IRS Free File program not living up to expectations

The Treasury Inspector General for Tax Administration (TIGTA) has released a new report indicating that the IRS's online Free File program needs better administration and should be expanded.

Free File is an IRS program that offers links to tax software service providers who agree to provide free electronic federal tax return filing for certain qualified taxpayers. The program represents a partnership between the IRS and tax software providers that was created with two purposes:

1. To help the IRS meet its Congressional mandate to have 80 percent of the taxpayers filing electronically by 2007 (currently only slightly more than 50% of taxpayers are filing electronically)
2. To keep the IRS from entering into competition with tax software vendors by offering its own online tax filing product

The TIGTA recommends that the IRS do more to evaluate the Free File program in an effort to help assess why more taxpayers are not using the program. Only three percent of taxpayers (3.9 million) used Free File for tax return preparation in 2006. There are no statistics available regarding the number of taxpayers who attempted to use the program but for reasons that are unknown did not complete their tax filing with Free File.

In addition, the TIGTA recommends that the IRS do more to promote the Free File program to taxpayers not currently using or aware of the program.

According to the TIGTA report, the Free File Program software did not always accurately compute taxes due, and the Guide Me To A Company feature that helps taxpayers select a Program vendor was not always complete or accurate.

In response to the TIGTA report, the IRS has agreed to develop a comprehensive marketing plan for the Free File program and to consider surveying eligible taxpayers who were either unsuccessful or chose not to use the program. The IRS will also expand its marketing of the Free File program by directing promotional materials to eligible taxpayers who filed their returns on paper. Finally, the IRS indicated it would work with the Alliance to analyze the Free File Indicator and identify possible solutions to increase its accuracy and establish a process to assess the Indicator’s accuracy early in the filing season.

The IRS management did not agree with TIGTA recommendation to establish a process to test the software used in the Free File program to ensure common scenarios are being handled accurately. IRS management responded to the report with the statement that the IRS already reviews the accuracy of the Free File Alliance members’ software to ensure it operates within the parameters of the Free File Agreement, and other tests ensure these electronic returns are compatible with IRS system requirements.

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