The IRS estimates that it takes more time to complete a tax return using tax preparation software programs like TurboTax or TaxCut than it takes to prepare the same return by hand.  According to page 79 of the Form 1040 instructions, it takes the average individual 16.1 hours to complete a tax return by hand, and 21.8 hours using software.  The differential increases with the complexity of the return (27.5 hours v. 37.8 hours in the case of a Form 1040 with Schedules A and D) and in the case of businesses (45.1 hours v. 67.1 hours).

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Press reports call these estimates "ludicrous," and the makers of the tax preparation software programs scoff at the numbers:  The IRS estimates "fly in the face of logic," said Scott Gulbransen, spokesman for Intuit’s TurboTax division. "Anybody who sits down and does their taxes with a software product or online tax product knows that the time is reduced greatly."

Amazingly, the IRS estimates that it takes more time (47.9 hours) to use a paid professional to prepare a business tax return than it does for the taxpayer to prepare the same return by hand (45.1 hours).  The IRS says that the use of a paid professional reduces the amount of time spent by a taxpayer on an individual return, but not as much as you would think:  10.9 hours with a paid professional v. 16.1 hours by hand. The IRS’s estimates of the average fee charged by paid professionals —  $172 for individual returns and $542 for business tax returns — also seem quite low.

Update:  As Fred Johnston notes in the comments, we previously blogged a research paper on the subject:  The Effects of Tax Software and Paid Preparers on Compliance Costs, 58 Nat’l Tax J. 439 (Sept. 2005). Here is the abstract:

In recent years, the percentage of individual taxpayers using paid preparers and software has increased, while the share of taxpayers who self–prepare without software has dropped sharply. Using the Individual Taxpayer Burden Model developed by IBM Business Consulting Services for the IRS, we simulate the effects of preparation method on time and money costs of preparing tax returns. When we correct for self–selection bias, we find that each group on average selects the preparation method that costs the least for them. For example, software costs more than self–preparation for current self–preparers, but costs less than self–preparation for current software users.