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
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
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
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.
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
"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."