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IRS Sees Fall In Free-File Usage

by Leroy Baker, Tax-News.com, New York

21 March 2007


Almost 2.6 million US taxpayers have electronically filed their returns using Free File, an Internal Revenue Service scheme which allows most taxpayers to file their tax returns online at no cost through the agency's website.

Seventy percent of US taxpayers are eligible for Free File, since they have an adjusted gross income of $52,000 or less. The program is a partnership between the IRS and the Free File Alliance, a group of private sector tax preparation companies, but it can only be accessed through the IRS website.

Free File is part of the IRS e-file program. Through early March, the number of overall e-filed returns increased by about 5%. And returns prepared on home computers - which include free file returns - jumped by 8%. For the Free File program alone, nearly 2.6 million taxpayers used the program, about a 4% drop from the nearly 2.7 million who used it during the same period last year. While Free File started out slowly this year, the IRS said that returns in recent weeks are now topping comparable weeks from last year, and the agency expects the program to equal or surpass last year’s numbers by the end of the filing season.

"Several factors are behind Free File usage this year. It started out slowly, but the numbers are increasing each week. We believe some Free File users are switching over to other parts of our e-file program, which continues to grow this year," announced IRS Commissioner Mark W. Everson. He continued: "Taxpayers shouldn't overlook Free File, because we've made major improvements to the program this year."

The Free File programme has in the past attracted strong criticism from Congress, notably the Senate Finance Committee, which has jurisidction over taxation. Last November, Senator Chuck Grassley (R-Iowa), then Chairman of the Committee on Finance, described the program as "inaccessible, complicated, and otherwise frustrating" for taxpayers. The IRS has also been criticised for allowing the private Free File partners to use the service to advertise and sell ancilliary services at taxpayer expense. These companies agreed to remove some of these offerings, such as Refund Anticipation Loans (RALs) for its fifth season, which opened in Janaury 2007.

However, the IRS said that several indicators show customer satisfaction for Free File continues to be high. One such indicator, the number of customer service inquiries, occurs on less than 1/10th of 1% of total Free File returns.

According to Russell Research, a market research firm contracted by the IRS, 96% said they found Free File very easy or somewhat easy to use, and 97% said they would recommend Free File to others. Convenience, not the free cost, was the most appealing factor of Free File.

Taxpayers can use Free File to take advantage of recent tax changes. For example, users can request their telephone excise tax refund through Free File. This refund is only available this year. Taxpayers can also try one of the IRS's newest features: split refunds. It allows taxpayers to directly deposit their refunds in up to three financial accounts.


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