Free File opens for early birds

Free File, a tax-filing program, opened today for taxpayers wanting to get an early start on filing season.

The controversial program, in its fifth year, is a free tax preparation and electronic filing initiative between the Internal Revenue Service and the Free File Alliance, which is composed of 20 private-sector tax preparation companies.

Congress and the IRS’ inspector general have criticized the program for excluding taxpayers who once used the program by setting stricter income requirements. Those requirements caused a double-digit percentage drop in usage in 2006.

But the IRS and the alliance have made Free File more consumer-friendly this year and expanded services for Spanish-speaking taxpayers, according to the IRS.

“The Free File program has significant changes this year,” IRS Commissioner Mark Everson said.

The new agreement, reached last month, eases income restrictions, opening the program to taxpayers with adjusted gross incomes of as much as $52,000. The IRS said that encompasses 70 percent of taxpayers. However, each company sets its own criteria for who can use the service, according to the IRS.

Use of Free File dropped nearly 23 percent in 2006 compared with 2005. The program’s stricter income rules disqualified many people who had been using the free service, a Treasury Inspector General for Tax Administration report from September 2006 states.

About 4 million people used Free File in 2006, the IG’s report states. It debuted in 2003 with nearly 2.8 million users.

The previous Free File agreement excluded 39 million taxpayers who were previously eligible for the program. It limited the program’s use to taxpayers with adjusted gross incomes of $50,000 or less, according to the IG’s report.

As for improvements in this year’s agreement, the IRS said some companies will offer to file state returns for free. Taxpayers can use Free File to file an application to extend their filing deadline, and two companies will offer Free File in Spanish.

According to the IRS, Free File gets good marks from users. According to Russell Research, a market research firm contracted by the IRS, 94 percent said they intend to use Free File again, 96 percent said they found Free File very easy or somewhat easy to use and 97 percent said they would recommend Free File to others. Convenience, not the fact that it is free, was the most appealing factor of Free File.

“Taxpayers will find we’ve made a great program even better this year,” Everson said.

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