IRS taxpayer advocate urges protections to boost e-filing

The current e-filing process does not protect taxpayer rights adequately, the IRS’ taxpayer advocate said today.

The IRS wants more taxpayers to file electronically. And taxpayers’ experiences doing so can encourage or dampen growth, said IRS national taxpayer advocate Nina Olson in her National Taxpayer Advocate’s Report to Congress on Fiscal Year 2004 Objectives. (Click to link to PDF of the full report)

Taxpayers file electronically free through the tax preparation companies with which the IRS partners. But the companies often also bombard taxpayers with marketing offers without the filers’ consent. Olson said she does not think it is a good idea for taxpayers to link, in their minds, the IRS with product offers.

“Electronic filing is essential to the success of the IRS’ computer modernization efforts,” she said. According to IRS records, of 118.5 million tax returns submitted this year, taxpayers e-filed 51.6 million, or about 43 percent. E-filing includes via phone and computer, by tax professional and self-prepared.

The Taxpayer Advocate Service assists taxpayers resolve problems with the IRS and recommends solutions.

Olson plans in the coming year to increase the disclaimers and strengthen procedures that prohibit government endorsement of products and services offered by companies comprising the Free File Alliance. The alliance includes CCH, H&R Block and Intuit Inc. Companies often offer other financial services, such as audit protection, refund anticipation loans, individual retirement accounts and mortgage refinancing.

Tax preparation companies should provide notice to and seek consent from taxpayers for how they intend to use their financial information in clear language displayed conspicuously on their Web site, the report said.

Olson suggested that the IRS prescribe disclosure language. The taxpayer advocate will urge the tax agency, Federal Trade Commission and Justice Department to enforce the law against companies that fail to provide clear disclosures.

Olson also said she wants to increase the number of taxpayers filing free. Companies in the Free File Alliance provide free tax preparation to up to 60 percent of filers. Others must pay a fee. The IRS chose the approach originally to save money developing and supporting the Web site infrastructure.

The IRS must provide a means to let all taxpayers electronically file their returns without cost if Congress and the IRS want to encourage taxpayers to submit returns electronically, Olson said.

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