economics professor. "It would be a small carrot."
The Bush administration wants Congress to give electronic filers an extra 15 days to get their returns in. Others say some kind of financial incentive -- one idea is a $25 tax credit for e-filers -- is the best way to persuade more taxpayers to try e-filing.
The IRS and major tax preparers say they are showing significant growth in electronic filing, which is usually provided for a fee through a tax professional, with personal computer software or directly online via an Internet site. Some preparers don't charge e-filing fees, particularly for lower-income people, while others offer rebates.
Through last week, the IRS had received 33.6 million returns prepared on computer, almost 17 percent above the same period last year. That includes 6.7 million prepared by taxpayers at home, up 39 percent from last year.
These growth numbers can be misleading, however. About a third of these e-filed returns came from H&R Block, the nation's largest tax preparation firm, and the e-filed total is less than half of the overall number of returns received so far.
The IRS expects to get about 8.5 million e-filed returns from individual taxpayers at home using an Internet site or such software as TurboTax or TaxCut -- still only about 6 percent of the total projected returns.
Terry Lutes, director of IRS electronic tax administration, said electronic filing remains in its infancy after going nationwide in 1997. The agency's market research shows that 70 percent of taxpayers are now aware of e-filing.
The IRS e-filing marketing budget this year is about $18 million, including TV ads.
"We've got our awareness up. Now, what we're targeting is getting them to actually use it," Lutes said.
The marketing campaign so far has focused on such e-filing advantages as accuracy, IRS confirmation that a return was received and, above all, faster refunds. But many taxpayers remain wary of electronic filing because of data security concerns, audit fears, the fees involved or because "they just don't see the advantage," Lutes said.
In fact, last year the IRS received 40 million returns that were prepared on computers but nevertheless mailed on paper.
Congress ignored former President Clinton's request for an e-filing tax credit, which faces even longer odds now that projected budget surpluses have turned into deficits. The Bush administration instead asked lawmakers to extend the deadline by 15 days for electronic filers, which would make it April 30 beginning next year.
This incentive, administration officials say, would broaden e-filing's appeal beyond those who simply want a faster refund. Last year, the IRS got 4 million e-filed returns in the final week before the deadline.
The IRS, Lutes said, is banking that taxpayer attitudes will gradually change in favor of electronic filing.
"It's eventually going to become a value proposition, like not having to go all the way to the mall," Lutes said. "People stick their toe in the water and gradually they will begin to do it."
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