Just last week, consumer groups from around the country complained to the Treasury Department about the perceived commercial misuse of consumer information by the companies participating in the IRS’ Free File program. In a Senate hearing this week, an IRS representative said they are comfortable with the organizations trying to "upsell" their services.

Dale F. Hart, IRS deputy commissioner for the small-business and self-employed division, defended the practices of H&R Block and the other 16 organizations that are participating in the IRS Free File program. "There has to be a profit motive for these firms," she told the Senate Finance Committee.

The controversy that was addressed last week surrounds the use of pop-up ads when a consumer goes through the IRS Web site to a vendor site to participate in the free filing program. In H&R Block’s case, when a consumer types in information about mortgage interest on the on-screen form, a pop-up ad may appear encouraging the consumer to consider refinancing their mortgage with H&R Block’s mortgage division. Consumer groups consider this a privacy violation, and think the IRS should not allow such advertisements to appear in its Free File program.

Ms. Hart went on to explain that the pop-up ads occurred on the vendors Web site and not the IRS’ Web site, disputing a charge from one of the Senators that the government was “facilitating the merchandising of products.” Ms. Hart indicated that "we have a system that's pro-consumer and we think that's a good idea."

Jeffrey Yabuki, H&R Block COO defended the practice of advertising by telling the Senate Finance Committee that consumers can turn off the ads or simply say “no” when asked if they were interested in certain products. But Nina Olson, IRS Taxpayer Advocate, testified that she could not file her return electronically if she turned off the pop-up ads, and when she tried a second time – this time leaving them on – she was successful.

Senator Charles Grassley, the Chairman of the Senate Finance Committee, has indicated that he has not yet taken a position on whether advertisements should be allowed, but would consider the issue further.