IRS, software firms cut e-filing deal

Tax software vendors are working on a plan to offer popular tax preparation software packages free to many taxpayers — a move intended to head off any efforts by the Internal Revenue Service to develop its own program.

The Bush administration had proposed the idea in its fiscal 2003 budget plan, but Congress and the software industry strongly oppose the idea because it would compete with the private sector and create potential conflicts of interest for the tax agency.

Instead, the Electronic Tax Administration Advisory Committee, which advises the IRS on strategy for electronic services, has been working on a proposal to create a public/ private partnership to make free services available to targeted audiences.

"We don't want to have the government as a competitor," said Jason Mahler, vice president and general counsel of the Computer and Communications Industry Association, which has been working with the committee.

"Some of the proposals would have placed the IRS in a competitive situation with industry," Mahler added. "It was not good for us. It was not good for them."

A group of industry representatives plans to unveil the proposal to the committee in early June and publish it in the Federal Register with the goal of offering free services for next year's tax filing season.

The IRS has been working with the group to finalize the details, which could include offering free software to groups such as veterans, senior citizens, first-time filers or taxpayers earning less than $25,000 a year.

"We're resolving this without a playbook," said Stephen Ryan, a member of the advisory committee. "We're on the verge of signing something that will advance the public/private partnership in e-commerce." Ryan and others outlined the plan May 22 at the spring meeting of the Council for Electronic Revenue Communication Advancement in Arlington, Va.

The idea is not new. Free software has been offered for several years by some of the major tax preparation firms, including H&R Block, which made software available to first-time filers, and Intuit Inc., which made it available to 3 million taxpayers in the past four years. And it was one of 24 e-government initiatives proposed by Mark Forman, the Office of Management and Budget's director of information technology and e-government.

On the other hand, some industry officials do not appear concerned that free services would take away their customers because there is plenty of business to go around. The IRS has a goal of putting all tax returns, even the most complicated ones, online by 2007.

Terry Lutes, director of the IRS Electronic Tax Administration, said people are getting used to the idea of e-filing taxes. The tax agency is exceeding its goal this year and, once all 2001 tax returns are filed, expects 46.7 million taxpayers to have filed electronically. The IRS is projecting that more than 52 million taxpayers will file electronically next year.

Lutes had no immediate comment on the status of the software proposal. However, he said electronic services have seen gigantic growth at the IRS. The agency's Web site received more than 1 billion hits between Jan. 1 and April 15.

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