IRS broadens Free File

The IRS revised an agreement with the Free File Alliance of tax preparation software vendors to expand the number of taxpayers eligible next year for free electronic filing. IRS earlier this year received criticism for striking a contract through 2009 with the alliance that restricted eligibility compared with previous years.

For 2007, taxpayers who earn $52,000 or less will be able to use Free File services. That translates to 70 percent of all taxpayers, or 93 million individuals.

“We heard many legitimate concerns about the marketing of ancillary products during the last filing season,” said IRS commissioner Mark Everson in a statement.

The Free File program, which enters its fifth year in January, also agreed to remove from the program ancillary offerings, such as refund anticipation loans for which vendors charge a fee. Such loans use a taxpayer’s refund as collateral for a same-day, interest-charging loan.

Taxpayers locate Free File through the IRS Web site. The Free File Alliance may still offer customers the option of having their state tax return prepared for a fee. Some alliance members are offering the state return for free as well.

The restrictions eliminated 39 million tax filers from eligibility, a 23 percent drop between 2005 and 2006 in taxpayer usage, said the Treasury Inspector General for Tax Administration in a report.

At the same time, the agency eliminated the TeleFile program, which provided free electronic filing directly with the IRS by phone for certain eligible taxpayers.

The IRS told TIGTA that the Free File Alliance never guaranteed universal coverage, only up to 60 percent, although some industry participants have made their services available to all.

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