Results of a TIGTA study disclosed that in 2006, 541,000 taxpayers who formerly phoned in their tax return information spent $23.6 million on tax preparation software.

TIGTA also discovered that 966,000 taxpayers returned to filing paper tax returns when they could no longer use TeleFile.

The IRS ended the experimental TeleFile system after the 2005 tax filing season claiming the program was costly and participation was decreasing. TeleFile was a program that allowed taxpayers to call a toll-free number and use their telephone keypad to enter information for their tax return. Forms 1040EZ, 4868, and 941 could be filed using the TeleFile system.

Only taxpayers who received a TeleFile packet from the IRS were eligible to use the system.

"Once again, the IRS has made a taxpayer service decision based on questionable data," said Inspector General J. Russell George, in a statement. "At best, the IRS may have eliminated its short-term cost of the program. Meanwhile, it has placed a financial burden on many taxpayers and slowed the growth of its objective to encourage electronic filing."

Senators Max Baucus (D-MT) and Charles Grassley (R-IA) have indicated they are considering introducing legislation that would require the IRS to reinstate TeleFile or establish a similar call-in tax return system.

"The IRS did not have the best interest of taxpayers in mind when it chose to get rid of TeleFile," said Baucus. "Instead it chose to shift costs on to the American people and increase the burden to taxpayers."

Gail Perry.Managing Editor AccountingWEB , Jul-26-2007  TeleFile and Free File You raise an interesting issue, Keith. While TIGTA did address the Free File program in its report, the conclusion it draws is that many former TeleFile users did not turn to Free File for their tax prep. "We estimate a significant portion (96.3 percent) of taxpayers who would have remained eligible for the TeleFile Program qualified for the IRS Free File Program.12 However, taxpayers must have access to the Internet to be able to use Free File. According to a 2003 IRS study, 25 percent of TeleFile users do not have access to the Internet. In addition, the Free File Program may be difficult to use for taxpayers who are not computer proficient. To reduce the effect of limited Internet access, the IRS indicated taxpayers could use the Free File Program from a public library. However, conditions at a public library may not be conducive to filing a tax return." The report includes a response from the IRS indicating that processing TeleFile returns is the costliest of all tax processing - more costly than processing paper tax returns! TIGTA takes exception to the IRS method of determining the cost of processing the TeleFile returns citing errors that were found in the calculations. Here is the URL for the complete TIGTA report: http://www.ustreas.gov/tigta/auditreports/2007reports/200740116fr.pdf

Keith Ljunghammar, EA, CFP , Jul-26-2007  Free File Alliance data not mentioned But no mention has been given in the article or claims by the IRS what the shift to the FFA (Free File Alliance) was with regard to the telefile. The information below is missing a major component. For 2005 I gave away 73,000 free tax returns. I was one of the small programs and if 541,000 taxpayers formally used Telefile and did not get service this is news to me. There are around 20 computer software programs which offer free filing and I am sure that number and more were served. What your data is not showing also is that the 1040EZ gross income increased from 50,000 to 100,000 in that year. How is this reflected in your information. I have sold my business since then due to a lack of revenues.