Government improves online tax filing program

Electronic filing is easy and brings swift returns

January 23, 2004|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

The federal government yesterday unveiled improvements to its free online tax filing program that it hopes will encourage more taxpayers to file electronic rather than paper returns.

This is the second year for Free File, a partnership between the Internal Revenue Service and 16 private tax preparers. Under their pact, the IRS stays out of the tax software business and the companies offer free electronic filing to at least 60 percent of taxpayers, or about 78 million people.

"It's an easy, fast and secure way for citizens to file their taxes," Treasury Secretary John W. Snow said at a news conference yesterday. And electronic filers get their refunds twice as fast, he said.

The list of participating tax preparation companies is available at Each company sets its own criteria for who is eligible, although many limit the free service to lower-income households.

H&R Block, for example, provides free filing to those with an adjusted gross income of $34,000 or less, while TaxSlayer serves those on active military duty or filers with incomes up to $30,000. Intuit Inc. handles filers age 22 and younger and age 62 and older. And is the only one catering to those with income of $100,000 or more.

Last year, 2.8 million taxpayers used Free File.

Filers lodged fewer than 10,000 complaints about the program. About half of those came during the first week of the program and involved a technical glitch that was quickly fixed, said Terry Lutes, IRS associate chief information officer. Changes in this year's program address other concerns, Lutes said.

Some complaints came from consumer advocates. In a letter to the Treasury Department, several consumer groups said free filers' privacy rights were being violated by H&R Block because it pitched them products based on the information in their returns. An H&R Block spokesman said the complaints were groundless.

National Taxpayer Advocate Nina Olson also objected to Free File tax preparers offering products, such as refund anticipation loans, to taxpayers. Refund anticipation loans are short-term loans based on a filer's anticipated refund and carry exorbitant fees, consumer advocates say.

Lutes said the first year of the program was a success, and his agency has worked to address concerns raised.

"We always said the first year would be a learning experience. The changes we made demonstrate we have learned," he said.

Many changes deal with better disclosure.

Sometimes consumers started the filing process, only to find out that a program didn't offer the necessary tax form. This year, Lutes said, each company will disclose upfront the tax forms and schedules it offers.

Some tax companies will no longer offer refund anticipation loans to Free File users, Lutes said. Others have clarified their program language to make it clear that filers don't have to buy anything to use Free File, he said.

Also, the companies will guarantee the accuracy of their software calculations. If errors occur because of the software, the filer will still have to pay any additional tax that may be owed, but the company will pay any interest and penalties, Lutes said.

Charles Corbett is considering giving Free File another chance this year. Last season, the 73-year-old Pikesville retiree said, he tried one program and was told at the end he owed a fee to file. He tried another, and was told the same thing. He ended up filing with paper and pencil.

"I might try it again. To me it would be a lot easier and less of a chance of making a mistake," he said. "And I just like the computer part."

The goal is to have 80 percent of tax returns filed electronically by 2007. President Bush is expected to propose extending the tax deadline to April 30 for electronic filers in his next budget, Snow said.

Last year, 53 million out of 131 million taxpayers filed electronically. Filing electronically saves the government money, makes filing easier for taxpayers, and reduces errors because the software corrects mistakes automatically, officials said.

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