Free File opens for early birds

Free File, a tax-filing program, opened today for taxpayers wanting to get an early start on filing season.

The controversial program, in its fifth year, is a free tax preparation and electronic filing initiative between the Internal Revenue Service and the Free File Alliance, which is composed of 20 private-sector tax preparation companies.

Congress and the IRS’ inspector general have criticized the program for excluding taxpayers who once used the program by setting stricter income requirements. Those requirements caused a double-digit percentage drop in usage in 2006.

But the IRS and the alliance have made Free File more consumer-friendly this year, according to the IRS.

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Lawmakers urged to consider expanded mandate for e-filing

The Internal Revenue Service could sharply reduce its tax processing costs if paid tax preparers had to file returns electronically. But not all of them would welcome such a mandate, tax industry observers say.

The Government Accountability Office has recommended that lawmakers require paid tax preparers to file their clients’ tax returns electronically. If they electronically filed 90 percent of those returns, the government would save about $68 million a year on tax processing, according to a report GAO released in November. The “IRS is missing an opportunity to generate additional savings,” wrote GAO.

Cindy Hockenberry, a tax information analyst at the National Association of Tax Professionals, said she recognizes the benefits of mandatory e-filing, which include more accurate tax returns and faster tax refunds.

But she added that commercial tax preparers worry that the cost of upgrading their computer systems and business processes for e-filing would lower their profits and be too time-consuming.

To become authorized providers, tax preparers would need to submit formal applications and undergo fingerprint and background checks. “That’s a lot of hoops to jump through,” Hockenberry said.

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