Justice Department Clears Path For Tax Consortium

The Department of Justice has given its approval for several private-sector tax preparers and tax software companies to form a consortium that will offer free tax filing services through the IRS Web site. The free services will be offered to at least 60% of the nation's taxpayers as part of the IRS plan to have 80% of U.S. taxpayers filing electronically by 2007.

Under the terms of the plan, participating companies will each agree to provide free services to a minimum of 10% of taxpayers. Each company can set its own rules for who qualifies for the free services, as long as the group as a whole offers free services to at least 60% of taxpayers. The IRS estimates that as many as 78 million taxpayers will be eligible for the free services.

In return for the free services, the IRS will provide a link on its Web site to each of the tax preparation providers, and other government agencies will also promote the free services online. In addition, the IRS has agreed not to compete in the online tax preparation business.

Charles James, chief of the Justice Department's antitrust division, called the agreement between the companies and the IRS an "innovative public/private partnership" and expressed his belief that the consortium poses "no threat to competition in the market for providing tax services to individuals."

Opponents to the plan have voiced their concern that the lure of the free services will provide a captive audience of customers who might fall prey to other fee-only services offered by the tax preparation companies, including high-interest refund loans and fees for state tax return preparation.

The Justice Department approval does not prevent members of the consortium from offering their other services to customers as long as 60% of the taxpayers are eligible receive the tax preparation services for free.

The consortium will be formed early next year and will be open to all providers of electronic tax services that meet IRS-approved requirements and that agree to offer free preparation and filing.

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