(ARA) – Leaders of the Senate Finance Committee continue to scrutinize an agreement forged between the Internal Revenue Service (IRS) and a consortium of private-sector electronic tax preparation companies (collectively known as the Free File Alliance, or Alliance). Debate was fueled shortly after Tax Year 2005 (TY05) when use of the IRS’ free electronic tax filing program demonstrated a sharp decline of nearly 23 percent as compared to the year prior.
Although no offer restrictions were outlined in the initial 2002 agreement, it did delineate a minimum of 60 percent of all taxpayers (approximately 78 million) were to be considered eligible to use the program. Prior to TY04, the Alliance generally provided free tax preparation and e-filing services to no more than the 60 percent minimum. For TY04, however, an Alliance member, 2nd Story Software, Inc. (makers of TaxACT), opted to lift its eligibility restrictions — offering free tax preparation and e-filing services to everyone.
Soon after, many of the other Alliance members lifted restrictions. This resulted in program participation jumping 46 percent, from 3.51 million taxpayers in 2004 to 5.12 million taxpayers in 2005. While increased participation was positive from the IRS’ viewpoint, the method used to gain that increase created concern among certain Alliance members as to the long-term feasibility of the program.
To maintain the stability of the Alliance, the IRS found it necessary to limit the scope of the program to those taxpayers that have an Adjusted Gross Income (AGI) of $50,000 or below — accounting for approximately 70 percent of the nation’s taxpayers. The result: 1.22 million fewer taxpayers used the program in 2006.
While the amended agreement still contributes to the original goal of increasing the number of taxpayers filing their returns electronically, Senate members from both parties aggressively assert the program’s original intent was to make available to all taxpayers free basic electronic tax preparation and filing services as a means to encourage e-filing.
‘There is a significant segment of taxpayers that appear to have average to above average earnings that could reap no benefit from Free File. For example, there are a number of households that have one working parent and one stay-at-home parent, which enables family supervision of children. On paper, these households may seemingly have an affluent lifestyle. Yet, more often is the case these households are making ends meet by adhering to a rigid, carefully crafted budget,’ says 2nd Story Software spokesperson, Stephanie Behrends.
When asked to comment on legislative remarks regarding the Alliance, Behrends comments, ‘2nd Story is proud to be a participating member and industry leader in helping to advance the IRS’ public-private partnership agreement with the Free File Alliance. Likewise, our participation in the Alliance in no way alters our corporate culture or vision. Independent of the eligibility criteria established by the IRS and the consortium of companies, TaxACT demonstrates its belief that no American taxpayer should be obligated to pay fees for basic tax software calculations or to e-file a federal return.’
Behrends adds, ‘Nearly a decade ago, 2nd Story pioneered the concept that everyone can use free tax software to prepare their own federal tax return. Our incentive for offering a completely free tax service directly to all Americans independent of the Free File Program is simple: TaxACT is dedicated to providing the largest number of taxpayers with the ability to electronically prepare and file their federal tax return without restrictions and at no cost.’
Taxpayers who are interested in determining what offers they may qualify for via the Free File Program should visit www.IRS.gov. Nevertheless, consumers are encouraged to weigh their options carefully and should be aware that many companies participating in the Alliance place restrictions on the type of income and deductions taxpayers can claim while using the Free File Program.
If you do not qualify for any of the IRS Free File offers, all taxpayers filing an individual Federal income tax return can use TaxACT Standard at no-cost via www.TaxACT.com.
Courtesy of ARA Content
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