The Treasury Department has signed an agreement with Free File Alliance, LLC, an organization representing a consortium of tax software companies, to enable as many as 78 million taxpayers to file taxes online at no cost.

Beginning in January 2003, tax software companies who decide to join the consortium will each offer free tax filing services for up to 10% of US taxpayers. Each software company is entitled to set its own rules for determining which taxpayers qualify for the free services. Depending on the number of taxpayers who participate and the requirements for those who avail themselves of the free services, it is estimated that the program will benefit at least 60% of the nation's taxpayers.

In exchange for providing the free services, which have already been offered in years past by major tax software companies such as Intuit (maker of TurboTax software) and H&R Block (maker of TaxCut software), there will be links to the participating companies on the IRS Web site and the FirstGov Web site.

"This represents an important step forward for taxpayers and our e-filing efforts," said IRS Commissioner Charles O. Rossotti. "This will give millions of taxpayers free access to preparation and e-filing."

Several consumer groups have objected to the program, suggesting that by encouraging taxpayers to use the free services, the government is providing the members of the e-filing consortium with a captive audience to whom they can offer other fee-based services.

The IRS favors the program over the alternative of developing its own tax software and competing with the tax preparation companies.

"We are one step closer to allowing millions of taxpayers free electronic filing of their tax returns," said Treasury Secretary Paul O'Neill. Congress has mandated that the IRS find a way to have 80% of the nation's tax returns filed electronically by 2007.