US Treasury Launches Free File Initiative

by Mike Godfrey, Tax-News.com, New York

17 January 2003

The US Treasury yesterday finally announced details of its Free File program under which more than 78 million US taxpayers will be able to prepare and file their tax returns for nothing through commercially provided sites - in effect this is the price the Free File Alliance (a consortium of the biggest electronic tax-filing companies) has to pay in return for the IRS's agreement not to compete against them.

The US Treasury signed an agreement in November with the Free File Alliance. The tax software companies will offer at no charge on-line tax return preparation and filing services and the IRS will provide taxpayers links to these free services through irs.gov and firstgov.gov. Each participating company must offer the service free to at least 10% of the US population, based on regional, income or demographic sectors of its choosing. The companies may overlap, but the proposal requires that the group as a whole cover at least 60% of taxpayers. The IRS, which began to prepare the deal last July, sees it as a key part of its push towards 80% take-up of electronic filing by 2007, saving an estimated $250m annually. More than 45 million taxpayers filed electronically last April, representing 35% of taxpayers.

President Bush proposed free online tax filing last February as one of his E-Government initiatives. “No one likes paying taxes—it’s too confusing and time consuming. The launch of this new website is great news for millions of Americans. Free File makes it easy. Now they can save time, money and get their refunds in half the time by filing their taxes online for free,” stated Acting Treasury Secretary Kenneth W. Dam yesterday, launching the service.

"Simply paying taxes is burden enough without the extra costs in time and professional help that too many Americans have endured until now. The advent of free, fast filing for a substantial majority of taxpayers marks a great breakthrough for the President's agenda to make the federal government put the needs of the citizen first," said Director of the OMB Mitchell E. Daniels, Jr.

"Free File puts e-file within reach of more taxpayers than ever. They'll soon discover what the 47 million taxpayers who e-filed last year already know. E-file is quicker. E-file is more accurate. E-file is the best way to confirm the IRS received your return, and it's the fastest route to a refund," said IRS Acting Commissioner Robert Wenzel.

Each Free File Alliance member company sets taxpayer eligibility requirements for its own program. These requirements will differ from company to company. Generally, eligibility will be based on factors such as age, adjusted gross income, state residency, military status or eligibility to file a Form 1040EZ or for the Earned Income Tax Credit.

Some commentators have criticised the free filing initiative, saying that the lower-income groups targeted are those least likely to be online; others have alleged that taxpayers drawn to the tax firms' Web sites will be exposed to offers of high-cost loans secured by tax refunds, a claim that was rubbished by the IRS and the firms themselves.

Recommended