"This e-file option will replace outdated technology that was a burden to both businesses and the IRS," said Acting IRS Commissioner Bob Wenzel. "It is the first in a series of products being modernized to expand e-file opportunities."

The IRS worked with tax professionals (who prepare the vast majority of business tax returns), software developers, and small business taxpayers to determine the users' needs, and how to increase the volume of payroll returns filed electronically. Based on partner feedback, the IRS developed the system to promote the development of integrated software products.

The result is e-file capability for the software product that a business or tax professional already uses to manage their payroll. Key benefits of the new system are more flexible filing, faster acknowledgements, integrated payment options, and more specific error conditions.

The Employment Tax program is the first XML (eXtensible Markup Language) product that the IRS has delivered, which translates into cost savings and processing benefits for both businesses and the IRS through the use of commercial standards and best practices for information exchange.

Last April, the IRS reduced paperwork for small businesses required to file corporate tax returns.