Firms plan free tax software

Tax software companies are working on a plan to offer their popular tax preparation software for 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 free service in its fiscal 2003 budget plan. But Congress and the software industry loudly opposed the move 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 (ETAAC), which advises the IRS on strategies for electronic services, has been working on a proposal to create a public/private partnership and 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 ETAAC.

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

A group of industry representatives plans to unveil its proposal to ETAAC in early June and publish it in the Federal Register with the goal of making software available for next year's tax filing season.

The IRS has been working with the group to create a proposal that 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, while attending the Council for Electronic Revenue Communication Advancement's spring meeting in Arlington, Va., May 22. "We're on the verge of signing something that will advance the public/private partnership in e-commerce."

Free software has been offered for several years by some of the major tax preparation firms, including H&R Block and Intuit Inc., which have made their software available to 3 million taxpayers in the past four years.

Industry officials do not appear concerned that free services would take away their business because the IRS has a goal of putting all tax returns, even the most complicated ones, online by 2007, and the number of paying customers is expected to increase.

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