Free File Begins 5th Year Without Refund Anticipation Loans

Free File, an innovative partnership between the Internal Revenue Service (IRS) and the Free File Alliance, is beginning its fifth year in January with an agreement removing ancillary offerings, including Refund Anticipation Loans (RALs), from the program. For 2007, 70 percent of all taxpayers will be eligible for Free File. More that 15.4 million tax returns have been prepared and submitted through the Free File program since its inception during the 2003 filing season.

A telephone survey of 1,800 taxpayers who used Free File during 2006 was conducted during May and June of this year by Russell Research, a market research firm contracted by the IRS. The typical Free File user was a 40-year-old woman (57 percent female/43 percent male) who prepared both federal and state returns with Free File and had used Free File the previous tax year. Survey participants indicated an overwhelming level of satisfaction with the program, with 94 percent saying they intended to use Free File again next year, 94 percent indicating they found Free File easy or somewhat easy to use and 97 percent stating they would recommend Free File to others. The most appealing aspect of the program was convenience, not the free cost, according to the survey.

“This survey confirms what we’ve known anecdotally for four years: taxpayers like Free File. This level of satisfaction with Free File is just astounding,” IRS Commissioner Everson said in a prepared statement. “This innovative program combines the best of the private and public sectors to provide real value to the taxpayers. With this latest agreement we’ve made a great program even better.”

The removal of the ancillary product offerings was partially based on the fact that half of the 6 percent of Free File users who purchased an ancillary product reported their purchase was unintentional. The IRS’ own data reveals that only 0.5 percent of the Free File users requested a refund anticipation loan (RAL). RALs use a taxpayer’s refund as collateral for a same-day, interest-charging loan.

“We heard many legitimate concerns about the marketing of ancillary products during the last filing season,” Everson explained. “This is a constructive step.”

The Free File Alliance is a coalition of tax preparation software manufacturers who make their software products available to eligible taxpayers for free and profile free Federal return electronic filing. The Free File software products are the same as their commercial products. Preparation and e-filing of federal tax returns have been free since the inception of Free File.

Taxpayers earning $52,000 or less will be able to find a Free File offer they are eligible for through the IRS web site. Although the new agreement removes ancillary products from Free File, the Free File Alliance may still offer customers the option of having their state tax return prepared for a fee. Some Alliance partners are offering the state return for free as well.

“Each year, the Free File Alliance has sought to improve a program that is now eligible to over 93 million Americans,” said Free File Alliance Executive Director Tim Hugo. “Today [December 5, 2006], with the voluntary elimination of RALs and ancillary products, the Free File Alliance takes another giant leap forward on behalf of the taxpaying public.”

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