NWA-PCUG Newsletter Article, March 2005
IRS and “Free File Alliance”
Again Offer FREE Online Tax Preparation and Filing
by Ira Wilsker, APCUG Board of Directors

It’s that time of year again. Our mailboxes are brimming with W-2’s, 1099’s, and other ubiquitous indications of our daily financial lives. Preparing our forms 1040, 1040A, and 1040EZ are typically not our favorite annual right of spring. This year, the fine folks at the IRS and their partners, the “Free File Alliance” are again offering their free online federal income tax preparation and electronic filing services. Unlike past years, where only selected groups of people, such as students or military, could utilize the free services, this year there are free services available for almost all federal tax filers.

The main IRS website at http://www.irs.gov has at the top: “Free File - Ever missed a good thing and regretted it? Don’t miss Free File. Millions of eligible taxpayers can use Free File — a free online service that let’s you prepare and file your tax return electronically. It’s smart, free and fast. Don’t miss it!” According to the IRS, about 6.5 million people took advantage of the opportunity last year.

The process is relatively easy. The first step is to enter the IRS Free File website at http://www.irs.gov/app/freeFile/jsp/index.jsp?” where the various filing services offered by the Alliance can be viewed, and eligibility for each can be determined. Eligibility determination for each service is the second step listed. Some of the 15 resources listed have a maximum “AGI” (adjusted gross income) ceiling. Others will only prepare forms 1040A or 1040EZ online, while some others will prepare taxes for residents of specific states. Other members of the Alliance will prepare and e-file taxes for free based on age, often under 25 or over 60, while others (such as H&R Block, TaxAct.com, and TurboTax for the Web) have no restrictions on who can use the free services, and are available to all. After the free preparer is selected, the user will be directed to a non-IRS website to complete the online preparation. The taxes are calculated, and proper forms are electronically filed with the IRS using a secured link. An acknowledgement is automatically generated via email notifying the filer that the return has been accepted or rejected.

The IRS notes that several of these companies also offer a fee-based online preparation service, and the only way to be assured to get these services for free is to link to them directly from the IRS Free File website, and not directly to the company websites. It should also be noted that these companies do not generally prepare state income taxes for free, and that there may be a charge for preparing state income taxes, but users referred from the IRS site are under no obligation to incur any tax preparation expenses for the preparation and filing of federal income taxes, provided they were originally eligible for the services.

Electronic filing by these free resources, or other similar commercial resources, has several advantages, according to the IRS. Some of these benefits are that it takes less time to prepare online than on paper, refunds can be processed much faster, returns are more accurate (provided accurate information is entered), and acknowledgement of receipt is generated so you know the return has been filed, and other tangible and intangible benefits. The IRS also has a statement that the software used by the providers for the free service is “comparable” to the software used by these preparers for their commercial (paid) clients.

The IRS is well aware that not all taxpayers have internet access, so it is arranging for such groups as churches and community associations to provide the internet access so as to promote the widest possible use of the free service. The IRS is also supporting such volunteer groups as Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE).

Some individuals will justifiably question their personal privacy when entering this data onto a private company’s website. The IRS has approved the security and privacy policies of the participating companies, and all of the providers must also have a recognized third-party privacy and security certification. Information provided to these companies can only be used for the preparation of income tax forms, and no other purposes not explicitly authorized by the user. The IRS will monitor all of the providers for compliance, and the companies are required to promptly alert the IRS if any privacy or security problems are encountered. The IRS has set up an email address with the Free File Alliance at helpdesk@speedymail.com, where anyone can get technical assistance about the Free File website, or resolve issues with any of the listed providers. Any user who is not satisfied with the selected free provider is free to try another provider that he may qualify for.

The Free File Alliance is a result of the IRS' Restructuring and Reform Act of 1998, which in part has a goal that 80% of all returns are to be filed electronically (e-filed) by 2007, and requires the IRS to make available to taxpayers free online filing options.

Last year (2004) saw 6.5 million e-filed returns, and the IRS hopes to triple the number this year. That still leaves many millions more that will have to e-file in order to reach the 2007 goal. The 15 companies listed that are providing free filing services are a good step on the path of meeting the IRS’ goals.

There is no restriction against any non-profit group using this article as long as it is kept in context with proper credit given the author. The Editorial Committee of the Association of Personal Computer User Groups (APCUG), an international organization of which this group is a member, brings this article to you.

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