U.S. Forges Deal for Free Online Tax Filing

Up to 78 million taxpayers will have the opportunity to file their 2002 tax returns online for free, thanks to an agreement signed between the U.S. Internal Revenue Service and a coalition of tax preparers that includes TurboTax maker Intuit and H&R Block.

IRS Commissioner Charles Rossotti signed the agreement with the Free File Alliance, which will allow tax software companies to offer online tax return preparation at no charge.

“As the filing season approaches, the IRS will continue working with the Alliance to implement this important initiative. This joint effort will help even more taxpayers benefit from e-filing,” Rossotti said.

Typically, taxpayers are charged about US$12 to file a federal return.But starting in January 2003, they will be able to access free tax filing Web sites via irs.gov and firstgov.gov. The agreement between the government and the consortium will continue until 2006, and then will be renewed every two years.

Some Already Free

This is not the first move toward free tax filing. For the past five years, Intuit, which makes TurboTax software, has offered free filing for taxpayers whose adjusted gross income was $25,000 or less, according to spokesperson Scott Gulbransen.

“We served as a model,” Gulbransen told the E-Commerce Times. “A lot of the other companies in the tax prep field were not actively doing what we were doing, and having the philanthropic effort that we have had.”

However, starting next January, Intuit has raised the cap on free federal filing to $27,000, and it has added anyone who qualifies for the Earned Income Credit.

When it comes to companies that have not offered free filing in the past, Giga Information Group vice president of e-commerce strategies Andrew Bartels said it is likely that they will offer more services to compensate for any lost revenue. In addition, he noted, although some firms may lose revenue as a result of offering free tax filing, they will gain customers because the government will be promoting their services.

Goal of ‘Modernization’

The free online tax filing is the result of an initiative proposed by President Bush in last year’s budget, which also suggested that those who file electronically should receive a 15-day extension on their tax deadline.

The IRS noted that Wednesday’s agreement is in line with its goal set in 1998 to have 80 percent of federal taxpayers file electronically by 2007.

The two groups also said free e-filing will help ease the burden on taxpayers by making filing easier.

While the agreement is in effect, the IRS has said it will not compete with electronic tax preparers by offering its own free e-filing services, but the agency also stated that the consortium of tax preparers must offer, in total, free services to 60 percent of all taxpayers.

Individual members of the consortium must provide free e-filing, using their own proprietary software and systems, for 10 percent of the taxpayers they serve to retain their membership in the group.

Benefits of E-Filing

For consumers, the benefits of electronic tax filing include a faster refund and greater accounting accuracy. According to Gulbransen, nearly 70 percent of taxpayers receive some type of federal refund.

At the same time, the e-filing process allows the IRS to achieve greater efficiency when handling returns.