IRS makes online tax prep deal

The Internal Revenue Service has agreed to stay out of the online tax preparation business in exchange for a promise from companies to offer free tax preparation to certain categories of taxpayers.

As many as 78 million Americans could receive free online tax assistance as a result of the agreement, Treasury Department officials said July 31. Assistance would include free tax preparation and electronic tax filing.

The Computer and Communications Industry Association (CCIA) praised the agreement as a major victory in its struggle to stop government agencies from "sliding into e-commerce" and competing with private companies.

Essentially, a consortium of tax preparation companies will work to offer free online tax services to as many as 60 percent of taxpayers, and the IRS will provide links to the companies' Web sites at www.irs.gov, and through the federal government Internet portal, FirstGov.

A key benefit for the companies is that they have a commitment from the IRS that it will not compete with them in offering online tax preparation services, said Ed Black, CCIA president.

A secondary benefit is that some of the taxpayers directed to the companies may opt to pay for tax preparation services.

Companies are expected to offer free services to different categories of taxpayers, Black said. Some, for example, might offer free services to senior citizens or to students. Others might offer free services based on taxpayer income.

The benefit to the government is that the IRS will avoid the expense of offering tax preparation services, while still deriving the benefit of electronic filing done by the tax preparation services.

Benefits for taxpayers include avoiding the $12.50 average cost of electronic filing and getting a much faster refund by filing electronically, Treasury officials said.

The agreement with the IRS could set the stage for similar agreements that keep other federal agencies from venturing into e-commerce, Black said.

The CCIA has complained about online procurement activity by the General Services Administration, online job application software being sold by the Office of Personnel Management and a number of online ventures by the U.S. Postal Service, particularly online bill-paying services.