The proposal involves converting to e-filing those taxpayers and paid tax preparers who prepare individual income returns on computer, print them out and then send to the IRS -- a process called "V-coding." The IRS estimates that nearly 72 percent of paper returns between January and May 2006 were V-coded returns.

To help convert V-coders, the IRS would set up an electronic mailbox where tax preparers could send in a return, the taxpayer could review and sign it, and then submit it to the IRS electronically, or return it to the tax preparer for additional work and subsequent e-filing.

GAO conducted the study to assess the IRS's 2006 filing season performance and to identify potential cost savings. Using IRS estimates, savings from an e-filing mandate on certain returns, such as individual returns, could be on the order of $60 million per year, GAO said.

The slowed growth of e-filing is largely due to changes in the Free File program, which reduced the number of taxpayers able to e-file in 2006, and the termination of TeleFile, which has allowed taxpayers to e-file through the telephone.

E-filing eliminates costs associated with paper processing -- from paper to staff to office space -- and the IRS set a goal for 80 percent of 2007 returns to be filed electronically. However, that goal seems out of reach. The IRS's 2006 filing season activities, through Sept. 15, 2006, included 59 million paper returns and 72 million electronic returns.

Another cost saving recommended in the report is to eliminate excess space at IRS call sites. GAO recommended that the IRS develop and implement a consolidation plan. GAO also said the IRS should report to Congress refund timeliness for its modernized system.

The full report is available at
www.gao.gov/cgi-bin/getrpt?GAO-07-26 (PDF).