by Roger Russell

Torrance, Calif. - The Free File Alliance Ltd., a public-private partnership between the Internal Revenue Service and software companies in the tax preparation industry, is successfully attracting taxpayers to private vendor Web sites.

"We had 10,000 hits the first week coming in through the IRS Web site," said Jerry Connor, marketing manager for Torrance, Calif.-based CCH Tax Compliance, one of the vendor members of the alliance. "Even though it takes awhile for a hit to translate into a filed return, that’s a better response than we expected considering there’s been no heavy marketing yet."

"We’re getting significantly higher traffic, and most of it’s free filing," said Timur Taluy, vice president of Oxnard, Calif.-based

C.C. Chen, president of Milpitas, Calif.-based eSmartTax, agreed. "More than 60 percent of the e-filings we’re doing now are for free filers."

The alliance, which launched Jan. 16, is seeking to increase the number of people who file their taxes electronically and decrease government costs.

Members of the alliance include a number of industry giants -- CCH, H&R Block and TurboTax -- as well as some lesser-known companies. Additional vendors may be added during tax season. There is a quid pro quo for private participation -- the chance to sell products for a fee to taxpayers, including paid filing for taxpayers who do not qualify for free filing.

For most vendors, however, participation is a combination of public service and precluding the government from encroaching on the industry by designing and maintaining its own software and free filing Web site.

"For us, what’s more important than selling products is the exposure to the benefits of online filing to this very group of taxpayers, which we call 'manual pen and paper do-it-yourselfers,’" said Tom Linafelt, spokesman for Kansas City, Mo.-based H&R Block. "Those are people who are not clients of ours and that’s the group we feel we would like to get in front of and build a relationship. No doubt we’ll be able to sell some other online services to this free group, but it’s more important to build relationships to people who will enjoy the experience and become 'clients for life.’"

"We do offer the customer some other services, such as refund anticipation loans. The free customers receive exactly the same offers for additional services as paying customers," said Taluy. "But the primary reasons are (1) we want to be a good corporate citizen, and (2) to avert the government from using taxpayer dollars to build a business which would compete with the private sector."

"The Alliance is working because it allows private industry to do what it does best and the government to do what it does best," he added.

Intuit spokesman Scott Gulbransen agreed. "The fact that industry and the IRS could come together and work out a solution for taxpayers to be able to prepare and e-file their returns for free is a way for everyone to get a win."

"Intuit has been offering free online service for five years through its Tax Freedom Project," he noted, "and in some ways, that was the model for the consortium."

"This agreement keeps the IRS from developing its own online tax preparation program. And we think that would be a threat to the industry," added H&R Block’s Linafelt.

President George W. Bush proposed free online tax filing last February, as one of his E-Government initiatives. The Treasury Department, the Office of Management and Budget, and the IRS worked out the details with the aid of the Council for Electronic Revenue and Communications Advancement.

Each Free File Alliance member company set its own eligibility requirements, and these differ from company to company. Generally, eligibility is based on factors such as age, adjusted gross income, state residency, military status or eligibility to file a Form 1040EZ or for the Earned Income Tax Credit.

The agreement requires the alliance, as a whole, to provide free services for at least 60 percent or 78 million of the nation’s taxpayers during each filing season. The alliance sees the primary candidates for Free File as those taxpayers who prepare their own taxes and still file paper returns.

Taxpayers access the Free File site either through the IRS Web site ( or They choose a vendor from the complete listing or they can use the Free File wizard, which will identify the free services for which they may qualify. After they determine eligibility, they link directly to the alliance member’s free service by clicking on the member’s Start Now link. Once they do so, taxpayers are notified that they are leaving the IRS’s site and entering an alliance member’s site.

Initial customer satisfaction is high, according to Taluy. "One of our first free filers e-mailed us after his return was accepted and said he felt guilty about not paying. He asked for our address so he could send us a check."

At the official launch, government officials stressed the security and privacy of taxpayer information. "We raised the bar in terms of privacy and security protection for taxpayers who use these products. Taxpayers should have a high degree of confidence," said Terry Lutes, director of the IRS Electronic Filing Administration. "At this point, 250 million returns have been e-filed since 1986, and by the end of this season 300 million returns will have been filed safely and securely."

Officials emphasized that the process in no way encourages taxpayers to use refund anticipation loans, and that by using e-file with direct deposit, the taxpayer can receive a refund in 10 days or less.

"We do offer RALs as a service, but it’s not a big part of our business that we advertise or tout," said Gulbransen. "It’s just something we want to offer our customers who ask for it."

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