The Internal Revenue Service (IRS) has announced that as of last week more than two million taxpayers have used Free File, a program offered by the IRS and private companies. Free File allows taxpayers to prepare and file their taxes online for free.

The Free File Alliance is a public-private alliance that includes 17 tax preparation software companies. Member companies include TurboTax, TaxACT.com, FreeTaxUSA.com, H&R Block, Tax Brain, and eSmartTax.com. The companies have agreed to make their software available for free to up to 60 percent of the estimated 132 million individuals who will file income tax returns this year.

When the Free File Alliance was first announced last October, many tax practitioners immediately took issue with the fact that the IRS had entered into such a relationship with the various software companies. It was seen as yet another pothole in the road towards profitability for many of the country's tax practitioners who focus on smaller net worth clients.

According to the IRS, the benefits of the Free File program include reduced tax preparation time, faster refunds, greater accuracy in preparing returns, and an acknowledgement that the return has been received.

Requirements to use the free software vary by company and are determined by the taxpayer’s age, adjusted gross income, eligibility to file form 1040 EZ or to claim the earned income credit, state residency, and military status.

Taxpayers who are interested in using the Free File service can visit a special IRS Web page that features a frequently-asked-questions section and a step-by-step guide to using the program. To begin the process, an individual can select a company or use a Free File wizard, which helps with company selection. Once taxpayers have selected a company, they can go directly to the company’s Web site to prepare and file an income tax return.

The software companies are offering their services through April 15, 2003, with some continuing until October 15, 2003, for taxpayers who file an extension.