Miller says that last year, only 2 percent
of filers who previously paid to use TurboTax opted
instead to file for free with the software at the IRS
site. That may be in part because if you use TurboTax
at the Alliance site, you cannot transfer previous year
tax data to the file-for-free return. That option is
available to taxpayers who buy the TurboTax software
for their personal computers or use the program at the
company's Web site.
Many, says Miller, find it worth the product's
price to have the data continuity year after year.
filing still available
Another tax preparation and filing program, TaxACT,
also is a part of the Free File Alliance again this
year. In addition to participating in the official government
effort, the software's maker, 2nd Story Software, has
made free filing available to all taxpayers, regardless
The catch: In order to file for free,
higher-income taxpayers must go directly to TaxACT's
Web site, not the IRS Free File page. Once at TaxACT,
they can use the company's Web-based program or download
it to their own computer
Also, the free filing is via TaxACT's
standard version, which doesn't include state tax material
also needed by most U.S. filers. Upgraded versions must
be purchased to access that and other options.
"Two years ago, we were the first
to offer free for everyone," says Lance Dunn, president
of 2nd Story Software. "This year, the rules have
changed and we won't be able to make that offer [at
the IRS site] anymore."
Dunn acknowledges that his company is
a relative newcomer in the tax software world and TaxACT's
more-inclusive free file offer is a way to establish
a relationship with the taxpayer.
Last year, via the official Alliance site,
the company was able to establish customer relationships
with 1.5 million free filers.
Concerns about add-ons
As both TurboTax and TaxACT representatives noted, more
tax software options are available to all taxpayers
for a price.
It's this add-on potential that concerns
consumer advocates. In previous years, they've voiced
concerns that taxpayers are sitting ducks for the marketing
of other tax-related and not-for-free products, ranging
from state return forms to audit insurance policies
to refund anticipation loans, or RALs.
"There's a whole strata of the economy
aimed at the working poor when they have this [tax refund]
cash in hand once a year," says Jean Ann Fox of
the Consumer Federation of America. "Anti-poverty
programs are meant to lift the working poor out of poverty,
but some RAL lenders and others, like car dealers who
offer to do taxes and use the refund as a down payment,
are lined up to get that money.
"There are a lot of hands out, a
lot of competition for this antipoverty money."
Free File Alliance Executive Director
Tim Hugo noted in an IRS statement that under the new
agreement, which lasts for four years, the program has
taken steps to address these concerns:
- Alliance members who offer refund anticipation loans
must disclose fees and interest rates upfront and
must make clear that RALs are loans, not tax refunds.
Taxpayers also must consent to receive additional
information about ancillary financial products.
- Alliance member Web sites must display whether state
online tax preparation and filing services are available
and, if so, spell out the associated fees.
Fox says she is pleased to see the IRS
and participating companies take some of the consumer
issues into account.
"The first year they had Free File,
you had to sign up first with a company to determine
whether you'd get extra charges; for example, what it
would cost you if you also file a state tax return,"
says Fox. "That changed subsequently where the
companies have to lay out what they offer for free and
what you would have to pay for."
Fox says consumers still need to pay close attention
to every option when filing electronically.
"Whereas it's a felony for a tax
prep company to give your personal tax information to
a third party, as long as you've given consent, they
can do it legally," says Fox. "Make sure you
knowingly give that consent.
"As you click your way into these
you need to pay attention to what you're clicking on."
CFA and other groups remain concerned
that the government-tax industry partnership is seen
by many taxpayers as an implicit endorsement by the
U.S. government of the companies and all the services
Sen. Charles Grassley, R-Iowa, sees the
same pitfalls. On April 14, the Senate Finance Committee
Chairman sent a letter to the IRS urging the agency
to "rein in the commercial offers and charges for
basic services that besiege taxpayers using the IRS'
only option for electronic tax filing."
And although IRS Commissioner Mark Everson
told Congress in early April that the agency would examine
the Free File program after the filing season ended,
an IRS spokesman told a tax publication on April 30
that there would be no renegotiation of the four-year
contract that was signed last October with 20 Alliance
Freelance writer Kay
Bell writes Bankrate's tax stories from her home in
Austin, Texas, and blogs each day on tax topics at Don't
Mess with Taxes.