E-Filing Glitches Compound the Stress of Tax Season

As if tax season isn't already stressful enough, the Internal Revenue Service's push to get taxpayers to file electronically has added a new layer of worry.

Technical glitches, though not widespread, were still frequent enough to make you think twice about trusting your return completely to an Internet site. H&R Block's (HRB Quote) high-profile site was dogged by recurring technical problems. Taxes4Less had to shut down its tax preparation product on Sunday -- the day before Monday's deadline -- not because of a technical issue but because its live preparers couldn't keep up with demand. FileSafe turned out to be not-so-safe -- it suffered a technical shutdown on Monday afternoon.

No doubt there were other unpublicized glitches. I had my own unnerving experience with H.D. Vest's (HDVS Quote) free filing site. More on that shortly.

H&R Block's Long Tax Season

"It was our first year offering a full online product and there was a steeper learning curve than we anticipated," says Linda McDougall, H&R Block's vice president of communications. That's an understatement.

hrblock.com launched on Jan. 21 and before the month ended the tax section of the site crashed and was down for about a week because it couldn't handle the 100,000 or so early visitors. It went back up on Feb 3.

But on Feb 19, the tax center was down again. The glitch this time: Clients' data were appearing in other clients' files. The problem stemmed from a bug in a software update installed to make the system go faster -- apparently to solve the first outage. The tax center went back up on Feb 22, but some taxpayers' data were lost.

On April 14, the company notified 3,000 customers that its electronic filing program wasn't reading anything after the comma in tax payments of more than $1,000. So customers who owed $1,000 only had $1 debited from their bank accounts. The company notified the IRS and promised to cover any penalties its customers incurred. Still, who wants any extra correspondence with the IRS?

How could this series of mishaps happen? Doesn't the IRS check these sites out? Well, yes and no. The IRS conducts a suitability test on each site it includes it its list of approved e-file sites. But the test is mainly to be sure these businesses process returns in a way that is compatible with the IRS' systems. Unfortunately, the glitches that plagued H&R Block aren't picked up during the suitability tests.

These hiccups were due to a rush to get a product out that may not have been fully tested. And there's no protection against that.

'Overwhelmed With Hits'

The Taxes4Less.com's problem wasn't technical. It adds the human touch to its tax return services, and there just weren't enough humans to handle the work on the final weekend. The site was down for four hours on Sunday after being "overwhelmed with hits," says co-founder Greg Yulish. It responded by shutting down its live-preparer option, which requires taxpayers to fill out an online questionnaire and submit the information so a real person on the other end can complete the tax return. Shutting this section down allowed the site to focus only on users filing for extensions. In the end, Taxes4Less prepared 9,500 returns and extensions for the tax season.

The site also had another unusual low-tech option available, the shoebox option, which allowed taxpayers to drop their tax-related documents into a box and mail it in to the company's live preparers. About 200 taxpayers took advantage of that plan.

By the way, Taxes4less got 90% of its business from advertisements on irs.com, says Yulish. Although that is not the official IRS Web site, many people mistakenly thought it was, so traffic was high. Taxes4Less bought the Web address and plans to revamp it for the next tax season.

Closing Early

FileSafe had database problems and had to bring the site down on Monday afternoon. A message was posted suggesting that taxpayers who owed money to the IRS consider going somewhere else, because it was uncertain when the site would be back up, says Will Lockler, the company's president. Ultimately, it did reopen late on Monday evening.

Venting About Vest

I had a bizarre experience on H.D. Vest's tax prep site. While inputting data into a New Jersey state tax return, I suddenly encountered questions about my "Ohio" return. And all the New Jersey information I had entered disappeared. Hmm. The company says it has not heard of any other problems like mine and has no idea why this happened. But it was enough to send my husband running to the nearest CompUSA(CPU Quote) store to buy TaxCut software to install on our PC. We managed to e-file our federal return without incident with this software.

But it wasn't all bad news. TurboTax from Intuit(INTU Quote), which has about 75% of the e-filing market, reported no glitches. And the IRS' own e-file system performed "magnificently," says Bob Barr, assistant commissioner of electronic tax administration.

The rash of glitches "were terribly unfortunate," says Barr, who promises the IRS is taking steps to ensure confidence in the system. "When we see situations in the private sector where there were difficulties, we'll enhance our testing beyond our normal procedures," says Barr. Among those steps: The IRS will send an outside company to audit the software system in question to the make sure these issues won't repeat.

So e-filing may not have been as easy as "click-and-send" for many of you, but hopefully it wasn't that awful. Or was it? Let us know. We'll share your experiences in a future column.

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