Tax firms cooperate to help IRS boost e-filing

Free Internet Filing Opportunities

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

Companies, including well-known Intuit Inc. and H&R Block Financial Advisors Inc. and lesser-known rivals such as Free1040tax return.com, can form a consortium to offer free tax preparation services without fear of violating antitrust laws, said Charles James, chief of Justice's antitrust division.

The consortium was proposed in an agreement reached last summer between tax preparation companies 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 preparation companies' free services and provides links to their Web sites. The page should be ready by Dec. 31 and will be available on www.irs.gov, said H&R Block spokesman Tom Linafelt. Both the consortium and the IRS are expected to promote the free tax services.

IRS officials are eager to increase the use of electronic tax filing because it saves money. They hope that 80 percent of taxpayers will file electronically by 2007 and estimate that it could cut processing costs by as much as $243 million.

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, said Intuit spokesman Scott Gulbransen.

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.

For tax preparation companies, offering free e-filing keeps a powerful potential competitor — the IRS — out of the tax preparation business. It is also a low-cost way for tax preparation companies to introduce taxpayers to other online financial services such as investing and buying homes, Linafelt said. n

E-filing benefits Electronic filing cuts the cost of handling, storing and maintaining tax records. Electronic tax preparation also dramatically reduces errors, which saves the Internal Revenue Service time and money. More than 45 million taxpayers filed electronically last year, and IRS officials said as many as 78 million will likely be eligible for the free services to be provided by the tax preparation companies.