Is it unnecessary government intrusion or a way to gather routine information?

Tax preparers are debating that question since the IRS announced it would flag taxpayers who use its free electronic tax filing program. Intuit has already said it won’t comply with the directive to identify free electronic filers who use its TurboTax software, USA Today reported.

The IRS is trying to encourage more taxpayers to reduce paperwork by filing their federal taxes electronically. The Free File program was started last year, under a partnership agreement with software companies, to offer free tax preparation and e-filing services through www.irs.gov. The IRS does not offer its own free alternative to taxpayers using the services of the participating companies, which set up their own eligibility requirements.

"Taxpayers should not have their records flagged and segregated simply because they choose to use the IRS Free File program," said Leroy Petz, whose company publishes the TaxBrain software. TaxBrain plans to withdraw from the IRS Program. The company offered free e-filing for taxpayers older than 50.

Petz and others in the tax software industry call the IRS move unnecessary government intrusion that could lead to selective tax enforcement.

Terry Lutes, IRS e-filing chief, said flagging the returns is needed to judge the effectiveness of the program and to better market e-filing. He said the IRS is gathering routine information, and he is "flabbergasted" by privacy arguments.

H&R Block Vice President Mark Ciaramitaro said that while abuse of the information is unlikely, Internet users in general are sensitive to privacy issues, especially those involving tax collection.