Thursday, March 24, 2011

What is MeF?

by Paul Crockett

As a Drake preparer, you’re probably familiar with the basics of e-filing. However, in the past several years, you may have also heard the phrase “Modernized e-File,” or “MeF,” getting thrown around and wondered exactly what it was. If so, read on.

So, what exactly is MeF?

In a nutshell, MeF is a new way to do e-filing. When e-filing first started in 1986, the IRS used a proprietary file format. A federal Schedule A transmitted in that format would look something like this:

That worked fine for a while, but technology has changed a lot since 1986, and the IRS eventually decided that it needed a new format for e-file transmissions. Enter Modernized e-File, which is based on XML (eXtensible Markup Language), a format descended from the HTML used for most websites. In XML, the same Schedule A would look like this:

Notice how the old format is based on numeric indexes. In that format, the results are completely incomprehensible unless you know what each index means. In an MeF transmission, while the results are still somewhat cryptic, you can at least get a sense of what each field is for.

What are the benefits of MeF?

First of all, MeF allows the IRS and states to do more thorough error-checking than before. Bad data that could slip through old-fashioned error-checking to cause problems later can now be detected before a return is accepted. MeF returns can also be filed year-round, and there’s no cutoff date. If, for some reason, you needed to e-file a 2009 tax return now, you could do so with MeF. The PDF attachments feature you may have noticed in Drake’s business packages are another feature exclusive to MeF. This feature will eventually be expanded to individual returns in Drake.

The IRS is still in the process of phasing in MeF for 1040 returns, and some advantages haven’t come to fruition yet. Eventually, MeF will allow faster acknowledgements on returns, faster deposits of refunds, and the ability to e-file amended returns.

When will MeF be available?

Drake has supported MeF for business returns since the 2004 tax year, and Drake MeF for individuals has been available for federal and Kansas returns since 2009. We expect to add MeF capabilities to the 1040 packages for several more states within the next year.

What types of returns can be sent via MeF?

All federal and state returns in the 1120, 1120S, and 1065 packages are transmitted via MeF. A 1040 return can be sent via MeF as long as all the forms used in it support MeF. Many commonly used forms are supported; if you’re interested in the specifics, the IRS has published a complete list of MeF forms. Several states have also implemented MeF for their 1040 returns. The number of 1040 returns that qualify for MeF will continue to grow as the IRS adds MeF capabilities to more forms.

How do I transmit an MeF return?

Drake has designed its MeF transmission process to be as painless as possible for you. All you have to do is select a return for e-file and transmit—just as you would for a regular e-filed return. You may even have sent MeF returns without knowing it. All business returns are transmitted via MeF, and any federal or state individual returns that qualify for MeF will be automatically converted to that format by Drake.

This article only scratches the surface of the information about MeF that’s available. If you want to learn more, the IRS website is a good place to start. See its informational pages on 1040 MeF and business MeF.

Technology marches on, and the changing face of e-filing reflects that. There will certainly be some growing pains as software developers and preparers adapt to the new system. In the end, however, it will open up new possibilities for everyone.

Paul Crockett is a graduate of Western Carolina University. He has been with Drake as a state programmer since 2004, and received his Enrolled Agent certification in 2006. When he’s not programming, Paul enjoys reading, writing, and anything computer-related. He lives in Franklin with his wife, two dogs, and a baby on the way.