E-filers get a price break

Greg Carson says he's unsure how many taxpayers will use the free service even if they're eligible.

Henrick G. DeGyor

The IRS last month launched Free File at IRS.gov, offering free online tax return filing to an estimated 78 million Americans, about 60 percent of taxpayers.

Under the E-Filing e-government project, the free tax preparation and online filing operates through an industry coalition, Free File Alliance LLC.

Top officials from the IRS, Office of Management and Budget and Treasury Department touted Free File as the latest milestone for OMB's Quicksilver e-government program.

'No single process touches more Americans than the duty to support our free government through the payment of taxes,' OMB director Mitchell E. Daniels Jr. said. 'We are taking 18 cents or more of every dollar in federal taxation, and that is pain enough without making the process more complicated and more costly to comply than it needs to be.'

Visitors to IRS.gov who want to use Free File are routed to one of the alliance's 17 member companies. Each of the vendors sets its own eligibility requirements for free service, such as age, income, state of residency or military status. Users answer questions to determine eligibility and then view a list of companies through which they can file.

April, cruelest month

The IRS' agreement with the alliance requires member companies to meet a 60 percent goal of free services. Last filing season, the IRS received nearly 85 million paper returns and 47 million electronic ones. Officials have said they expect at least 54 million e-returns this year.

'Free File will allow the IRS to be more efficient, processing returns faster and at a lower cost,' acting Treasury secretary Ken Dam said. 'It will speed refunds and reduce errors on both the processing and filing sides.'

But some observers question whether eligible taxpayers will take advantage of the free service.
More than half of taxpayers use a paid tax preparer, said Greg Carson, director of the IRS.gov Web site. He said it's unlikely that all would switch to one of the Free File preparers. Carson said no one can predict how many want to change.

'That is the big unknown,' he said.

Howard Landon, a government consultant for Booz Allen Hamilton Inc. of McLean, Va., noted that many taxpayers with lower income levels or less-complex filing requirements might opt to use paper tax forms.

When using Free File, the taxpayer does not communicate directly with the IRS. The online vendor files returns with the IRS and is required to maintain the privacy of each taxpayer's personal information.

Providers 'are responsible for security between a user and his or her software,' Carson said. 'Once the information is transmitted to the providers, there's a whole set of rules they have to comply with regarding privacy.'

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