IRS pushed on electronic filing

WASHINGTON — The IRS wants taxpayers to file electronically. But sending returns over the Internet requires many people to use a paid preparer or tax-preparation software, adding an extra fee to their tax bill.

The two senators who sit atop the Finance Committee, Chairman Charles Grassley, R-Iowa, and ranking Democrat Max Baucus of Montana, are pushing the tax agency to consider accepting returns filed directly by individuals.

“All the forms and instructions are free, so why do we force taxpayers to pay a preparer or buy software to file electronically?” Baucus asked. “Taxpayers don’t have to go to a bookstore and buy forms to file a paper return.”

Grassley said there would still be “plenty of room for the software industry to continue to provide value-added services.”

Congress set a goal of having 80 percent of individual tax returns filed electronically by 2007. The IRS does not have the technological capability to accept electronically filed tax returns from individual taxpayers. They must be sent in batches by professional tax preparers, software manufacturers or online preparation providers.

Responding to concern that making it easier for taxpayers to file through a free site could put the IRS in competition with private tax preparation software developers, Treasury Secretary John Snow last week assured a House Appropriations subcommittee that the government would not try to compete with the private sector in tax preparation.

“We aren’t tax preparation people. We’re not software development people,” Snow told Rep. Todd Tiahrt, R-Kan.

Taxpayer Advocate Nina Olson, whose office helps taxpayers navigate problems with the IRS, has said fees charged by tax preparers deter many people from filing electronically, pointing to IRS data that show 45 million returns are prepared online, then printed and mailed rather than sent electronically.

Bert DuMars, IRS director of electronic tax administration, told lawmakers he believed Congress had made it clear “that IRS should stay out of the tax software preparation business.”