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IRS Cleared Of Anti-Trust Threat In Tax E-Filing Project

by Leroy James,

10 October 2002

When the Inland Revenue Service announced in late July that it would work together with private tax preparation companies to offer free on-line tax filing to as many as 78 million Americans, it probably supposed it would receive nothing but thanks and and bouquets from a grateful populace. Not a bit of it.

America may be the land of the free (filers), but it is also the land of the lawyer, and within weeks the IRS was under attack by consumer groups saying that the program will increase the risk that low-income taxpayers will be exposed to loan sharks who offer short-term loans at high interest rates in anticipation of tax refunds.

The Treasury's Pam Olson, assistant secretary for tax policy, slapped them down, saying: "Taxpayers who e-file get their refunds twice as fast, reducing the need for tax refund loans, which often carry significant fees, and customer surveys consistently show that taxpayers prefer e-filing."

No sooner had the IRS seen off the brown sandal brigade, however, than the gumshoes were seen coming around the corner, threatening the IRS and its partners with anti-trust action. Luckily the Justice Department, in a sudden access of pro-citizen enthusiasm, doesn't agree, and says that electronic tax preparation companies can collaborate on the project without fear of violating antitrust laws.

The deal proposed by the IRS was that if the private companies formed a consortium to offer free filing to poorer taxpayers, then it would stay out of the tax preparation business.

Charles James, chief of the Justice Department's antitrust division, says that the consortium appears to "pose no threat to competition in the market for providing tax services to individuals." He even called the agreement between the companies and the IRS an "innovative public/private partnership" that promises to let taxpayers "take advantage of simple, speedy options for electronic filing of their returns."

The IRS sees the deal 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, and the IRS says as many as 78 million taxpayers are expected to be eligible for the free e-filing services to be provided by the tax preparers.

Currently, taxpayers who choose to file online can pay an average of $12.50 in filing fees in addition to the cost of purchasing tax preparation software. The new free tax filing consortium Web page is slated to be online by December 31, in anticipation of the 2003 filing season. Each company interested in participating 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.

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