Legislation would eliminate fees for e-filing

Software firms that handle online tax filing may lose the fees they’ve been collecting for the service under legislation developed by Democratic Sens. Charles Schumer of New York and Daniel Akaka of Hawaii.

Their bill would require the IRS to allow all Americans to file their returns electronically at no charge. The senators say this would save taxpayers roughly $1.2 billion a year. It would also save the IRS, which says it costs 30 cents to process an electronic return, but $2.50 to process a paper return.

"The bottom line is that the IRS is imposing an additional 'tax' on people paying their taxes," Schumer said, according to E-Commerce Times. "The current system forces millions of Americans to pay a fee for the 'privilege' of filing their taxes, even though e-filing is cheaper for the IRS to process."

The IRS estimates 62 percent of taxpayers file electronically. Filers who make less than $52,000 a year can e-file for free. Filers who make more than that must use a third-party preparer. Intuit, which makes Quicken and Turbo Tax, could lose millions in annual revenues.

Congress pushed electronic filing along 10 years ago, by forcing the IRS to allow electronic filing of federal income taxes. Congress set a goal that 80 percent of returns would be filed electronically by 2007. The fees are holding the IRS back from meeting that goal, Schumer said.

The senators would like the IRS to offer direct e-filing, called I-File, rather than going through a third party.

The Computer & Communications Industry Association, whose members include Intuit, oppose the idea. "As long as the private sector continues to offer outstanding online tax preparation software - at a competitive price to those who buy it - and for free for the majority of Americans through Free File, there truly doesn't seem to be any sense or benefit in implementing an I-File system," said CCIA President and CEO Ed Black.

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