Web site offers free filing to most taxpayers

By Amelia Gruber

January 21, 2003

About 60 percent of taxpayers will be eligible to file online for free this year, thanks to a new partnership between government and industry, the Treasury Department announced late last week.

So far, 17 companies have pledged to participate in the Free File Alliance for at least three years with a series of two-year renewal options after that. The companies will allow eligible taxpayers to download tax preparation software for free and will transmit prepared forms to the IRS at no charge. Taxpayers can find links to the services offered by alliance members at www.irs.gov, or www.firstgov.gov.

The online tax-filing project is one of 24 electronic government initiatives intended to further the president's management agenda by making government more accessible to the public. The site will also give the IRS a boost as it works to meet its goal of persuading 80 percent of taxpayers to file electronically by 2007.

Electronic tax filing is not new. Last tax season, roughly 47 million Americans filed their tax forms electronically, a 15 percent increase over the 40 million taxpayers who filed online the year before.

But in the past, free online filing services were not consistently available or widely publicized, according to the IRS. Previously, some companies would offer free software to prepare taxes, but would charge customers for transmitting the prepared forms to the IRS. Others would do the reverse, the IRS said. The new alliance brings the free services together in a single location and allows filers to shop around for the one that best suits their needs.

The members of the Free File Alliance have pledged that together, they will allow 60 percent of the approximately 130 million U.S. taxpayers, or about 78 million Americans, to file online without charge.

Eligibility requirements vary from vendor to vendor, but in general, are based on such factors as age, adjusted gross income or military status. For instance, taxpayers who are at least 50 years old or have adjusted gross incomes of $12,000 or less, are eligible to file for free with TaxBrain. H&R Block joined the consortium and offers filing services to taxpayers with adjusted gross incomes of $28,000 or less at no charge. One vendor-www.fileyourtaxes.com-offers free filing to all residents of Wisconsin, Mississippi, Arizona and Georgia.

The IRS and tax firms began working out the details of the partnership in July to eliminate the need for the government to compete with private firms by developing its own version of software that is already available in the private sector.

The online filing services will save taxpayers time and effort, according to the IRS. Completing the tax process online also improves accuracy and helps taxpayers get refunds much more quickly.

"Once you've experienced the ease and benefits of e-file, I guarantee that you'll never go back to your old way of filing your taxes," said Robert Wenzel, acting IRS tax commissioner, at a ceremony to kick off the new Web site.

In addition, online filing will save the government $1 for every person who takes advantage of the new opportunity to file an electronic return for free, according to Bruce Friedland, an IRS spokesman.

Privacy issues have plagued electronic filing in the past. At a House Government Reform Committee hearing last spring, Robert Dacey, director of information security issues at the General Accounting Office, testified that many taxpayers who filed returns electronically during the 2000 tax season may not have known that intermediaries who sent their tax information to the IRS could have viewed and changed their data.

The Free File Alliance has taken steps to make transactions more secure, according to the IRS. All alliance members must adhere to federal regulations that prohibit the use of tax return data for purposes not specifically authorized by the taxpayer. In addition, the alliance members must use software that has been approved by the IRS, and each member must obtain a privacy and security certification from a third party.

By Amelia Gruber

January 21, 2003