Some tax preparation firms had to rework their software
offerings in order to participate in this year's Free File Alliance, the public-private
partnership that allows certain taxpayers to file electronically for free.
No, the IRS-required
modifications didn't have
anything to do with tax
form updates to reflect
recently enacted legislation.
Rather, the companies had
to remove any references to
and offerings of refund anticipation
loans and other similar quick-cash
products tied to taxpayers'
IRS has banned such products from the free electronic filing program.
option, quick criticism
The Free File Alliance, a partnership between
the IRS and about 20 private tax software companies, debuted in 2003 as a way
to encourage more taxpayers to e-file. Since that first filing season, some participating
firms had offered refund-related products that used a taxpayer's expected cash
back as collateral for a same-day, interest-charging loan.
loans drew immediate criticism from consumer groups. Such upselling during a tax-filing
process accessible only through the IRS Web site could give the impression that
the loans were sanctioned by the government, critics argued. Other taxpayers,
consumer advocates said, might think that the loans were simply another step in
the e-filing process.
In response to the complaints, the IRS
subsequently clarified and strengthened required disclosure rules for such products
offered by Free File Alliance companies. However, problems and opponents' complaints
While the move
was welcomed, it apparently
wasn't tough enough. Last
year, a Senate Finance Committee
staff analysis of Free File
found that many participating
companies use their free file
Web 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
they were getting a no-fee
IRS then got some additional data of its own. Although the agency's own records
show that only about 0.5 percent of taxpayers obtained add-on loans when using
the program, a market research firm the IRS hired last summer to evaluate Free
File found that about 6 percent of those purchasers bought the products unintentionally.
"We heard many legitimate
concerns about the marketing
of ancillary products during
the last filing season,"
IRS Commissioner Mark Everson
said in a statement announcing
the refund loan ban. "This
is a constructive step."
"This is progress, that the IRS and the commercial
companies in the Free File Alliance have agreed that that they will not be marketing
refund anticipation loans and other similar products," says Jean Ann Fox
of the Consumer Federation of America.
"But they still
have their income limits on who can file and we continue to urge the IRS to make
it possible for all taxpayers to file their return electronically without going
though or paying a commercial entity," says Fox.