Report: Free File use drops by 23 percent

IG report on Free File program

Participation in the Internal Revenue Service’s Free File tax return program dropped by almost 23 percent between 2005 and 2006.

A new report attributed the drop to a renegotiated agreement between the IRS and a group of tax software companies which left 39 million taxpayers ineligible for the program in 2006.

In October 2005, the IRS and the commercial companies, known as the Free File Alliance, amended their agreement to continue the Free File program through 2009. While the agreement adds consumer and security protections, the amendments limit the program’s use to 70 percent of taxpayers or taxpayers with an adjusted gross income of $50,000 or less, according to a Treasury Inspector General For Tax Administration report, dated Sept. 29.

The report, titled “Use of the Free File Program Declined After Income Restrictions Were Applied,” recommends that the IRS expand the information on services available from the Free File Alliance companies. Although the Free File Web page tells taxpayers which companies they qualify to use, they find it difficult to determine the company that best meets their needs, the report states. The report also recommends linking to a Spanish version of the Web page.

Lawmakers have weighed in on the report’s findings. Sen. Max Baucus (D-Mont.), ranking member on the Senate Finance Committee, said programs like Free File will help to close the annual $345 billion gap between taxes legally owed and taxes collected on time.

“The Free File program is just too restrictive, too circuitous, and too often simply not free to be a truly effective tool for taxpayers who want to meet their annual tax obligations,” Baucus said.

The senator supports a direct filing portal on IRS Web site, according to a press release.

The IRS partnered with the alliance to provide free online tax return preparation and filing services through the IRS Web site. The Free File Program debuted in January 2003.