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					                                                                         from the Tax Policy Center

Changes in Tax Preparation                                                                                   used paid preparers, only 13 percent of all returns —
                                                                                                             including paid preparer returns — were prepared on a
Methods, 1993-2003                                                                                           computer. It is reasonable to infer that very few self-
                                                                                                             preparers used software in 1987.
        By Eric Toder
                                                                                                                The growth in the use of tax software and paid
   The percentage of individual taxpayers who prepare                                                        preparers reflects both improvements in computer tech-
their returns without the use of tax software is declining                                                   nology and the increasing complexity of the tax code. The
dramatically. In tax year 2003, only 13 percent of indi-                                                     dramatic decline in computing costs and associated in-
vidual taxpayers prepared their returns the old-                                                             crease in ownership of personal computers have likely
fashioned way, with pencil and paper — down from 41                                                          been the primary causes of the growth in tax software use
percent in 1993. (See chart below.) Both paid preparer and                                                   by individuals. But using software to ease computational
tax software use have increased. Between 1993 and 2003,                                                      burdens or turning the entire return preparation task to a
the paid preparer share of individual returns increased                                                      paid preparer are also responses to an increasingly com-
from 51 percent to 62 percent, while the tax software                                                        plex tax code. The private-sector response lowers the
share tripled from less than 8 percent to 25 percent.                                                        compliance burden for any level of tax complexity, but by
Preliminary data from 2004 suggest these trends have                                                         doing so may reduce the impact of whatever limited
continued.                                                                                                   political constituency there is for tax simplification. Fur-
   The paid preparer industry has been with us for many                                                      ther, some major sources of compliance burdens, includ-
years, but use of tax software is relatively new. In 1987,                                                   ing recordkeeping and tax planning, will remain with us
for example, while 48 percent of individual taxpayers                                                        no matter how we prepare returns.


                                                                        Preparation Method for Individual Tax Returns, 1993-2003

                                     100%




                                      80%
                 Share of Returns




                                      60%
                                                                                                                                            Paid Preparer
                                                                                                                                            Software
                                                                                                                                            Self w/o Software
                                      40%




                                      20%




                                        0%
                                                 1993                1995                1997               1999        2001         2003
                                                                                                 Tax Year

                                    Source: IRS, Statistics of Income, Taxpayer Usage Study, 1993-2003




TAX NOTES, May 9, 2005                                                                                                                                               759

				
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