IRS, Congress debate Web portal for tax filing

Inspector general report on Free File program

In a letter sent Nov. 2 to the Internal Revenue Service, the Senate Finance Committee questioned IRS Commissioner Mark Everson about building an a Web portal to allow taxpayers to file taxes for free. But Everson said in a speech today that the task might be too big for the agency right now.

Sens. Chuck Grassley (R-Iowa), committee chairman, and Max Baucus (D-Mont.), its ranking member, expressed concern that tax software companies in the IRS’ Free File program entice taxpayers with sales gimmicks. The IRS also seems to exercise little or no oversight on their actions, the letter states.

“The industry appears to be using the Free File program as an opportunity to bolster its revenue through the sale of ancillary products at taxpayer expense,” Grassley said.

If participating companies are taking advantage of the program, “perhaps it is time to consider having the IRS provide a direct filing portal to enable all taxpayers to file electronically without cost,” the senators’ letter states.

Although Everson supports a free Web portal for filing taxes, he said its creation would be a huge undertaking.

“At this stage, the most important thing is for everybody to understand how big a deal that would be,” Everson said at a Council for Electronic Revenue Communication Advancement conference in Arlington, Va.

The project would take a lot of investment, he said. In the short term, it would be too big for the agency to handle. In the long term, once the agency’s systems are modernized, such a portal would feasible, he said.

A policy debate also surrounds the issue of a Web portal. Critics question whether the IRS should play such a role in tax filing because it would take business away from tax-preparation companies.

“I’m all for private enterprise but not when it co-opts taxpayer service,” Grassley said.

The Web portal discussion has evolved rapidly in recent years as technology has advanced in industry and at the IRS, Everson said.

Among other areas, the debate is tied to the decrease in Free File program numbers, he added.

The Treasury Inspector General for Tax Administration released a report last month that found Free File use dropped by 23 percent between 2005 and 2006, mainly due to the amended agreement with the Free File Alliance, a group of tax software companies. The new agreement limits Free File to 70 percent of taxpayers or taxpayers whose income is $50,000 or less, according to the report.

The senators’ letter addresses problems with the Free File program, which they describe as inaccessible, complicated and frustrating for taxpayers. They should have a way to file taxes online directly to the IRS, the letter states.

“In the 21st century, there should be an easy, convenient and free way for taxpayers to file their returns directly to the IRS online,” Baucus said. Making tax preparation easier would close the tax gap, he added.

The IRS has until Nov. 17 to respond to the committee.