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IRS Promises Improved Free File Program

Critics Point to Past Problems, Abuses

January 17, 2007

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The Internal Revenue Service says this year's Free File program includes a series of improvements and changes that correct some of the shortcomings of previous years, including the banning of refund anticipation loans by the for-profit companies that provide the free online filing service under contract to the IRS.

Seventy percent of the nation's taxpayers -- 95 million -- qualify for Free File. This year, up to 20 so-called "Free File Alliance" tax preparation software companies will participate in the program, available through irs.gov.

"The Free File program has significant changes this year that make it an even better deal for taxpayers," said IRS Commissioner Mark W. Everson. "A huge part of the taxpayer public can use these free services. Taxpayers should review the Free File offerings and see which one works best for them."

"The Free File program is a public-private partnership at its best," said Free File Alliance Executive Director Tim Hugo.

Critics contend the program amounts to a free fishing expedition for the software companies, who in years past have used varying degrees of deception to guide taxpayers who thought they were getting a free service into paying fees for tax preparation and filing.

The IRS insists that all Free File Alliance members "must meet the IRS' high standards for security and privacy" and insists it does not endorse any Free File Alliance company.

In its self-congratulatory announcement, the IRS listed this year's changes and features:

• Seventy percent of the nation's taxpayers -- those with an adjusted gross income of $52,000 or less -- are eligible for Free File. Each company sets its own criteria for who can use the service.

• Taxpayers will be able to use Free File to request the Telephone Excise Tax Refund. Taxpayers can either request the standard amount, which ranges from $30-$60, or the actual amount. Some alliance members will provide free access to Form 1040EZ-T for those people who have no legal obligation to file a tax return, but who can request the one-time telephone excise tax refund. Some alliance members also will offer free access to Form 8913 to request the actual amount.

• Two companies will offer Free File in Spanish.

• Participants will no longer offer refund anticipation loans (RALs) and other ancillary products.

• Some Alliance members are offering the state return for free. All Alliance members' Web sites display whether state online tax preparation and filing services are available and the associated fees, if any.

• Taxpayers can use Free File to file a Form 4868, Application for Automatic Extension of Time to File.

More than 3.9 million taxpayers used Free File last year. Free File debuted in 2003 with nearly 2.8 million users.

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