Tax prep firms can collaborate

Electronic tax preparation companies can collaborate on a project to offer free online services to lower-income taxpayers, the Justice Department has said.

Companies, including well-known Intuit Inc. and H&R Block and lesser-known rivals such as Free1040taxreturns.com, are allowed to form a consortium to offer free tax preparation services without fear of violating antitrust laws, said Charles James, chief of Justice's antitrust divisi

The consortium was proposed in an agreement reached this summer between tax preparers and the Internal Revenue Service. The tax companies agreed to provide free tax filing services to millions of taxpayers, and in return, the IRS promised to stay out of the online tax preparation business.

James said the consortium appears to "pose no threat to competition in the market for providing tax services to individuals."

And he called the agreement between the companies and the IRS an "innovative public/private partnership" that promises to let taxpayers "take advantage of simple, speedy options for electronic filing of their returns."

A key job for the consortium is to create a Web page that lists participating tax preparers' free services and provides links to them. The Web page will be available on the IRS Web site (www.irs.gov). Acting with the IRS, the consortium is also expected to promote the free tax services.

The IRS is anxious to increase the use of electronic tax filing. The tax agency hopes 80 percent of taxpayers will file electronically by 2007. That many e-filers, the IRS calculates, could cut tax return processing costs by as much as $243 million.

Electronic filing helps cut the cost of handling, storing and keeping track of tax records. Electronic tax forms also contain far fewer errors than their paper counterparts, which reduces the cost of processing them.

More than 45 million taxpayers filed electronically last April, and the IRS says as many as 78 million taxpayers are expected to be eligible for the free e-filing services to be provided by the tax preparers.

At least nine companies now offer free tax filing services, and each has a link and a brief description in the e-filing section of the IRS Web site. Some offer the service only to those who make less than $15,000 a year, others set the cutoff at $25,000. Intuit, which makes TurboTax software, recently raised its eligibility level to include those who make up to $27,000 a year, Intuit spokesman Scott Gulbransen said.

E-filing is particularly beneficial for taxpayers in that income range, he said. More than 60 percent are entitled to refunds, and "they get their money back faster — as fast as five or six days" if they file electronically and opt for a direct deposit refund, he said.