Taxpayer advocate backs IRS e-file portal concept

Increasing numbers of technology-savvy filers prepare their tax forms using Intuit’s TurboTax or H&R Block’s TaxCut software. But when it comes to filing their returns, many of them revert to paper. The IRS’ National Taxpayer Advocate Nina Olson is among them.  “Tax filers say they like using the software, [but] they either don’t want to pay the fee, or they just don’t know where their information is going,” Olson said. The IRS would experience an immediate spike in e-filing if it offered a free, direct-file online site, she said. Under the current arrangement that the IRS has with tax preparation companies, people who e-file must submit their tax forms through an official third-party transmitter or tax professional and, with few exceptions, pay a fee. Of the 37.1 million individuals who prepare their taxes on computers, 40 percent, or 14.8 million, submitted their tax returns in paper format, the advisory IRS Oversight Board said in a recent report. Congress gave the IRS a goal of having 80 percent of taxpayers file electronically by next year. More than half currently e-file, but the congressional goal is still several years away.  “We would get greater electronic filing if people knew they were filing directly into IRS, and they didn’t have to pay anything,” Olson said. A portion of the population can file free through the Free File Alliance, a group of tax preparation firms that provide their e-filing services free to people whose incomes are less than $52,000. IRS Commissioner Mark Everson said proposals to create a free e-file IRS Web site and require tax practitioners to e-file would put unnecessary stress on the IRS. Everson added that he was concerned that creating an IRS e-file Web portal would create competition between the private sector and the IRS that might undermine confidence in the tax system.  But Olson offered the example of the Education Department’s Free Application for Federal Student Aid, which students and parents use to apply and file online for college loans. “IRS should provide a bare-bones product,” she said. It could offer instructions, explanatory publications and forms in electronic format and e-filing capabilities, for example. The IRS Oversight Board supports direct e-file, said Chuck Lacijan, the board’s director. “The ability to receive returns directly would offer privacy and cost advantages to tax filers,” he said. Large corporations can e-file directly using the IRS’ Modernized e-File system. That system depends on Extensible Markup Language to identify, store and transmit data. The IRS plans to eventually migrate its 1040 tax forms to the Modernized e-File platform.Some experts say that widespread use of the XML standard would increase competition among tax preparation software makers, and e-filers would not have to pay transmitters, such as Intuit, to batch and deliver their tax returns to the IRS. An IRS portal could act as a catcher’s mitt, receiving XML output files from many tax preparation competitors. The IRS might need a push from Congress before it would create a free, direct-file Web portal, Olson said. Both Republican and Democratic chairmen of the Senate Finance Committee have urged the IRS to offer a Web site for free direct filing. Former committee chairman Sen. Charles Grassley (R-Iowa) and former ranking member Max Baucus (D-Mont.) co-sponsored bills in the past two years that included provisions for a free e-file portal at the IRS Web site, said committee spokeswoman Carol Guthrie. Last year, a portal provision was part of the Good Government Act.  “Whenever we revisit the bill, we would expect this will be included,” Guthrie said. Baucus, now the panel’s chairman, plans to reintroduce the bill by October, she said.