IRS partners offer free online tax filings

Through a partnership with three software companies, the Internal Revenue Service will offer free online tax services to virtually anyone this year.

Under the agency's Free File program, consumers are being offered the chance to use online tools developed by private software makers to help get their tax documents directly to the IRS at little or no charge. The IRS said Wednesday marked the first day that people could begin electronically filing their 2004 taxes.

Previously, the companies involved in the program offered free online tax filing to only a select group of people, specifically individuals in certain age or income brackets. But now IRS partners Intuit, TaxAct and eSmartTax are offering no-cost services to everyone. Two additional companies, FreeTaxUSA.com and FileYourTaxes.com, are extending free services to residents of certain U.S. states. The 10 remaining participating companies, including tax giant H&R Block, have no-cost programs for specific demographics, such as people over the age of 60 or members of the military.

The IRS is expecting that roughly half of the nation's 133 million taxpayers will use electronic tax filing in 2005, compared with 62 million returns filed online last year.

The cost-free program was created in 2003 through a partnership between the IRS and the Free File Alliance, a consortium of financial software companies. It was used by 3.5 million taxpayers last year. Under the terms of the initiative, each member of the alliance is allowed to set its own eligibility parameters, but the IRS requires that the group provides free services to at least 60 percent of the nation's taxpayers as a whole.

"IRS e-file has proven itself to taxpayers year after year; it is fast, accurate and secure," IRS Commissioner Mark W. Everson said in a statement. "We've once again expanded the population of those who can participate."

The IRS said that the vast majority of electronically prepared returns are still filed by tax professionals, but it indicated that taxpayers using software to prepare their own returns represents the fastest-growing segment of the country's population. The agency said the number of self-prepared electronic tax returns nearly tripled to 14.5 million individuals in 2004 from 5 million in 2000.

Perhaps the most surprising aspect of the free filing program expansion is the emergence of software maker Intuit as one of the no-cost providers. The company did not immediately return phone calls seeking comment on its decision to offer its applications for no charge. But last week, the company said that overall sales of its TurboTax package for federal tax filings were 5 percent lower through the first week of January than they were a year ago.

Under the Free File program, the IRS tests its partners' products for security and privacy vulnerabilities, but it does not officially endorse any company or product. The IRS e-file initiative began as a pilot project in 1986 and garnered 25,000 returns. The program opened nationwide in 1990, when 4.1 million returns were electronically filed.