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Doing your taxes can be less frustrating, less time-consuming and less costly if you're prepared.

Free-filing program still available through Oct. 16

If in April you put off filing your tax return for a few months, the IRS is keeping its free electronic door open for you, as long as you meet its more restrictive guidelines.

Overall, electronic filing continued to be a big draw this tax season. Even before the April 17 deadline arrived, the IRS reported it had already surpassed last year's e-filing numbers. Through April 21, the IRS had received electronically more than 70 million returns, 4 million more than last year, with almost 20 million of those coming from taxpayers who e-filed from their personal computers.

The IRS is hoping that number will grow and is encouraging the more than 9 million individuals who requested extensions to e-file when they finally do get around to completing their tax forms.

But if this year's patterns continue through the extended filing period that ends on Oct. 16, one area of electronic filing will be in big trouble. Although e-filing by individuals via PCs is up more than 18 percent, the agency's much-heralded free filing program bombed in 2006.

Use this year of the Free File Alliance, a joint e-filing effort by the government agency and tax software providers now in its fourth year, was down by almost 23 percent through April 22. The lack of participation is largely attributable to the fact that this year, the program's availability was dramatically reduced.

Whereas in 2005, when any taxpayer regardless of income could use the free filing system, for the 2006 filing year, it is limited to taxpayers making $50,000 or less.

Not only is the IRS concerned, but some members of Congress are demanding changes to next year's version of the free filing to once again make it more accessible. The chairman of the Senate Finance Committee says the income restriction undermines "the principle that no one should be forced to pay to electronically file a tax return."

Even more disturbing to some lawmakers is that some corporate filing partners apparently are violating the spirit, if not the letter of the agreement's provisions, prohibiting solicitation of taxpayers using the free program. A Finance Committee staff analysis of this year's offerings found that many participating companies use their free file pages to "market a whole array of other products and services to taxpayers." These add-ons, according to the Senate study, could end up costing taxpayers, who came to the government site thinking the were getting a no-fee service.

Free program has early success
The Free File Alliance was begun in 2003 as a way to encourage taxpayers to use computer software to complete their returns and then hit "enter" to transmit them electronically instead of printing the forms for snail mailing.

Last year, around 17 million taxpayers did their taxes via computer and e-filed them. More than 5 million of those returns came in through the "Free File" program.

In 2005, however, the option to file for free by going to the IRS Web page was open to every taxpayer, regardless of how much they earned. This filing season, only taxpayers with adjusted gross incomes of $50,000 or less will find a way to file for free using one of the Alliance's 20 partner programs.

You can browse all software options, where company-specific requirements to file for free vary based on such things as your income, state of residence, military status or age. Or you can use a filtering option that will narrow down your choices to software companies that match some basic information you enter.

Repositioning the initiative
The decision to restrict access seems counterintuitive, especially since the IRS is working on meeting a congressional directive that it must collect 80 percent of tax returns electronically by 2007.

When the 2006 version was announced in mid-January, the IRS and software companies predicted the new format wouldn't be a problem for either public or private interests.

According to an IRS release announcing this year's program, more than 70 percent of the nation's taxpayers, or more than 92 million people, still qualify for Free File. Another 3 million taxpayers who previously filed returns through TeleFile, a phone-filing option that has been discontinued, now automatically qualify for Free File.

The change to limit the program to middle- and lower-income filers was a joint decision between the IRS and the consortium of software providers, says Julie Miller, spokeswoman for Intuit Inc., maker of TurboTax.

"This public-private partnership was designed to bring e-filing to underserved and low-income taxpayers," says Miller. The primary reason to limit eligibility this year "was to restore Free File to its original philanthropic mission and intent."

"Quite frankly, it had strayed from that. The change hasn't reduced the number of eligible filers as much as refocused efforts to get services into the right people's hands."

-- Updated: May 1, 2006
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