Free tax-filing service draws most hits on IRS Web site

Free File seems to succeed in its first week

January 25, 2003|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

In its first week, the Internal Revenue Service's free electronic filing service has experienced heavy online traffic, making it the agency's most popular Web page.

Free File, a partnership between the IRS and 17 tax preparer companies, offers free tax preparation and electronic filing to those who meet certain criteria. About 18 percent of the 3.5 million visits to the IRS Web site in the past week were to the Free File section, according to an IRS official.

Under a three-year agreement, the companies are providing the free service in exchange for the IRS not offering a competing service, said Terry Lutes, director of electronic tax administration for the IRS. The companies also hope that some customers may someday become paying clients, he said.

More preparers may be added.

The system allows taxpayers to plug their financial information into a preparer's software program, which calculates their taxes and files the return.

Participating preparers are posted on the agency's Web site,, although not all the companies were available during the first week. Some "had issues in testing," and sometimes sites must be taken down to correct a problem, Lutes said.

"This is the kind of thing that occurs in the first couple of weeks of the filing season," he said. "It's part of having to release whole new software each year."

Each preparer sets its own criteria for eligibility. Altogether, at least 60 percent of all filers, or 78 million, would be eligible, including more than 1.6 million Marylanders.

Many preparers are targeting lower-income households for the free service. However, those with income of $100,0000 or more, age 50 or older, or age 20 and younger are eligible for free filing with at least one preparer. All taxpayers in Arizona, Georgia, Michigan, Wisconsin, New York and Illinois are also eligible for free filing.

H&R Block, for example, offers the free service for those with adjusted gross income of $28,000 or less, which based on 2001 tax filings, would be about half of returns filed, said a spokesman for the preparer, Tom Linafelt in Kansas City, Mo.

While not divulging the number of clients served, Linafelt said Free File has "exceeded our expectations." Taxpayers benefit, he said, plus "we are getting exposure to this group of taxpayers who otherwise would not come in contact with the H&R brand."

Lutes said the IRS saves more than $1 in direct processing costs for each return filed electronically.

Last year, the agency had "a couple hundred people" dealing with electronically filed returns. "We had tens of thousands of people to process the other 85 million. It's clearly a savings for us," Lutes said.

For taxpayers, the advantages of filing online include fewer errors, quicker refunds, and an acknowledgement within 48 hours that their return has been received, Lutes said.

The IRS started electronic filing in 1986 with 25,000 returns filed in three Midwestern cities. Last year, nearly 47 million out of 132 million returns were filed electronically.

The IRS expects 54 million returns to be filed online this year, about 40 percent of filers, Lutes said. The goal is to have 80 percent of taxpayers filing electronically by 2007.

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