Last month the IRS unveiled a new plan to offer links to online tax software vendors on its Web site. In return for the links, each of the vendors promise to provide free tax preparation services for at least 10% of taxpayers. It is estimated that the total free services made available through this program will benefit 60% of the nation's taxpayers.

Four consumer groups have banded together to urge the IRS to cancel the plan, stating that the plan is "seriously deficient" and that the vendors would most likely attempt to sell other services to the taxpayers receiving free tax preparation. The groups also criticized the plan for its alleged failure to benefit taxpayers who are recipients of the Earned Income Tax Credit (EITC).

The consumer groups who co-signed the letter are the Consumer Federation of America, the Consumers Union, the National Consumer Law Center, and the U.S. Public Interest Research Group.

The groups suggest that the IRS provide the tax preparation service on its own Web site instead of using the services of other retailers, and they recommend that the IRS attempt to cater more to the EITC taxpayers.

Specifically the groups warn of tax preparation companies offering short-term, high-interest refund anticipation loans to a captive audience, and they also expressed concern that although these companies are willing to provide free federal tax preparation, they would charge higher rates to the free users for services such as state tax preparation.

"Instead of doing its job and assisting taxpayers directly, the IRS is leading them into the clutches of companies that make hundreds of millions from predatory tax loans," said Ed Mierzwinski, Consumer Program Director at U.S. Public Interest Research Group. The consumer groups are also concerned that low-income taxpayers will not be able to access the free services because statistics show that these taxpayers do not use the Internet and do not have a bank account through which they can take advantage of direct deposit of refunds.

Intuit and H&R Block, the two leaders in tax preparation software, have not responded to the claims of the consumer groups. IRS spokesman Victor Omelczenko responded by stating that the IRS's objective with this program "is to help many more people take advantage of e-filing with all of its benefits."