Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, April 6, 1994                   TAG: 9404060099
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: By MAG POFF STAFF WRITER
DATELINE:                                 LENGTH: Medium

TAX EXPERT: REFUNDS A COSTLY WAY TO SAVE

And more of us than ever before are using electronic filing to get - and spend - the refunds as soon as possible, W.E. Williams said.

Interviewed during a visit to Roanoke on Tuesday, Williams said 68 percent of returns had refunds in the early 1980s. Last year, 80 percent of taxpayers claimed money back from the IRS.

The average refund was $1,010, "a large amount of money," Williams observed. It means some 80 million Americans made free loans to Uncle Sam with money they didn't get back until they filed tax returns and claimed the refunds.

The U.S. taxpayer, Williams said, has "developed a refund psychology."

From talking to clients of Kansas City, Mo.-based H&R Block, Williams said, he has found that people plan for refunds by having employers withhold more money than necessary. "They use it as a forced savings program."

Yet, after getting a refund, they spend the money almost immediately, he said, for a down payment on a car, furniture for the house or a vacation. Williams said many clients use the money to take their children to Florida during spring break.

Williams has suggested to clients that they claim standard withholding and put the extra money in a savings account so they can earn interest.

"They say they wouldn't save. They would spend the money on living expenses." He pointed out that Americans have the lowest saving rate in the Western world.

Williams said 9.7 million returns were filed electronically in 1991, and 12 million in 1992. This year, he said, the Internal Revenue Service expects between 14 million and 15 million returns by computer and probably 50 million by 2000.

The IRS encourages the trend, because it costs $1 to process an electronic return compared with $2 to $3 to handle one on paper. "That's a good part of the IRS budget," Williams said.

The system allows people to claim a fast refund - two weeks for a direct bank deposit and three weeks for a paper check, compared with a turnaround time of four to eight weeks for a standard paper return. People have the alternative of taking a loan against the refund only two days after filing.

The second advantage is that the electronic return will be free of mathematical errors.

To file electronically, people must use an authorized preparer, although home filing should be available to computer owners in four or five years. H&R Block charges $15 for electronic filing if clients use the company to prepare the return. There is no charge for "executive service" customers, who pay higher fees for special services. The fee is $35 for a return the customer prepared himself.

Williams said the fee for a loan is an additional $29 ($15 for an executive client).

That can be steep if the refund is small, Williams conceded. "The larger the refund, the more advantageous" to get the loan, he said.

Of the 114 million returns filed last year, half were prepared by professionals and half by taxpayers. People go to professionals, he said, because the tax law is complex and the forms are complicated.

Carelessness is the main problem for people who do their own returns, Williams said.

A common error is failure to sign a return or for both partners in a marriage to sign the forms. Williams said those returns are set aside, and a letter goes out for signatures, delaying a refund for months. Other people fail to attach all forms. Some people use the wrong tax tables or pick up the wrong line on a tax table. Maybe there are errors in arithmetic.

Williams advised people doing their own returns to finish several days in advance, then review the work later.

The vast majority of taxpayers want to do what's right and to pay the correct amount, Williams said.

And they worry about IRS audits, because "there's a certain stigma attached to getting a letter from the IRS," Williams said. The ability to get help facing an audit is another reason so many people use professional preparers. Block guarantees it will pay the penalties and interest if its preparers make a mistake.

Williams said the IRS audits all income levels, all types of returns and all geographical areas for its deterrent effect. But the chances of an audit are small. Last year, he said, a million returns, less than one percent of those filed, were selected for audits.